Question

L, M and O are partners sharing profits and losses in the ratio of 4 : 3 : 2. M retires and the goodwill is valued at ₹ 72,000. Calculate M's share of goodwill and pass the Journal entry for Goodwill. L and O decided to share the future profits and losses in the ratio of 5 : 3.

Answer 1

Journal
Particulars		L.F.	Date Amount Rs	Credit amount Rs
L’s Capital A/c	Dr.		13,000
O’s Capital A/c	Dr.		11,000
To M’s Capital A/c				24,000
(Adjustment M’s share of goodwill made)

Working Note:

WN 1 Calculation of Gaining Ratio

Old Ratio (L, M and O) = 4 : 3 : 2

M retires from the firm.

New Ratio (L and O) = 5 : 3

Gaining RatioNew Ratio − Old Ratio



∴ Gaining Ratio = 13 : 11

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 72,000



This share of goodwill is to be debited to remaining Partners’ Capital Accounts in their gaining ratio (i.e. 13 : 11).