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Hidden Goodwill means the value of goodwill that is not specified at the time of admission of a partner. If the new partner requires to bring the share of goodwill, then, in this case, we have to calculate the value of the firm’s goodwill.
Sometimes the value of goodwill is not given at the time of admission of a new partner. in that case the goodwill is calculated with the help of total capital/net worth of the firm and profit sharing ratio.
When the value of goodwill is not given in the question, it has to be calculated on the basis of total capital/net worth of the firm and profit sharing ratio.
X and Y are partners with capitals of ₹ 10,000 each. They admit Z as a partner for 1/4th share in the profits of the firm. Z brings ₹ 16,000 as his share of capital.
The Profit and Loss account showed a credit balance of ₹ 8,000 as on the date of admission of Z. Give the necessary journal entry to record goodwill.
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Working Note :-
Therefore, Hidden Goodwill =
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