Question

X, Y and Z are partners sharing profits in the ratio of 5 : 4 : 1. It is now agreed that they will share future profits in the ratio of 3 : 3 : 4. Goodwill is valued at ₹ 1,00,000. You are required to pass a single journal entry for the treatment of goodwill.

Answer 1

Old ratio:

X : Y : Z = 5 : 4 : 1

New ratio:

X : Y : Z = 3 : 3 : 4

Goodwill = ₹ 1,00,000

Journal Entry
Date	Particulars	L.F.	Dr. ₹	Cr. ₹
	Z’s Capital A/c Dr.		30,000
	To X’s Capital A/c			20,000
	To Y’s Capital A/c			10,000
	(Being goodwill adjusted among partners due to change in profit-sharing ratio.)

Working Note:

1. Gain or Sacrifice

X: `5/10 - 3/10 = 2/10`

So X sacrifices: `2/10`

Y: `4/10 - 3/10 = 1/10`

So Y sacrifices: `1/10`

Z: `4/10 - 1/10 = 3/10`

So Z gains: `3/10`

2. Goodwill Adjustment

X: `1,00,000 xx 2/10 = 20,000`

Y: `1,00,000 xx 1/10 = 10,000`

Z: `1,00,000 xx 3/10 = 30,000`

Therefore:

Z Dr. ₹ 30,000; X Cr. ₹ 20,000; Y Cr. ₹ 10,000