Question

Annu, Bandhu, Sheelu and Golu were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2 : 1. On 1^st April, 2025, they decided to share the future profits equally. For this purpose the goodwill of the firm was valued at ₹ 4,00,000. Calculate gain or sacrifice of the partners on change in profit sharing ratio and pass a single adjustment journal entry for the treatment of goodwill.

Answer 1

Given:

Old Profit-sharing Ratio of:

Annu = `4/10`

Bandhu = `3/10`

Sheelu = `2/10`

Golu = `1/10`

New ratio = Equal sharing = `1/4 : 1/4 : 1/4 : 1/4`

1. Calculate Sacrifice or Gain

Sacrifice = Old Share − New Share

Annu: `4/10 - 1/4 = (16 - 10)/40 = 6/40` (Sacrifice)

Bandhu: `3/10 - 1/4 = (12 - 10)/40 = 2/40` (Sacrifice)

Sheelu: `2/10 - 1/4 = (8 - 10)/40 = -2/10` (Gain)

Golu: `1/10 - 1/4 = (4 - 10)/40 = -6/40` (Gain)

2. Calculation of the Value of the Share of Goodwill

Partner’s Share = total Goodwill (4,00,000) × Gain or Sacrifice Share

Annu (Sacrifice): `4,00,000 xx 6/40 = 60,000` (To be credited)

Bandhu (Sacrifice): `4,00,000 xx 2/40 = 20,000` (To be credited)

Sheelu (Gain): `4,00,000 xx 2/40 = 20,000` (To be debited)

Golu (Gain): `4,00,000 xx 6/40 = 60,000` (To be debited)

Journal Entries for Goodwill Adjustment
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2025
April 1	Golu’s Capital A/c   ...Dr.		60,000
	Sheelu’s Capital A/c   ...Dr.		20,000
	To Annu’s Capital A/c			60,000
	To Bandhu’s Capital A/c			20,000
	(Being an adjustment entry for goodwill passed on change in profit-sharing ratio)