Question

A, B and C were partners in a firm sharing profits in the ratio of 6 : 5 : 4. Their capitals were A – ₹ 1,00,000; B – ₹ 80,000 and C – ₹ 60,000 respectively. On 1st April, 2009, A retired from the firm and the new profit sharing ratio between B and C was decided as 1 : 4. On A’s retirement, the goodwill of the firm was valued at ₹ 1,80,000. Showing your calculations clearly, pass the necessary journal entry for the treatment of goodwill on A’s retirement.

Answer 1

Working Notes:

WN1: Calculation of Gaining Ratio

A :B :C = 6:5:4 (Old ratio)

B :C = 1:4 (New ratio)

Gaining Ratio = New Ratio - Old Ratio

$\text { B's Gain }=\frac{1}{5}-\frac{5}{15}=\frac{3-5}{15}=-\frac{2}{15} \text { (Sacrifice) }$

$\text { C's Gain }=\frac{4}{5}-\frac{4}{15}=\frac{12-4}{15}=\frac{8}{15}$

WN2: Calculation of Retiring Partner’s Share of Goodwill

$\text { A's share of goodwill }=1,80,000 \times \frac{6}{15}=\mathrm{Rs} 72,000$

$\text { B's share of goodwill }=1,80,000 \times \frac{2}{15}=\mathrm{Rs} 24,000$

A's and B's share of goodwill be brought by C only.

Therefore, C's Capital A/c will be debited with 72,000+24,000 = Rs 96,000.