Question

A, B and C are partners sharing profits in the ratio of 1 : 2 : 3. C retires and his capital, after making adjustments for reserves and profit on revaluation stands at Rs 1,20,000. A and B agreed to pay him Rs 1,50,000 in full settlement of his claim. Record necessary journal entry for the treatment of goodwill if the new profit sharing ratio is decided at 1 : 3.

Answer 1

Rs

Amount agreed to be paid in full settlement 1,50,000

Less : C's Capital (after all adjustments) 1,20,000
__________
Hidden Goodwill 30,000
__________

JOURNAL

$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr. (Rs)}& \text{Cr. (Rs)}\\ & \text{A's Capital A/c}& \text{Dr.}& & 5,000& \\ & \text{B's Capital A/c}& \text{Dr.}& & 25,000& \\ & \text{To C's Capital A/c}& & & & 30,000\\ & \text{(C's share of goodwill adjusted to the capital accounts}& & & & \\ & \text{of A and B in their gaining ratio 1 : 5)}& & & & \end{array}$

Calculation of Gaining Ratio :

A Gains $=\frac{1}{4}-\frac{1}{6}=\frac{3-2}{12}=\frac{1}{12}$

B Gains $=\frac{3}{4}-\frac{2}{6}=\frac{9-4}{12}=\frac{5}{12}$