Question

A, B, C and D are parnters sharing profits in the ratio of 1 : 4 : 3 : 2. D retired and the goodwill is valued at Rs 2,00,000. D's share of goodwill is to be adjusted into the capital accounts of A, B and C who decide to share future profits in the ratio of 4 : 3 : 3. Pass necessary journal entry.

Answer 1

JOURNAL

$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F.}& \text{Dr.(Rs)}& \text{Cr. (Rs)}\\ & \text{A's Capital A/c}(\frac{3}{10}of2,00,000)& \text{Dr.}& & 60,000& \\ & \text{To B's Capital A/c}(\frac{1}{10}of2,00,000)& & & & 20,000\\ & \text{To D's Capital A/c}(\frac{2}{10}of2,00,000)& & & & 40,000\\ & \text{(A gains}\frac{3}{10}th\text{share of profit whereas B loses}\frac{1}{10}th\text{share}& & & & \\ & \text{of profit and D losses}\frac{2}{10}th\text{share of profit. A compensates}& & & & \\ & \text{B and D for the loss in share of profits)}& & & & \end{array}$

Working Notes :

(i) D's share of goodwill $=2,00,000\times \frac{2}{10}=Rs40,000.$

(ii) Calculation of Gaining Ratio :

$\begin{array}{ccccc}& \text{A}& \text{B}& \text{C}& \text{D}\\ \text{New Ratio}& \frac{4}{10}& \frac{3}{10}& \frac{3}{10}& -\\ \text{Old Ratio}& \frac{1}{10}& \frac{4}{10}& \frac{3}{10}& \frac{2}{10}\\ \text{New Ratio - Old Ratio =}& \frac{3}{10}\text{(Gain)}& \frac{1}{10}\text{(Sacrifice)}& 0& \frac{2}{10}\text{(Sacrifice)}\end{array}$

Only A has gained $\frac{3}{10}.$ Hence A will be debited and B and D will be credited.