Question

Archana, Babita and Chitra are partners sharing profits and losses in the ratio of 3 : 2 : 1. Chitra decides to retire on 30th June, 2023. On this date, the goodwill of the firm is valued at ₹ 36,000. Given below is the extract of Chitra’s Capital Account:                                               

Dr.	Chitra’s Capital Account (Extract)				Cr.
Date	Particulars	Amount ₹	Date	Particulars	Amount ₹
			1.04.23	By Balance b/d	2,00,000
			30.6.23	By General Reserve A/c	2,500
			30.6.23	By Revaluation A/c	2,00,000
			30.6.23	By Archana's Capital     A/c (share of profits)	1,000
			30.6.23	By Babita's Capital A/c (share of profits)	2,000

You are required to give the Journal entry for the treatment of goodwill on Chitra’s retirement.

Answer 1

In the given question, Chitra’s share of profit is adjusted between Archana and Babita in their gaining ratio, i.e., 1,000 : 2,000 or 1 : 2.

Hence, Chitra’s share of Goodwill \[\frac{1}{6}\]th of ₹ 36,000 = ₹ 6,000 will be contributed by Archana and Babita in their gaining ratio 1 : 2.

JOURNAL
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2023 June 30	Archana's Capital A/c ($\frac{1}{3}$ of ₹6,000) Dr.		2,000
	Babita's Capital A/c ($\frac{2}{3}$ of ₹6,000) Dr.		4,000
	To Chitra's Capital A/c ($\frac{1}{6}$ of ₹36,000)			6,000
	(Adjustment for Chitra’s share of goodwill)