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 Rs. $18000.$ Pass necessary Journal entries when
(a) Goodwill Account is not opened
(b) Goodwill Account is opened.

Answer 1

Gaining ratio or sacrificing ration will be calculated as:

Gaining/Sacrificing Ratio = New Ratio - Old Ratio

Therefore:

For A = 1/3 - 3/6

= 2 - 3

6

= 1/6 Gaining Ratio

For B = 1/3 - 2/6

= 2 - 2

6

= No Change

For C = 1/3 - 1/6

= 2 - 1

6

= 1/6 Sacrificing Ratio

If no Goodwill account is not opened than an adjustment entry will be passed as under: Rs.18000 * 1/6 = Rs.3000

C's Capital Account Dr. 3000

To A's Capital Account 3000

If Goodwill Account is opened, first goodwill account is created by crediting partners capital account in their old profit sharing ratios:

Goodwill Account Dr. 18000

To A's Capital Account 9000

To B's Capital Account 6000

To C's Capital Account 3000

Than, Goodwill will be written off in the new profit sharing ratio:

A's Capital Account Dr.6000

B's Capital Account Dr. 6000

C's Capital Account Dr. 6000

To Goodwill Account 18000