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.

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  $\begin{array}{l}\mathrm{P}=\frac{4}{10}-\frac{5}{10}=-\frac{1}{10}\left(\mathrm{sacrifice}\right)\\ \mathrm{Q}=\frac{3}{10}-\frac{3}{10}=0\\ \mathrm{R}=\frac{3}{10}-\frac{1}{10}=\frac{2}{10}\end{array}$ AccountancyTS Grewal Vol. I (2018)Standard XII

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