Question

X,Y and Z are partners sharing profits in the ratio of `2:3:5`. Goodwill is already appearing in their books at a value of Rs. 60,000. X retires and Y and Z decided to share future profits equally. Journal entry will be :

Answer 1

Given:

• X, Y and Z are partners in a firm, sharing profits and losses in the ratio 2:3:5.
• The firm's goodwill is Rs 60,000.
• X retires.
• Y and Z decide to share profits and losses equally.

Objective: To pa‎ss the necessary journal entry.

Answer:

• X's old ratio = 2/10
• Y's old ratio = 3/10
• Z's old ratio = 5/10

• Y's new ratio = 1/2
• Z's new ratio = 1/2

Retiring partner's goodwill = Firm's goodwill × Retiring partner's share

X's goodwill = Rs 60,000 × 2/10 = Rs 12,000

Calculation of the gaining ratio:

Gaining ratio = New ratio - Old ratio

For Y:

• Gaining ratio = 1/2 - 3/10 = (10 - 6)/20 = 4/20

For Z:

• Gaining ratio = 1/2 - 5/10 = (10 - 10)/20 = 0

Therefore, only Y gains.

The entire goodwill of X will be debited to Y's account.

Journal entry:

Gaining partner's capital A/c ... Dr - Rs

• To retiring partner's capital A/c - Rs

(Goodwill adjusted.)

Y's capital A/c ... Dr - Rs 12,000

• To X's capital A/c - Rs 12,000

(Goodwill adjusted.)