Question

A, B and C are partners sharing profits in the ratio of 3 : 2 : 1. B retired and the new profit-sharing ratio between A and C was 2 : 1. On B’s retirement, the goodwill of the firm was valued at ₹ 90,000. Pass necessary journal entry for the treatment of goodwill on B’s retirement.

Answer 1

Working Notes:

WN 1: Calculation of Gaining Ratio

Old Ratio (A, B and C) = 3 : 2 : 1

B retires from the firm.

New Ratio (A and C) = 2 : 1

Gaining Ratio = New Ratio − Old Ratio

$\text { A's Share }=\frac{2}{3}-\frac{3}{6}=\frac{4-3}{6}=\frac{1}{6}$

$\text { C's Share }=\frac{1}{3}-\frac{1}{6}=\frac{2-1}{6}=\frac{1}{6}$

$\therefore$ Gaining Ratio = 1 : 1

WN 2: Adjustment of Goodwill

Goodwill of the firm = Rs 90,000

$\text { B's share of goodwill }=90,000 \times \frac{2}{6}=\mathrm{Rs} 30,000$

This share of goodwill is to be debited to remaining Partners’ Capital Accounts in their gaining ratio (i.e. 1 : 1).

$\text { A is to be debited with }=30,000 \times \frac{1}{2}=\mathrm{Rs} 15,000$

$\mathrm{C} \text { is to be debited with }=30,000 \times \frac{1}{2}=\mathrm {Rs} 15,000$