Question

A, B and C were partners sharing profits in the ratio of 6 : 4 : 5. Their capitals were A – ₹ 1,00,000, B – ₹ 80,000 and C – ₹ 60,000. On 1st April 2023, B retired from the firm and the new profit sharing ratio between A and C was decided as 11 : 4. On B's retirement the goodwill of the firm was valued at ₹ 1,80,000. Showing your calculations clearly pass necessary journal entry for the treatment of goodwill on B's retirement.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2023
Apr 1	A's Capital A/c   ...Dr.		60,000
	To B's Capital A/c			48,000
	To C's Capital A/c			12,000
	(Being B's share of goodwill and C's share of sacrifice adjusted against the capital account of the gaining partner A)

Working note:

1. Calculation of Gaining / Sacrificing Share

Formula: Gaining Share = New Share − Old Share

Old Profit-Sharing Ratio: A : B : C = 6 : 4 : 5 (Total = 15)

New Profit-Sharing Ratio: A : C = 11 : 4 (Total = 15)

A's Gaining Share = `11/15 - 6/15 = 5/15` (Gain)

C's Gaining Share| = `4/15 - 5/15 = -1/15` (Sacrifice)

2. Calculation of Goodwill Compensation Amounts

Total Valued Goodwill of the Firm: ₹ 1,80,000

B's Share of Goodwill (Retiring Partner):

`1,80,000 xx 4/15 = 48,000` (To be credited)

C's Share of Goodwill (Sacrificing Partner):

`1,80,000 xx 1/15 = 12,000` (To be credited)

A's Total Contribution (Sole Gaining Partner):

`1,80,000 xx 5/15 = 60,000` (To be debited)