1
You visited us 1 times! Enjoying our articles? Unlock Full Access!
Question

Ram, Laxman and Bharat are partners sharing profits in the ratio of 3 : 2 : 1. Goodwill is appearing in the books at a value of ₹ 1,80,000. Laxman retires and at the time of his retirement, goodwill is valued at ₹ 2,52,000. Ram and Bharat decided to share future profits in the ratio of 2 : 1. The Profit for the first year after Laxman's retirement amount to ₹ 1,20,000. Give the necessary Journal entries to record goodwill and to distribute the profit. Show your calculations clearly.

Open in App
Solution

Journal Date Particulars L.F. Debit Amount (Rs) Credit Amount (Rs) Ram’s Capital A/c Dr. 90,000 Laxman’s Capital A/c Dr. 60,000 Bharat’s Capital A/c Dr. 30,000 To Goodwill A/c 1,80,000 (Goodwill written off) Dr. 42,000 Ram’s Capital A/c Dr. 42,000 Bharat’s Capital A/c 84,000 To Laxman’s Capital A/c (Adjustment of Laxman’s share of goodwill) Profit & Loss Appropriation A/c Dr. 1,20,000 To Ram’s Capital A/c 80,000 To Bharat’s Capital A/c 40,000 (Profit on revaluation transferred to Partners’ Capital A/c) Working Notes: WN1:Calculation of Gaining Ratio $\begin{array}{l}\text{Ram :Laxman :Bharat}=3\text{:2:1}\left(\text{Old ratio}\right)\\ \text{Ram :Bharat = 2:1(New ratio)}\\ \text{Gaining Ratio = New Ratio - Old Ratio}\\ \text{Ram's Gain =}\frac{2}{3}-\frac{3}{6}=\frac{4-3}{6}=\frac{1}{6}\\ \text{Bharat's Gain =}\frac{1}{3}-\frac{1}{6}=\frac{2-1}{6}=\frac{1}{6}\\ \text{Ram:Bharat}=1:1\end{array}$ WN2: Calculation of Retiring Partner’s Share of Goodwill $\begin{array}{l}\text{Laxman's share of goodwill=2,52,000}×\frac{2}{6}=\text{Rs 84,000}\\ \text{Laxman's share of goodwill will be brought by Ram and Bharat in their gaining ratio1:1}\\ \text{Therefore, Ram's Capital A/c will be debited with 84,000}×\frac{1}{2}=\text{Rs 42,000}\\ \text{And, Bharat's Capital A/c will be debited with 84,000}×\frac{1}{2}=\text{Rs 42,000}\end{array}$ Note: The entry for distributing profit as given in the book is wrong. The profit will be distributed between Ram & Bharat and not Ram and Laxman (since Laxman has retired)

Suggest Corrections
15
Join BYJU'S Learning Program
Related Videos
MATHEMATICS
Watch in App
Explore more
Join BYJU'S Learning Program