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Question

A, B, C and D are partners sharing profits in the ratio of 3:3:2:2 respectively. D retires and A, B and C decide to share the future profit in the ratio of 3:2:1 Goodwill of the firm is valued at Rs 60,000. Goodwill already appears in the books at Rs 4,50,000. The profits for the first year after D's retirement amount to Rs 12,00,000. Give the necessary journal entries to record goodwill and to distribute the profile. Show the calculations clearly.

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Solution

JOURNAL

DateParticularsL.FDebitCredit(Rs)(Rs)A's Capital A/c Dr.1,35,000B's Capital A/c Dr.1,35,000C's Capital A/c. Dr. 90,000D's Capital A/c Dr. 90,000 To Goodwill A/c4,50,000(Existing goodwill written off)–––––––––––––––––––––––––––––––––A's Capital A/c Dr.1,20,000B's Capital A/c Dr. 20,000 To C's Capital A.c 20,000 To D's Capital A.c1,20,000(The amount of goodwill adjusted)––––––––––––––––––––––––––––––––––––––Profit and Loss A/c Dr12,00,000 To A's Capital A/c6,00,000 To B's Capital A/c4,00,000 To C's Capital A/c2,00,000(The profit distributed among partner)

Working Notes :

Calculation of Gaining Ratio -

Gaining Ratio = New Ratio - Old Ratio

A=36−310=30−1860=1260 (Gain)

B=26−310=20−1860=260 (Gain)

C=16−210=10−1260=−260 (Sacrifice)

A's share in goodwill (pay) =6,00,000×1260=Rs 1,20,000

B's share in goodwill (pay) =6,00,000×260=Rs 20,000

C's share in goodwill (Received) =6,00,000×260=Rs 20,000

D's share in goodwill (Received) =6,00,000×1260=Rs 1,20,000

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