Question

A, B and C were partners in a firm sharing profits in the ratio of 6 : 5 : 4. Their capitals were A − ₹ 1,00,000; B − ₹ 80,000 and C − ₹ 60,000 respectively. On 1st April, 2009, A retired from the firm and the new profit sharing ratio between B and C was decided as 1 : 4. On A's retirement, the goodwill of the firm was valued at ₹ 1,80,000. Showing your calculations clearly, pass the necessary Journal entry for the treatment of goodwill on A's retirement.

Answer 1

Journal

Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
	C’s Capital A/c	Dr.		96,000
	To A’s Capital A/c				72,000
	To B’s Capital A/c				24,000
	(Adjustment of A’s and B’s share of goodwill)

Working Notes:

WN1: Calculation of Gaining Ratio 

`"A : B : C" = 6 : 5 : 4` (Old Ratio)

`"B : C" =1 : 4` (New Ratio)

`"Gaining Ratio = New Ratio - Old Ratio"`

B's Gain = `1/5 - 5/15 = (3-5)/15 = ("Sacrifice")`

C's Gain = `4/5 - 4/15 = (12-4)/15 = 815`

WN2: Calculation of Retiring Partner’s Share of Goodwill

A's share of goodwill = `1,80,000 xx 6/15 = "Rs" 72,000`

B's share of goodwill = `1,80,000 xx 2/15 = "Rs" 24000`

A's and B's share of goodwill be brought by C only.

Therefore, C's Capital A/c will be debited with `72,000 + 24,000 = "Rs" 96,000`