Question

$A,B$ and $C$ are partners sharing profits in the ratio of $\frac{4}{9}:\frac{3}{9}:\frac{2}{9}$. $B$ retired and his capital after making adjustment for reserves and gain (profit) on revaluation stands at $Rs.1,39,200$. $A$ and $C$ agreed to pay him $Rs.1,50,000$ in full settlement of his claim. Record necessary Journal entry for adjustment of goodwill if the new profit-sharing ratio is decided at $5:3$.

Answer 1

A's Capital A/c Dr. 5850

C's Capital A/c Dr. 4950

To B's Capital A/c 10800

(Being adjustment of B's share of goodwill made)

Working note:

(i) Calculation of B’s share of goodwill

A, B and C are sharing profit in ratio 4/9: 3/9: 2/9

B retires from the firm. Remaining partners agreed to pay him Rs. 1,50,000

B’s capital after making necessary adjustment Rs. 1,39,200

Therefore, hidden goodwill is Rs. 1,50,000 – Rs. 1,39,200 = Rs. 10,800

(ii) Gaining ratio

New profit sharing ratio between A and B is 5: 3

A’s gain = 5/8 – 4/9 = 13/72

C’s gain = 3/8 – 2/9 = 11/72

Gaining ratio = 13:11

Thus, B’s share of goodwill will be brought in by A and C in the gaining ratio 13:11 i.e.,

A is debited with 10,800 X 13/27 = Rs. 5,850

C is debited with 10,800 X 11/24 = Rs. 4,950