Question

John, Sunita and Deepali are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Deepali retired on 30th June, 2023. The retiring partner is entitled to:

1. Her share of profit from the date of Balance Sheet to the date of retirement which was estimated to be ₹ 24,000.
2. Her share of goodwill. The firm’s goodwill calculated on the basis of three years’ purchase of average profits amounted to ₹ 60,000.
3. Interest on her capital @ 8% per annum.

Deepali’s capital which on 1st April 2023 was ₹ 2,00,000. John and Sunita after Deepali’s retirement decided that their profits be shared in the ratio of 7 : 5. Balance of Deepali’s capital is to be transferred to her Loan A/с.

You are required to pass journal entries to record Deepali’s retirement in the books of the firm.

Answer 1

JOURNAL
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2023 June 30	John’s Capital A/c Dr.		12,000
	Sunita’s Capital A/c   ...Dr.		12,000
	To Deepali’s Capital A/c			24,000
	(Share of profit of Deepali adjusted through remaining partners’ capital a/cs in their gaining ratio)
”	John’s Capital A/c ...Dr.		5,000
	Sunita’s Capital A/c   ...Dr.		5,000
	To Deepali’s Capital A/c			10,000
	(Share of goodwill of Deepali adjusted through remaining partners’ capital a/cs in the gaining ratio of 1 : 1)
”	Interest on Capital A/c    ....Dr.		4,000
	To Deepali’s Capital A/c			4,000
	(Deepali’s interest on Capital)
	John’s Capital A/c   ...Dr.		2,000
	Sunita’s Capital A/c    ...Dr.		2,000
	To Interest on Capital A/c			4,000
	(Deepali’s interest on capital upto 30th June, 2023 adjusted through remaining partners’ capital a/cs in the gaining ratio)
”	Deepali’s Capital A/c   ...Dr.		2,38,000
	To Deepali’s Loan A/c			2,38,000
	(Deepali’s capital balance transferred to her loan A/c)

Working Note:

Gaining Ratio:
$$\text{New Ratio} - \text{Old Ratio}$$

John: $\frac{7}{12} - \frac{3}{6} = \frac{7 - 6}{12} = \frac{1}{12}$

Sunita: $\frac{5}{12} - \frac{2}{6} = \frac{5 - 4}{12} = \frac{1}{12}$

Gaining Ratio of John and Sunita is = 1 : 1