Calculate the Amount of Goodwill for the Firm
What is the amount of goodwill of the firm?
(a) ₹85,000
(b) ₹1,00,000
(c) ₹20,000
(d) None of these
Final answer:
The amount of goodwill of the firm is ₹68,750. Option D.
Explanation:
Goodwill is an intangible asset that represents the value of a business beyond its tangible assets. In this case, Heena and Sudha share profits and losses equally with capitals of ₹1,20,000 and ₹80,000 respectively. There is also a balance of ₹60,000 in General Reserve and revaluation gain of ₹15,000. When their friend Teena is admitted with a 1/5 share and brings ₹90,000 as capital, we need to calculate the amount of goodwill for the firm.
To determine the amount of goodwill, we first need to calculate the fair value of the business by considering the net assets and the new partner's contribution:
Heena's capital + Sudha's capital + General Reserve + Revaluation Gain = ₹1,20,000 + ₹80,000 + ₹60,000 + ₹15,000 = ₹2,75,000
Teena's share of the capital = 1/5 of the total capital
Fair value of the business = Total net assets / (1 - Teena's share)
Therefore, Fair value of the business = ₹2,75,000 / (1 - 1/5) = ₹3,43,750
Subtracting net assets from the fair value gives us the amount of goodwill:
Goodwill = Fair value of the business - Net assets = ₹3,43,750 - ₹2,75,000 = ₹68,750
Therefore, the amount of goodwill for the firm is ₹68,750. Option D is the correct answer.