Question

Tarun, Abhishek, Kamal and Vivek were partners in a firm sharing profits in the ratio of 5:3:2:2. Kamal retired on 31^st March, 2022. Tarun, Abhishek and Vivek decided to share future profits equally. On Kamal's retirement goodwill of the firm was valued at ₹ 9,00,000. Showing your working clearly, pass the necessary journal entry for treatment of goodwill on Kamal's retirement. It was decided not to show goodwill in the books of the firm. 

Answer 1

Journal
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Abhisek's Capital A/c            ...Dr.		75,000
	Vivek's Capital A/c              ...Dr.		1,50,000
	To Tarun's Capital A/c			75,000
	To Kamal's Capital A/c			1,50,000
	(Being the compensation of Abhishek and Vivek to Kamal for his share in goodwill and to Tarun for the sacrifice made by him on Kamal's retirement)

Working Notes:

Gaining Ratio = New Ratio - Old Ratio

Tarun = `1/3 - 5/12 = (4-5)/12 = (-1) /12` (sacrifice)

Abhishek =` 1/3 - 3/12 = (4-3)/12 = 1/12`(Gain)

Vivek =`1/3 - 2/12 = (4-2) /12 = 2/12`(Gain)

Thus, Abhishek and Vivek are gaining partners. So, they will compensate not only Kamal but also Tarun, the sacrificing partner.

Goodwill of the firm = ₹ 9,00,000

Kamal's share of goodwill = `₹ 9,00,000 xx 2/12 = ₹ 1,50,000`

Tarun's Sacrifice =`9,00,000 xx 1/12 = ₹ 75,000`

Total amount to be compensated by Abhishek and Vivek in their gaining ratio (1:2)

= ₹ 1,50,000 + ₹ 75,000 = ₹ 2,25,000

Abhishek will compensate = `₹ 2,25,000 xx 1/3 = ₹ 75,000`

Vivek will compensate =` ₹  2,25,000xx 2/3 =₹  1,50,000`