Question

Shobha, Romila and Payal were partners sharing profits equally. Romila retired on 1st April, 2026 and amount due to her after all adjustments for accumulated profits and gain on revaluation was ₹ 5,80,000. It was decided that Romila will be paid ₹ 6,40,000 in full settlement.

Shobha and Payal agreed to share future profits in the ratio of 7 : 2. ₹ 40,000 was paid immediately and balance on 1st December, 2026.

Pass the necessary Journal entries on Romila's retirement.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2026
Apr 1	Shobha's Capital A/c   ...Dr.		80,000
	To Romila's Capital A/c			60,000
	To Payal's Capital A/c			20,000
	(Being hidden goodwill adjusted on Romila's retirement; Shobha compensates Romila and Payal in their gaining/sacrificing ratio)
Apr 1	Romila's Capital A/c   ...Dr.		6,40,000
	To Bank/Cash A/c			40,000
	To Romila's Loan A/c			6,00,000
	(Being full settlement amount of ₹ 6,40,000 adjusted by paying ₹ 40,000 immediately and transferring the balance to her loan account)
Dec 1	Romila's Loan A/c   ...Dr.		6,00,000
	To Bank/Cash A/c			6,00,000
	(Being the balance loan amount cleared on due date)

Working note:

A. Calculation of Hidden Goodwill

Amount agreed to be paid in full settlement: ₹ 6,40,000

Less: Romila's adjusted capital balance: ₹ 5,80,000

Romila’s Share of Goodwill: ₹ 6,40,000 − ₹ 5,80,000 = ₹ 60,000

Since the old profit-sharing ratio was equal (1 : 1 : 1), Romila's Share is `1/3`

Total Goodwill of the Firm: 60,000 × 3 = ₹ 1,80,000 

B. Calculation of Gaining/Sacrificing Ratio

Gain/Sacrifice = New Share − Old Share

Shobha: `7/9 - 1/3 = (7 - 3)/9 = +4/9` (Gain)

Payal: `2/9 - 1/3 = (2 - 3)/9 = -1/9` (Sacrifice)

C. Adjustment of Goodwill Value

Since Payal is also sacrificing her share along with Romila, Shobha (the only gaining partner) will compensate both of them:

Debit Shobha's Capital A/c: `1,80,000 xx 4/9 = ₹ 80,000`

Debit Romila's Capital A/c: `1,80,000 xx 3/9 = ₹ 60,000`

Debit Payala's Capital A/c: `1,80,000 xx 1/9 = ₹ 20,000`