Anant, Gulab and Khushbu were partners in a firm sharing profits in the ratio of 5: 3: 2. From 1.4.2014, they decided to share the profits equally. For this purpose, the goodwill of the firm was valued at Rs 2,40,000.
Pass necessary journal entry for the treatment of goodwill on the change in the profit sharing ratio of Anant, Gulab and Khushbu.
Gulab’s Capital A/c Dr.
Khushbu Capital A/c Dr.
To Anant’s Capital A/c
(Being Gulab and Khushbu being the gaining partners compensated Anant for his share of sacrifice)
WN1 Calculation of Sacrifice Ratio
New Ratio: 1:1:1
Sacrificing Ratio = Old Ratio – New Ratio
Anant's sacrificing ratio = `5/10 - 1/3 = 5/10`
Gulab's sacrificing ratio = `3/10 - 1/3 = (-1/30)` ⇒ Gaining
The share of Anant in firm's goodwill = `5/30 xx 240000 = 40000`
WN2 Adjustment of Goodwill
Gulab and Khushbu, being the gaining partner will pay Anant, a sacrificing partner in the ratio of
their gain i.e. 1:4
Gulab will pay = = `40000 xxx 1/5 = 8000`
Khushbu will pay = `40000 xx 4/5 = 32000`