Question

X, Y and Z are in partnership sharing profits in the proportion of 3 : 2 : 1. There is no goodwill A/c in the books of the firm.

As from 1st April, 2024, it was agreed that X should give only part of time, to the business and that in consequence he should receive in future only one half of his previous share, the remaining half being divided equally between Y and Z. The goodwill to be valued for this purpose, at ₹ 40,000.

Show the new share of partners and pass necessary journal entry.

Answer 1

Journal Entry
Date	Particulars	L.F.	Dr.	Cr.
	Y’s Capital A/c        ...Dr.		5,000
	Z’s Capital A/c        ...Dr.		5,000
	To X’s Capital A/c			10,000
	(Being Valued Goodwill of the firm adjusted)

Working note:

1. Calculation of New profit sharing ratio of partners

Old ratio of X, Y and Z is 3 : 2 : 1

X’s new share = `3/6xx1/2=3/12`

Half of X’s share i.e., `3/12` would be divided by Y and Z  in 1 : 1

Y = `3/12xx1/2=3/24`

Z = `3/12xx1/2=3/24`

Y’s new share = `2/6+3/24=(48+18)/144= 66/144=11/24`

Z’s new share = `1/6+3/24=(24+18)/144=42/144=7/24`

New Profit sharing ratio of X, Y and Z is

`3/12xx2/2:11/24:7/24`

6 : 11 : 7

2. Calculation of Gain/sacrifice of partners

Old Profit sharing ratio of X, Y and Z is 3 : 2 : 1

New Profit sharing ratio of X, Y and Z is 6 : 11 : 7

X’s sacrifice = `6/24-3/6=(6-12)/24=(-6)/24=(-1)/4`

Y’s gain = `11/24-2/6=(11-8)/24=3/24=1/8`

Z’s gain = `7/24-1/6=(7-4)/24=3/24=1/8`

3. Calculation of partner’s share in firm Goodwill 

Goodwill of the firm = ₹ 40,000

X’s share in Goodwill = `40,000xx1/4` = 10,000

Y’s share in Goodwill = `40,000xx1/8` = 5,000

Z’s share in Goodwill = `40,000xx1/8` = 5,000