Question

Balance of A,B & C sharing profits & losses in proportionate to their capitals, stood as:
A = 2,00,000
B = 3,00,000
C = 2,00,000
A desired to retire from the firm, B and C share the future profits equally, Goodwill of the entire firm be valued at 1,40,000 and no Goodwill account being raised.

• A. Credit Partner's Capital A/c with old profit sharing ratio for 1,40,000.
• B. Credit Partner's Capital A/c with new profit sharing ratio for 1,40,000.
• C. Credit A's Capital A/c with 40,000 and debit B's Capital A/c with 10,000 & C's Capital A/c with 30,000.
• D. Credit Partner's Capital A/c with gaining ratio for 1,40,000.

Answer 1

The correct option is C Credit A's Capital A/c with 40,000 and debit B's Capital A/c with 10,000 & C's Capital A/c with 30,000.

Profit sharing ratio of A,B and C is in proprtionate to their capital i.e., 200000 : 300000 : 200000 or 2 : 3 : 2, Herein, after called as old ratio. After retirement of A, profit sharing ratio of B and C is 1 : 1, Herein, after called as new ratio.

calculation of gaining and sacrificing ratio of partners:

Partner	Old share	New share	Gain	Sacrifice
A	2/7	-	-	2/7
B	3/7	½	1/14	-
C	2/7	1/2	3/14	-

Therefore, A's share of goodwill is :

Rs. 140000 * (2/7) = Rs. 40000

Adjusting entry would be :

B's capital A/c Dr. 10000

C's capital A/c Dr. 30000

To A's capital A/c 40000

(The amount of share of goodwill adjusted on A's retirement)