X and Y share profits and losses equally. Their fixed capital was ` 2,40,000and ` 1,60,000 respectively. There was also a balance of ` 65,000 in GeneralReserve and revaluation gain amounted to ` 85,000. They admit Z for 1/5thshare who brought ` 1,80,000 as capital.9. Calculate the amount of Goodwill of the firm.
Question
X and Y share profits and losses equally. Their fixed capital was 2,40,000and 1,60,000 respectively. There was also a balance of 65,000 in GeneralReserve and revaluation gain amounted to 85,000. They admit Z for 1/5thshare who brought ` 1,80,000 as capital.9. Calculate the amount of Goodwill of the firm.
Solution
To calculate the amount of Goodwill of the firm, we first need to calculate the total capital of the firm after Z's admission.
Step 1: Calculate the total capital of X and Y before Z's admission.
X's capital = 2,40,000 Y's capital = 1,60,000
Total capital of X and Y = 2,40,000 + 1,60,000 = ` 4,00,000
Step 2: Add the balance of General Reserve and revaluation gain to the total capital.
General Reserve = 65,000 Revaluation gain = 85,000
Total capital after adding General Reserve and revaluation gain = 4,00,000 + 65,000 + 85,000 = 5,50,000
Step 3: Calculate the total capital of the firm after Z's admission.
Z's capital = 1,80,000 Total capital of the firm after Z's admission = 5,50,000 + 1,80,000 = 7,30,000
Step 4: Calculate Z's share of the total capital.
Z's share = 1/5 * 7,30,000 = 1,46,000
Step 5: Calculate the amount of Goodwill of the firm.
Goodwill = Z's capital - Z's share of the total capital
Goodwill = 1,80,000 - 1,46,000 = ` 34,000
So, the amount of Goodwill of the firm is ` 34,000.
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