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A, B And C Are Partners Sharing Profits in the Ratio of 4/9 : 3/9 : 2/9. B Retires and His Capital After Making Adjustments for Reserves and Gain - Accountancy

Journal Entry

A, B, and C are partners sharing profits in the ratio of `4/9: 3/9: 2/9`. B retires and his capital after making adjustments for reserves and gain (profit) on revaluation stands at ₹ 1,39,200. A and C agreed to pay him ₹ 1,50,000 in full settlement of his claim. Record necessary journal entry for adjustment of goodwill if the new profit-sharing ratio is decided at 5: 3.

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Solution

Journal Entries

Date

Particulars

L.F.

Debit

Amount

Rs

Credit Amount

Rs

 

A’s Capital A/c

Dr.

 

5,850

 

 

C’s Capital A/c

Dr.

 

4,950

 

 

    To B’s Capital A/c

 

 

 

10,800

 

(Adjustment of B’s share of goodwill)

 

 

 

 

Working Notes:

i) Calculation of B’s share of goodwill:
A, B, and C are sharing profits in ratio `4/9: 3/9: 2/9`
B retires from the firm. The remaining partners agreed to pay him Rs 1,50,000
B’s capital after making necessary adjustments Rs 1,39,200
Therefore, Hidden Goodwill is Rs (1,50,000 – 1,39,200) i.e. Rs 10,800

ii) Gaining Ratio:
New profit sharing ratio between A and B is 5: 3

A's gain = `5/8 - 4/9 = 13/72`

C's gain = `3/8 - 2/9 = 11/72`

Gaining ratio = 13: 11

Thus, B’s share of goodwill will be brought in by A and C in the gaining ratio 13: 11 i.e.

A is to be debited with `10,800 xx 13/24 = 5,850`.

C is to be debited with `10,800 xx 11/24 = 4.950`.

Concept: Retirement and Death of a Partner - Calculation of New Profit Sharing Ratio
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APPEARS IN

TS Grewal Class 12 Accountancy - Double Entry Book Keeping Volume 1
Chapter 6 Retirement/Death of a Partner
Exercise | Q 19 | Page 79
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