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Question

Asha, Naveen and Shalini were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared in their books at a value of ₹ 80,000 and General Reserve at ₹ 40,000. Naveen decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at ₹ 1,20,000. The new profit-sharing ratio decided among Asha and Shalini is 2 : 3.
Record necessary Journal entries on Naveen's retirement.

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Solution

Journal
Date Particulars L.F. Debit
Amount
(Rs)
Credit
Amount
(Rs)
Asha’s Capital A/c Dr. 40,000
Naveen’s Capital A/c Dr. 24,000
Shalini’s Capital A/c Dr. 16,000
To Goodwill A/c 80,000
(Existing goodwill written off amongst existing partners in old ratio)
General Reserves A/c Dr. 40,000
To Asha’s Capital A/c 20,000
To Naveen’s Capital A/c 12,000
To Shalini’s Capital A/c 8,000
(General Reserves distributed among all partners in old ratio)
Shalini’s Capital A/c Dr. 48,000
To Asha’s Capital A/c 12,000
To Naveen’s Capital A/c 36,000
(Goodwill adjusted by debiting gaining partner and crediting sacrificing partner and retiring partner)


Calculation of Gaining Ratio:Gain of a Partner=New Share - Old ShareAsha's Gain (Sacrifice): 25-510=4-510=(-)110Shalini's Gain (Sacrifice): 35-210=6-210=410Therefore, Both Asha and Naveen would be compensated by Shalini in the ratio of 1:3Asha's Sacrifice for 110th Share=1,20,000×110=12,000Naveen's Sacrifice for 310th Share= 1,20,000×310=36,000

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