Question

A, B, C and D are partners in a firm sharing profits, in the ratio of 2 : 1 : 2 : 1. On the retirement of C, Goodwill was valued ₹ 1,80,000. A, B and D decide to share future profits equally. Pass the necessary Journal entry for the treatment of goodwill.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
	B’s Capital A/c	Dr		30,000
	D’s Capital A/c	Dr.		30,000
	To C’s Capital A/c				60,000
	(Adjustment of C’s share of goodwill)

Working Notes:

WN1:Calculation of Gaining Ratio

$\begin{array}{l}\text{A :B :C :D}=2\text{:1:2:1}\left(\text{Old ratio}\right)\\ \text{A :B :D =1:1:1(New ratio)}\\ \text{Gaining Ratio = New Ratio - Old Ratio}\\ \text{A's Gain =}\frac{1}{3}-\frac{2}{6}=\frac{2-2}{6}=0\\ \text{B's Gain =}\frac{1}{3}-\frac{1}{6}=\frac{2-1}{6}=\frac{1}{6}\\ \text{D's Gain =}\frac{1}{3}-\frac{1}{6}=\frac{2-1}{6}=\frac{1}{6}\\ \text{A:B:D}=0:1:1\end{array}$

WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l}\text{C's share of goodwill=1,80,000}\times \frac{2}{6}=\text{Rs 60,000}\\ \text{C's share of goodwill will be brought by B and D in their gaining ratio1:1}\\ \text{Therefore, B's Capital A/c will be debited with 60,000}\times \frac{1}{2}=\text{Rs 30,000}\\ \text{And, D's Capital A/c will be debited with 60,000}\times \frac{1}{2}=\text{Rs 30,000}\end{array}$