A, B and C are partners sharing profits and losses in the ratio of 3:2:1. C retires and his capital account after making adjustment of reserves and profit on revaluation exists at Rs 44,000. A and B have agreed to pay him Rs 55,000 in full settlement of his claim. Record necessary journal entry for goodwill on C’s retirement.
Answers
Answer:
C share on retirement of balance rs44000
and he was paid rs55000 so extra amount of rs 11000 paid to him is his share of goodwill
journal entry for goodwill
A capital account dr 6600
B capital account dr 4400
To C capital account 11000
(amount of goodwill distributed in gaining ratio of 3:2))
Given:
- A, B and C are partners in a firm, sharing profits and losses in the ratio 3:2:1.
- C retires.
- C's capital is Rs 44,000.
- A and B pay Rs 55,000 to C in full settlement.
Objective: To pass the necessary journal entry for the goodwill.
Answer:
C's share of goodwill = Rs 55,000 - Rs 44,000 = Rs 11,000
Calculation of the gaining ratio:
Gaining ratio = New ratio - Old ratio
For A:
- Gaining ratio = 3/5 - 3/6 = (18 - 15)/30 = 3/30
For B:
- Gaining ratio = 2/5 - 2/6 = (12 - 10)/30 = 2/30
Therefore, the gaining ratio is 3:2. The goodwill will be distributed accordingly.
- A's share of goodwill = Rs 11,000 × 3/5 = Rs 6,600
- B's share of goodwill = Rs 11,000 × 2/5 = Rs 4,400
Journal entry:
The journal entry to adjust the goodwill is as follows:
Gaining partner's capital A/c ... Dr - Rs
- To retiring partner's capital A/c
(Goodwill adjusted.)
A's capital A/c ... Dr - Rs 6,600
B's capital A/c ... Dr - Rs 4,400
- To C's capital A/c - Rs 11,000
(Goodwill adjusted.)