Question

A, B and C shared profits and losses in the ratio of 3 : 2 : 1 respectively. With effect from 1st April, 2019, they agreed to share profits equally. The goodwill of the firm was valued at ₹ 18,000. Pass necessary Journal entries when: (a) Goodwill is adjusted through Partners' Capital Accounts; and (b) Goodwill is raised and written off.

Answer 1

Calculation of Gain/Sacrifice made by the partners:

Particulars	A	B	C
Old Ratio	3/6	2/6	1/6
New Ratio	1/3	1/3	1/3
Gain/Sacrifice	1/6 (Sacrifice)	Nil	-1/6 (Gain)

 

Case a)

Journal

Date	Particular		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	C’s Capital A/c (18,000×1/6)	Dr.		3,000
	To A’s Capital A/c (18,000×1/6)				3,000
	(Being Adjustment for goodwill)

Case b)

Journal

Date	Particular		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	Goodwill A/c	Dr.		18,000
	To A’s Capital A/c (18,000×3/6)				9,000
	To B’s Capital A/c (18,000×2/6)				6,000
	To C’s Capital A/c (18,000×1/6)				3,000
	(Being goodwill raised in the books)
	A’s Capital A/c (18,000×1/3)	Dr.		6,000
	B’s Capital A/c (18,000×1/3)	Dr.		6,000
	C’s Capital A/c (18,000×1/3)	Dr.		6,000
	To Goodwill A/c				18,000
	(Being goodwill so raised written off)