Question

$A,B$ and $C$ were partners in a firm sharing profits in the ratio of $6:5:4$. Their capital were $A-Rs.1,00,000$; $B-Rs.80,000$ and $C-Rs.60,000$ 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 $A^{\prime }s$ retirement, the goodwill of the firm was valued at $Rs.1,80,000$. Showing your calculations clearly, pass the necessary Journal entry for the treatment of goodwill on $A^{\prime }s$ retirement.

Answer 1

Date	Particulars	L.F.	Amt. (Dr.)	Amt. (Cr.)
	C’s Capital A/c Dr.		96000
	To B’s Capital A/c			24,000
	To A’s Capital A/c			72,000
	(Being amount of goodwill adjusted)

Working Note:

Old ratio among A, B and C = 6:5:4

New ratio between B and C = 1:4

Gaining ratio = New Ratio – Old Ratio

B = 1/5 – 5/15 = 3/15 – 5/15 = -2/15 (sacrifice)

C = 4/5 – 4/15 = 12/15 – 4/15 = 8/15 (gain)

Here, only C is the gaining partner so, he will compensate both A and B.

A’ share in goodwill = 180,000 X 6/15 = Rs. 72,000

B’s share in goodwill = 180,000 X 2/15 = Rs. 24,000

C’s share in goodwill = 180,000 X 8/15 = Rs. 96,000