Question

X; Y and Z are partners sharing profits in the ratio of 4 : 2 : 3. Y retires. On this date his Capital after making adjustments for reserves and revaluation exists at ₹ 2,00,000. X and Z agreed to pay him ₹ 2,40,000 in full settlement of his account. Record necessary journal entry for the treatment of goodwill if X and Z decided to share future profits equally.

Answer 1

Journal
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	X’s Capital A/c      ...Dr.		10,000
	Z’s Capital A/c      ...Dr.		30,000
	To Y’s Capital A/c			40,000
	(Being Y’s share of goodwill debited to the gaining partners in their gaining ratio of 1 : 3)

Working notes:

1. Old ratio of X, Y & Z = 4 : 2 : 3

Y retired, 

New ratio of X & Z = 1 : 1

Gaining ratio = New share - Old share

X gains = `1/2-4/9`

= `(9-8)/18`

= `1/18`

Z gains = `1/2-3/9`

= `(9-6)/18`

= `3/18`

Gaining ratio of X & Z = 1 : 3

2. Calculation of Hidden Goodwill: 

Amount agreed to be paid in full settlement = 2,40,000

Less: Y’s capital (after all adjustments) = 2,00,000

Y's share of Goodwill = 40,000