Question

L, M and O are partners sharing profits and losses in the ratio of 4 : 3 : 2. M retires and the goodwill is valued at ₹ 72, 000. Calculate M’s share of goodwill and pass the necessary Journal entry for Goodwill. L and O decided to share the future profits and losses in the ratio of 5 : 3.

Answer 1

Explanation:

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Answer 2

Calculated M' share of goodwill is Rs 24000

Explanation:

Step 1: Calculation of Gaining Ratio

Old Ratio (L, M and O) = 4: 3 : 2

M retires from the firm.

New Ratio (L and O) = 5: 3

Gaining Ratio New Ratio − Old Ratio

              $\begin{aligned}&L^{\prime} s \text { share }=\frac{5}{8}-\frac{4}{9}=\frac{45-32}{72}=\frac{13}{72}\\&Q^{\prime} s \text { share }=\frac{3}{8}-\frac{2}{9}=\frac{27-16}{72}=\frac{11}{72}\end{aligned}$

∴ Gaining Ratio = 13: 11

Step 2: Adjustment of Goodwill

Goodwill of the firm = Rs 72,000

          $M^{\prime} s \text { share }=72000 \times \frac{3}{9}=R s\ 24000$

This share of goodwill is to be debited to remaining Partners’ Capital Accounts in their gaining ratio (i.e. 13:11).