Question

A, B and C shared profits and losses in the ratio of 3 : 2 : 1 respectively. With effect from 1st April, 2018, they agreed to share profits equally. The goodwill of the firm was valued at ₹18,000. Pass necessary Journal entries when: (a) Goodwill Account is not opened; and (b) Goodwill Account is opened.

Answer 1

​Cas (i) When Goodwill Account is not opened

Journal
Date ​2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
April 1	C’s Capital A/c	Dr.		3,000
	To A’s Capital A/c				3,000
	(Adjustment of goodwill made on change in profit sharing ratio)

Working Notes:

Old Ratio (A, B and C) = 3 : 2 : 1

New Ratio (A, B and C) = 1 : 1 : 1

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

Goodwill of the firm = Rs 18,000

A will receive for goodwill =

C will give for goodwill =


​Cas (ii) When Goodwill Account is opened

Journal
Date 2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Goodwill A/c	Dr.		18,000
April 1	To A’s Capital A/c To B’s Capital A/c To C’s Capital A/c				9,000 6,000 3,000
April 1	(Being goodwill account opened) A's Capital A/c Dr. B's Capital A/c Dr. C's Capital A/c Dr. To Goodwill A/c (Being goodwill written off in 3:2:1)			9,000 6,000 3,000	18,000