A new partner contributes Rs. 100,000 for a one-fourth interest in a firm. If this contribution represents his proportionate share of the firm's total capital, and the firm's net tangible assets are Rs. 300,000, what is the implied goodwill?
Correct answer: C. Rs. 100,000
- A. Rs. 25,000
- B. Rs. 75,000
- C. Rs. 100,000
- D. Rs. 400,000
Explanation
The new partner's Rs. 100,000 represents one-fourth of total capital, so the implied total capital is Rs. 400,000. Goodwill is the excess of implied total capital over net tangible assets, or Rs. 100,000.
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About Partnership Accounts
Partnership accounts cover the partnership agreement, capital and current accounts, profit and loss appropriation, salaries, interest on capital, interest on drawings and profit-sharing ratios. They also address changes in partnership, including admission, retirement, goodwill, revaluation, dissolution and the settlement of partners’ balances.
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