Question

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

Answer 1

Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
Asha’s Capital A/c Dr.		40,000
Naven’s Capital A/c Dr.		24,000
Shalini’s Capital A/c DR.		16,000
To Goodwill A/c			80,000
(Being existing goodwill written off among existing partners in old ratio)
General Reserve 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
(Being general reserve 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
(Being goodwill adjusted by debiting partners and crediting sacrificing and retiring partner)

Calculation of gaining ratio:

Gain of partner = New share – Old ratio

Asha’s gain (sacrifice) = 2/5 – 5/10 = 4 – 5/10 = -1/10

Shalini’s gain (sacrifice) = 3/5 – 2/10 = 6 -2/10 = 4/10

Therefore, both Asha and Naveen would be compensated by Shalini in the ratio of 1: 3

Asha’s sacrifice for 1/10^th share = 1,20,000 X 1/10 = 12,000

Naveen’s sacrifice for 3/10^th share = 1,20,000 X 3/10 = 36,000