Question

A, B, C and D are partners sharing profits in the ratio of 5 : 3 : 3 : 1. On the retirement of C, goodwill was valued at ₹ 3,60,000. C’s share of goodwill will be adjusted into the Capital accounts of A, B and D. Pass necessary entry for the treatment of goodwill when new profit sharing ratio is decided at 9 : 2 : 1.

Answer 1

Journal Entries
Date	Particualrs	L.F.	Debit (₹)	Credit (₹)
	A's Capital A/c   ...Dr.		1,20,000
	To B's Capital A/c			30,000
	To C's Capital A/c			90,000
	(Being C's share of goodwill and B's share of sacrifice adjusted against the capital account of the gaining partner A)

Working note:

1. Calculate Gaining or Sacrificing Shares

Gaining Share = New Share − Old Share

Given data:

Old Ratio (A : B : C : D) = 5 : 3 : 3 : 1 = Total = 12

New Ratio (A : B : D) = 9 : 2 : 1 = Total = 12

Calculating the changes for continuing partners:

Partner A:

Gain/Sacrifice = `9/12 - 5/12 = 4/12` (Gain)

Partner B:

Gain/Sacrifice = `2/12 - 3/12 = -1/12` (Sacrifice)

Partner D:

Gain/Sacrifice = `1/12 - 1/12 = 0` (No Gain/No Sacrifice)

2. Determine Individual Goodwill Values

C's Retiring Share of Goodwill (Credit):

Goodwill to C = `3,60,000 xx 3/12 = 90,000`

B's Sacrificing Share of Goodwill (Credit):

Goodwill to B = `3,60,000 xx 1/12 = 30,000`

A's Gaining Share of Goodwill (Debit):

Goodwill from B = `3,60,000 xx 4/12 = 1,20,000`