Question

A, B and C are partners with profit sharing ratio 4 :3 : 2. B retires and Goodwill was valued Rs. 10,800. If A & C share profits in 5 :3, find out the goodwill shared by A and C favour of B.

• A. Rs. 1,850 and Rs. 1,950
• B. Rs. 1,650 and Rs. 1,750
• C. Rs. 2,000 and Rs. 1,600
• D. Rs. 1,950 and Rs. 1,650

Answer 1

Answer: (D)

Rs. 1,950 and Rs. 1,650

1. Calculation of gaining ratio

Old ratio (A, B and C) = 4 : 3 : 2

B retires from the firm

New artio (A and C ) = 5 : 3

Gaining ratio = New ratio - Old ratio

A's new share = (5/8) - (4/9) = (45 - 32) /72 = 13/72

C's new share = (3/8) - (2/9) = (27 - 16) / 36 = 11/72

gaining ratio = 13 : 11

2. Adjustment of goodwill

C's share of goodwill = (10800 * 3) / 9 = 3600

This share of goodwill is to be debited to remaining partners' capital account in their gaining ratio (i.e., 13 : 11 )

Journal entry for the above will be:

A's capital A/c Dr. 1950

C's capital A/c Dr. 1650

To B's capital A/c 3600