Question

Mahi, Mamta and Monika are partners in a firm, sharing profits in the ratio of 4 : 3 : 2. Monika retired and her capital after making adjustments for reserves and revaluation of assets and reassessment of liabilities was ₹ 95,000. Mahi and Mamta agreed to pay ₹ 1,09,000 in full settlement of her claim.

Pass necessary journal entries for treatment of goodwill without opening goodwill account and making payment to Monika on her retirement.

Answer 1

In the books of Mahi, Mamta and Monika Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Mahi's Capital A/c   ...Dr.		8,000
	Mamta's Capital A/c   ...Dr.		6,000
	To Monika's Capital A/c			14,000
	(Monika share of goodwill adjusted in the capital account of Mahi and Mama in the gaining ratio)
2.	Monika's Capital A/c   ...Dr.		1,09,000
	To Bank A/c			1,09,000
	(Payment made to Monika on her retirement)

Working Note -

1. The amount paid to Monika is ₹1,09,000, while her adjusted capital (excluding goodwill) is ₹95,000.
Thus, the excess amount paid represents her share of goodwill:

Goodwill = ₹1,09,000 - ₹95,000 = ₹14,000

This ₹14,000 will be adjusted between the continuing partners, Mahi and Mamta, in their gaining ratio.

Mahi and Mamta continue in the firm. The gaining ratio is calculated as:

• Old Ratio: Mahi : Mamta : Monika = 4 : 3 : 2
• New Ratio: Mahi : Mamta = 4 : 3 (as Monika retires)

Gaining Ratio = New Ratio - Old Ratio

• For Mahi: `4/7 - 4/9 = 36/63 - 28/63 = 8/63`
  
  
• For Mamta: `3/7 - 3/9 = 27/63 - 21/63 = 6/63`

Gaining Ratio = Mahi : Mamta = 8 : 6 or 4 : 3

2. Calculation of Share of Goodwill:

• Mahi's share = `4/7 xx 14000 = 8,000`
  
  
• Mamta's share = `3/7 xx 14000 = 6,000`