Question

A, B and C are partners sharing profits and losses in the ratio of 2 : 2 : 1. C decided to retire and on this date goodwill of the firm is valued at ₹ 2,00,000. Pass entries when goodwill account is already appearing in the books at ₹ 1,50,000.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	A's Capital A/c   ...Dr.		60,000
	B's Capital A/c   ...Dr.		60,000
	C's Capital A/c   ...Dr.		30,000
	To Goodwill A/c			1,50,000
	(Being existing goodwill written off in the old profit-sharing ratio of 2 : 2 : 1)
2.	A's Capital A/c   ...Dr.		20,000
	B's Capital A/c   ...Dr.		20,000
	To C's Capital A/c			40,000
	(Being C's share of valued goodwill adjusted in the gaining ratio of 1 : 1)

Working note:

1. Write Off Existing Goodwill

Old Ratio = 2 : 2 : 1

A's Share: `1,50,000 xx 2/5 = 60,000`

B's Share: `1,50,000 xx 2/5 = 60,000`

C's Share: `1,50,000 xx 1/5 = 30,000`

2. Calculate New and Gaining Ratios

New Ratio between A and B: 2 : 2 = 1 : 1

Gaining Ratio between A and B: 2 : 2 = 1 : 1

3. Adjust Valued Goodwill

The retiring partner C must be compensated for his share of the currently valued goodwill (₹ 2,00,000) by the continuing gaining partners:

C's Share of Goodwill: `2,00,000 xx 1/5 = 40,000`

Contribution by A: `40,000 xx 1/2 = 20,000`

Contribution by B: `40,000 xx 1/2 = 20,000`