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Question
P, Q and R are equal partners. Goodwill is appearing in their books at ₹ 4,00,000. R retires and on the day of R's retirement Goodwill is valued at ₹ 2,50,000. Pass the necessary journal entries.
Journal Entry
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Solution
| Journal Entries | ||||
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| 1. | P's Capital A/c ...Dr. | 1,33,333 | ||
| Q's Capital A/c ...Dr. | 1,33,333 | |||
| R's Capital A/c ...Dr. | 1,33,334 | |||
| To Goodwill A/c | 4,00,000 | |||
| (Being existing book goodwill written off among all partners in their old profit-sharing ratio) | ||||
| 2. | P's Capital A/c ...Dr. | 41,667 | ||
| Q's Capital A/c ...Dr. | 41,667 | |||
| To R's Capital A/c | 83,334 | |||
| (Being R's share of valued goodwill adjusted into the capital accounts of continuing partners in their gaining ratio of 1 : 1) | ||||
Working note:
1. Writing Off Existing Goodwill (Entry 1)
Existing Goodwill in books = ₹ 4,00,000
Old Ratio (P : Q : R) = 1 : 1 : 1
Each partner's share: ₹ 4,00,000 ÷ 3 ≈ 1,33,333.33
(Adjusted to ₹ 1,33,334 for one partner to match the total).
2. Adjusting Retiring Partner's Valued Goodwill (Entry 2)
Valued Goodwill of the firm = ₹ 2,50,000
R's Share of Goodwill: `2,50,000 xx 1/3 ≈ 83,333.33` (Rounded to ₹ 83,334)
Gaining Ratio: 1 : 1 (Since R retires from an equal partnership and no new ratio is given, P and Q gain equally).
P and Q's share of compensation: 83,334 ÷ 2 = 41,667 each
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