Question

P, Q, R and S were partners in a firm sharing profits in the ratio of 5 : 3 : 1 : 1. On 1st January, 2019, S retired from the firm. On S's retirement, goodwill of the firm was valued at ₹ 4,20,000. New profit-sharing ratio among P, Q and R will be 4 : 3 : 3.
Showing your working notes clearly, pass necessary Journal entry for the treatment of goodwill in the books of the firm on S's retirement.

Answer 1

Journal

Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 Jan.1	R’s  Capital A/c	Dr.		84,000
	To P’s  Capital A/c				42,000
	To S’s  Capital A/c				42,000
	(Goodwill adjusted)

Working Notes:

Gaining Ratio = New Ratio – Old Ratio

`"P" = 4/10 - 5/10 = -1/10 ("sacrifice")`

`"Q" = 3/10 - 3/10 = 0`

`"R" = 3/10 - 1/10 = 2/10`

`"P's share" = 4.20,000 xx 1/10 = 42,000`

`"R's share" = 4.20,000 xx 2/10 = 84,000`

`"S's share" = 4.20,000 xx 1/10 = 42,000`