Question

A, B and C are partners sharing profits in the ratio of 3 : 2 : 1. B retired and the new profit-sharing ratio between A and C was 2 : 1. On B's retirement, the goodwill of the firm was valued at ₹ 90,000. Pass necessary Journal entry for the treatment of goodwill on B's retirement.

Answer 1

Journal

Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
A’s Capital A/c	Dr.		15,000
C’s Capital A/c	Dr.		15,000
To B’s Capital A/s				30,000
(Adjustment B’s share of goodwill made)

Working Notes:

WN 1 Calculation of Gaining Ratio

Old Ratio (A, B and C) = 3 : 2 : 1

B retires from the firm.

New Ratio (A and C) = 2 : 1

Gaining Ratio = New Ratio − Old Ratio

A's share = `2/3 - 3/6 = (4-3)/6 = 1/6`

C's share = `1/3 - 1/6 = (2-1)/6 = 1/6`

∴Gaining Ratio = 1 : 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 90,000

B’s share of goodwill = `90,000 xx 2/6 = "Rs" 30,000`

This share of goodwill is to be debited to remaining Partners’ Capital Accounts in their gaining ratio (i.e. 1 : 1)

A is to be debited with = `30,000 xx 1/2 = "Rs" 15,000`

C is to be debited with = `30,000 xx 1/2 = "Rs" 15,000`