Question

A,B and C are three partners in a partnership firm sharing profit and loss equally. C retires from the firm on 31st March.His share of profit is purchased by A and B in the ratio of 2:1.If at the time of retirement, value of the goodwill of the firm is valued at Rs.54,000, and the partners decides to pay goodwill to the retiring partner, what will be accounting treatment?

• A. A A/c Dr by Rs.18,000, B A/c Dr by Rs.24,000,C's A/c credit by Rs.34,000
• B. A A/c Dr by Rs.30,000, B A/c Dr by Rs.24,000,C's A/c credit by Rs.54,000
• C. A A/c Dr by Rs.9,000, B A/c Dr by Rs.9,000,C's A/c credit by Rs.18,000
• D. None of the above.

Answer 1

The correct option is D None of the above.

Gaining ratio = New ratio-Old ratio

A =2/3 -1/3=1/3

B =1/3-1/3 =0

A partner is gaining partner

Goodwill of firm =54000

C's share of goodwill=54000*1/3=18000
This share will be paid by A to C.
Journal Entry will be,
A's capital A/c Dr. 18000
To C's capital a/c 18000