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Question

P, Q, R and S were partners in a firm sharing profits in the ratio of 5 : 3 : 1 : 1. On 1st January, 2017, S retired from the firm. On S's retirement the goodwill of the firm was valued at ₹ 4,20,000. The new profit-sharing ratio between P, Q and R will be 4 : 3 : 3.
Showing your working notes clearly, pass necessary journal entry for the treatment of goodwill in the books of the firm on S's retirement.

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Solution

Journal

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

R’s Capital A/c

Dr.

84,000

To P’s Capital A/c

42,000

To S’s Capital A/c

42,000

(Goodwill adjusted)

Working Notes:

Gaining Ratio = New Ratio – Old Ratio

P=410510=110sacrificeQ=310310=0R=310110=210

P's share=4,20,000×110=42,000R's share=4,20,000×210=84,000S's share=4,20,000×110=42,000


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