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.

Answer 1

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

$\begin{array}{l}\mathrm{P}=\frac{4}{10}-\frac{5}{10}=-\frac{1}{10}\left(\mathrm{sacrifice}\right)\\ \mathrm{Q}=\frac{3}{10}-\frac{3}{10}=0\\ \mathrm{R}=\frac{3}{10}-\frac{1}{10}=\frac{2}{10}\end{array}$

$\begin{array}{l}\mathrm{P}\text{'}s\mathrm{share}=4,20,000\times \frac{1}{10}=42,000\\ \mathrm{R}\text{'}s\mathrm{share}=4,20,000\times \frac{2}{10}=84,000\\ \mathrm{S}\text{'}s\mathrm{share}=4,20,000\times \frac{1}{10}=42,000\end{array}$