Question

Ram, Laxman and Bharat are partners sharing profits in the ratio of 3 : 2 : 1. Goodwill is appearing in the books at a value of ₹ 1,80,000. Laxman retires and at the time of his retirement, goodwill is valued at ₹ 2,52,000. Ram and Bharat decided to share future profits in the ratio of 2 : 1. The Profit for the first year after Laxman’s retirement amount to ₹ 1,20,000. Give the necessary journal entries to record goodwill and to distribute the profit. Show your calculations clearly.

Answer 1

Working Notes:

1. Calculation of Gaining Ratio Old Ratio (Ram, Laxman and Bharat) = 3 : 2 : 1

New Ratio (Ram and Bharat) = 2 : 1

Gaining Ratio = New Ratio - Old Ratio

$\begin{aligned}&\text { Ram's }=\frac{2}{3}-\frac{3}{6}=\frac{4}{6}-\frac{3}{6}=\frac{1}{6}\\&\text { Bharat's }=\frac{1}{3}-\frac{1}{6}=\frac{2}{6}-\frac{1}{6}=\frac{1}{6}\end{aligned}$

Gaining Ratio (Ram and Bharat) = 1 : 1

2. Calculation of Retiring Partner's share of goodwill

$\text { Laxman's goodwill }=2,52,000 \times \frac{2}{6}=84,000$

Laxman's share of goodwill is to be debited to remaining partners Capital A/c in their Gaining ratio (Ram, Bharat) = 1 : 1

$\text { Debited by Ram's Share }=84,000 \times \frac{1}{2}=42,000$

$Debited\ by\ Bharat's\ Share =84,000 \times \frac{1}{2}= 42,000$