Goodwill Valuation

Hidden Goodwill refers to the goodwill that is not explicitly mentioned or agreed upon but is derived indirectly from the valuation of the firm. It is calculated by comparing the total value of the firm (based on the capital brought in by the new partner) with the net tangible assets of the firm. Adjustment on Admission of a Partner:
1. The hidden goodwill is calculated using the formula: 2. The goodwill is then credited to the existing partners' capital accounts in their old profit-sharing ratio. 3. If the new partner pays their share of goodwill in cash, it is recorded as a premium for goodwill and distributed among the existing partners. This ensures fair compensation to the existing partners for the firm's goodwill value before admitting the new partner.

Step 1: Calculate the average net profit.
Average net profit =
Step 2: Calculate goodwill.
Goodwill at two years' purchase =
Step 3: Conclusion.
Thus, the correct answer is (A) Rs. 27,000. Final Answer:

Step 1: Definition of Superprofit.
Superprofit is the excess of actual profit earned by the business over the normal profit. The normal profit is the minimum return that is expected from the business, which is usually the average return earned by similar businesses in the industry.
Step 2: Calculation of Goodwill.
Goodwill is calculated based on superprofit by the following method: 1. **Calculate the average profit:** The average profit is calculated by taking the profits of the last few years and finding the mean.
2. **Determine the normal profit:** Normal profit is calculated by applying an industry rate of return on the capital employed.
3. **Calculate the superprofit:** Superprofit is the difference between the actual average profit and the normal profit.
4. **Calculate Goodwill:**
Step 3: Conclusion.
Thus, goodwill is calculated by multiplying the superprofit with the number of years' purchase, which is agreed upon by the partners. Final Answer: