Question

X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2, decided to share future profits and losses equally with effect from 1st April, 2019. On that date, the goodwill appeared in the books at ₹ 12,000. But it was revalued at ₹ 30,000. Pass Journal entries assuming that goodwill will not appear in the books of account.

Answer 1

Journal

Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April  1	X’s Capital A/c	Dr.		6,000
	Y’s Capital A/c	Dr.		3,600
	Z’s Capital A/c	Dr.		2,400
	To Goodwill A/c				12,000
	(Goodwill written off)
2019	Y’s Capital A/c	Dr.		1,000
April 1	Z’s Capital A/c	Dr.		4,000
	To X’s Capital A/c				5,000
	(Amount of goodwill adjusted on change in profit sharing ratio)

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 1 : 1 : 1

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

X's share = `5/10 - 1/3 = (15-10)/30 = 5/10` (sacrifice)

Y's share = `3/10 - 1/3 = (9-10)/30 = (-1)/30` (gain)

Z's share = `2/10 - 1/3 = (6-10)/30 = (-4)/30` (gain)

WN 2 Writing off of Old Goodwill

X's share = `12,000 xx 5/10` = Rs 6,000

Y's share = `12,000 xx 3/10` = Rs 3,600

Z's share = `12,000 xx 5=2/10` = Rs 2,400

WN 3 Adjustment of Goodwill

Amount to be credited tp X's capital A/c = `30,000 xx 5/30`(share of sacrifice)  

                                                                 = Rs 5,000

Amount to be debited tp Y's capital A/c = `30,000 xx 1/30`(share of gain)  

                                                                 = Rs 1,000

Amount to be debited to Z's capital A/c = `30,000 xx 4/30`(share of gain)  

                                                                 = Rs 4,000