Question

A, B and C were partners in a firm sharing profits in the ratio of 6 : 5 : 4. Their capitals were A − ₹ 1,00,000; B − ₹ 80,000 and C − ₹ 60,000 respectively. On 1st April, 2009, A retired from the firm and the new profit sharing ratio between B and C was decided as 1 : 4. On A's retirement, the goodwill of the firm was valued at ₹ 1,80,000. Showing your calculations clearly, pass the necessary Journal entry for the treatment of goodwill on A's retirement.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
	C’s Capital A/c	Dr.		96,000
	To A’s Capital A/c				72,000
	To B’s Capital A/c				24,000
	(Adjustment of A’s and B’s share of goodwill)

Working Notes:

WN1: Calculation of Gaining Ratio

$\begin{array}{l}\text{A :B :C}=6\text{:5:4}\left(\text{Old ratio}\right)\\ \text{B :C=1:4 (New ratio)}\\ \text{Gaining Ratio = New Ratio - Old Ratio}\\ \text{B's Gain =}\frac{1}{5}-\frac{5}{15}=\frac{3-5}{15}=-\frac{2}{15}\left(Sacrifice\right)\\ \text{C's Gain =}\frac{4}{5}-\frac{4}{15}=\frac{12-4}{15}=\frac{8}{15}\end{array}$

WN2: Calculation of Retiring Partner’s Share of Goodwill

$\begin{array}{l}\text{A's share of goodwill=1,80,000}\times \frac{6}{15}=\text{Rs 72,000}\\ \text{B's share of goodwill=1,80,000}\times \frac{2}{15}=\text{Rs 24,000}\\ \text{A's and B's share of goodwill be brought by C only.}\\ \text{Therefore, C's Capital A/c will be debited with 72,000+24,000 = Rs 96,000}\end{array}$