Question

Deepa, Neeru and Shilpa were partners in a firm sharing profits in the ratio of 5:3:2. Neeru
retired and the new profit-sharing ratio between Deepa and Shilpa was 2:3. On Neeru retire-
ment, the goodwill of the firm was valued at 1,20,000. Record necessary Journal entries for
the treatment of goodwill on Neeru retirement.​

Answer 1

Answer:

Journal Entry :

$\sf Shilpa's \: Capital \: ac \: Dr. \: \: \: \: \: 48,000\\ \sf \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: To \: Neeru's \: Capital \: ac. \: \: \: \: \: \: \: \: \: \: \: \: \: 36,000 \\ \sf \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: To \: Deepa's \: Capital \: ac \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: \: 12,000$

( Shilpa compensated Neeru for her share Of goodwill and to Deepa for the sacrifice made by her on Neeru's retirement )

Working Note :

To calculate Gaining Ratio Of Partners ;

Gaining Ratio = New Ratio - Old ratio

New Ratio : 2 : 3

Old Ratio : 5 : 3 : 2

Gaining Ratio Of Deepa :

$\to\sf \: \frac{2}{5} - \frac{5}{10}$

$\sf \to \: \frac{2 \times 2}{5 \times 2} - \frac{5}{10}$

$\sf \to \: \frac{4 - 5}{10}$

$\bf \to \: \frac{1}{10}$

Gaining Ratio Of Shilpa :

$\sf \to \: \frac{3}{5} - \frac{2}{10}$

$\sf \to \: \frac{3 \times 2}{5 \times 2} - \frac{2}{10}$

$\sf \to \: \frac{6 - 2}{10}$

$\bf \to \: \frac{4}{10}$

⅒ Share Of Deepa is a Sacrifice Share.

Goodwill is distributed by Deepa's Sacrifice ;

Goodwill of the Firm × Sacrificing Share

$\sf \to \: 120000 \times \frac{1}{10} = 12000$

Retiring Partner Neeru's Sacrifice ;

$\sf \to \: 120000 \times \frac{3}{10} = 36000$

Answer 2

Answer:

Journal

Shilpa’s Capital A/c Dr.                        48,000

                    To Neeru’s Capital A/C                        36,000

                    To Deepa’s Capital A/C                         12,000

(Shilpa being the gaining partner compensates to Deepa and Neeru, retiring and sacrificing partner)

Explanation:

Working Notes

1.  The gaining partner Compensates to the retiring and Sacrificing partner.

Calculation of Gaining Ratio

Gaining Share = New Share – Old Share

(a) Deepa's New Share = 2/5

     Deepa's Old Share = 5/10

Deepa’s Gaining Share  = $\frac{2}{5} - \frac{5}{10} = \frac{4-5}{10} = \frac{-1}{10}$ i.e., Sacrifice

(b) Shilpa’s New Share = 2/5

    Shilpa’s Old Share = 5/10

Shilpa’s Gaining Share = $\frac{3}{5} - \frac{2}{10} = \frac{6-2}{10} = \frac{4}{10}$ i.e., Gain

2. Hence, Shilpa will compensate both Neeru (retiring partner) and Deepa (continuing partner who has sacrificed) to the extent of their sacrifice worked out as follows:

Deepa’s Sacrifice = Goodwill of the firm × Sacrificing Share

= Rs. 1,20,000 x $\frac{1}{10}$= Rs. 12,000

Neeru’s (Retiring Partner’s Sacrifice) = Rs. 1,20,000 x $\frac{3}{10}$  = Rs. 36,000.

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