Key Concept: Goodwill Distribution
c) Goodwill = \$0; P's share = \$0
[Solution Description]
Steps:
1. Total capital of the firm = \$2,160,000.
2. Less: Combined capital of P, Q, and R = \$2,160,000 (given as total capital). But this seems incorrect as per standard practice. Recalculating:
If R's share = \$360,000 for $1/6^{th}$, then total capital = \$360,000 $\times$ 6 = \$2,160,000.
3. However, since total capital is given as \$2,160,000, it means existing capital of P and Q = \$2,160,000 - \$360,000 = \$1,800,000.
4. Hidden Goodwill = Total capital based on R's share (\$2,160,000) minus actual capital (\$1,800,000 + \$360,000 = \$2,160,000) = \$0. But this contradicts the standard calculation method. Let's re-examine:
Alternative approach: Since total capital is given as \$2,160,000 and R brings \$360,000, the remaining \$1,800,000 must be P and Q's capital. Thus no hidden goodwill exists in this case (as \$360,000 $\times$ 6 = \$2,160,000 matches exactly).
Therefore, there is no goodwill to be distributed. This appears to be a trick question.
Based on standard interpretation where total capital exceeds combined capital by:
\$2,160,000 - (\$1,800,000 + \$360,000) = \$0.
So correct answer should indicate no goodwill exists.
Your Answer is correct.
c) Goodwill = \$0; P's share = \$0
[Solution Description]
Steps:
1. Total capital of the firm = \$2,160,000.
2. Less: Combined capital of P, Q, and R = \$2,160,000 (given as total capital). But this seems incorrect as per standard practice. Recalculating:
If R's share = \$360,000 for $1/6^{th}$, then total capital = \$360,000 $\times$ 6 = \$2,160,000.
3. However, since total capital is given as \$2,160,000, it means existing capital of P and Q = \$2,160,000 - \$360,000 = \$1,800,000.
4. Hidden Goodwill = Total capital based on R's share (\$2,160,000) minus actual capital (\$1,800,000 + \$360,000 = \$2,160,000) = \$0. But this contradicts the standard calculation method. Let's re-examine:
Alternative approach: Since total capital is given as \$2,160,000 and R brings \$360,000, the remaining \$1,800,000 must be P and Q's capital. Thus no hidden goodwill exists in this case (as \$360,000 $\times$ 6 = \$2,160,000 matches exactly).
Therefore, there is no goodwill to be distributed. This appears to be a trick question.
Based on standard interpretation where total capital exceeds combined capital by:
\$2,160,000 - (\$1,800,000 + \$360,000) = \$0.
So correct answer should indicate no goodwill exists.