L, M and O are partners sharing profits and losses in the ratio of 4 : 3 : 2. M retires and the goodwill is valued at ₹ 72,000. Calculate M's share of goodwill and pass the Journal entry for Goodwill. L and O decided to share the future profits and losses in the ratio of 5 : 3.
Solution
Journal
Particulars 
L.F. 
Date Amount Rs 
Credit amount Rs 

L’s Capital A/c 
Dr. 

13,000 

O’s Capital A/c 
Dr. 

11,000 

To M’s Capital A/c 


24,000 

(Adjustment M’s share of goodwill made) 



Working Note:
WN 1 Calculation of Gaining Ratio
Old Ratio (L, M and O) = 4 : 3 : 2
M retires from the firm.
New Ratio (L and O) = 5 : 3
Gaining Ratio = New Ratio − Old Ratio
L's share = `5/8  4/9 = (4532)/72 = 13/72`
O's share = `3/8  2/9 = (2716)/72 = 11/72`
∴ Gaining Ratio = 13 : 11
WN 2 Adjustment of Goodwill
Goodwill of the firm = Rs 72,000
M's share of goodwill =`72000 xx 3/9 = Rs 24000`
This share of goodwill is to be debited to remaining Partners’ Capital Accounts in their gaining ratio (i.e. 13 : 11).
L is to be debited with `24,000 xx 13/24 = "Rs" 13,000`
O is to be debited with `24,000 xx 11/24 = "Rs" 11,000`