Abhay and Beena are partners in a firm. They admit Chetan as a partner with 1/4th shares in the profits of the firm. Chetan brings Rs. 2,00,000 as his share of capital. The value of the total assets of the firm is Rs. 5,40,000 and outside liabilities are valued at Rs. 1,00,000 on that date. Give the necessary entry to record goodwill at the time of Chetan's admission. Also show your working notes.
Calculation of Value of hidden goodwill:
Capital brought by Chetan for 1/4th share = 200000
Capitalised value of share capital= 200000*4/1=800000
Combined Share capital of Abhay and Beena = Total assets – outsider’s liability
= 5,40,000-1,00,000= 4,40,000
Actual share capital = 4,40,000 + 200000 = 6,40,000
Hidden Good will= Capitalised value of share capital – actual share capital =
8,00,000- 6,40,000 = 1,40,000
Chetan’s share of goodwill = 1,40,000* 1 / 4 = Rs 40,000.