Question

P, Q and R are equal partners. Goodwill is appearing in their books at ₹ 4,00,000. R retires and on the day of R's retirement Goodwill is valued at ₹ 2,50,000. Pass the necessary journal entries.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	P's Capital A/c   ...Dr.		1,33,333
	Q's Capital A/c   ...Dr.		1,33,333
	R's Capital A/c   ...Dr.		1,33,334
	To Goodwill A/c			4,00,000
	(Being existing book goodwill written off among all partners in their old profit-sharing ratio)
2.	P's Capital A/c   ...Dr.		41,667
	Q's Capital A/c   ...Dr.		41,667
	To R's Capital A/c			83,334
	(Being R's share of valued goodwill adjusted into the capital accounts of continuing partners in their gaining ratio of 1 : 1)

Working note:

1. Writing Off Existing Goodwill (Entry 1)

Existing Goodwill in books = ₹ 4,00,000

Old Ratio (P : Q : R) = 1 : 1 : 1

Each partner's share: ₹ 4,00,000 ÷ 3 ≈ 1,33,333.33 

(Adjusted to ₹ 1,33,334 for one partner to match the total).

2. Adjusting Retiring Partner's Valued Goodwill (Entry 2)

Valued Goodwill of the firm = ₹ 2,50,000

R's Share of Goodwill: `2,50,000 xx 1/3 ≈ 83,333.33` (Rounded to ₹ 83,334)

Gaining Ratio: 1 : 1 (Since R retires from an equal partnership and no new ratio is given, P and Q gain equally).

P and Q's share of compensation: 83,334 ÷ 2 = 41,667 each