Question

X, Y and Z are partners sharing profits in the ratio of 3 : 2 : 1. Goodwill is appearing in the books at a value of ₹ 60,000. Y retires and at the time of Y’s retirement, goodwill is valued at ₹ 84,000. X and Z decide to share future profits in the ratio of 2 : 1. Pass the necessary journal entries through Goodwill Account.

Answer 1

Working Notes:

WN1: Calculation of Gaining Ratio

X :Y :Z=3:2:1 (Old ratio)

X :Z = 2:1 (New ratio)

Gaining Ratio = New Ratio - Old Ratio

$\mathrm{X}^{\prime} \mathrm{s} \text { Gain }=\frac{2}{3}-\frac{3}{6}=\frac{1}{6}$

$\text { Z's Gain }=\frac{1}{3}-\frac{1}{6}=\frac{1}{6}$

$X: Z=1: 1$

WN2: Calculation of Retiring Partner’s Share of Goodwill

$\text { Y's share of goodwill }=84,000 \times \frac{2}{6}=\mathrm{Rs} 28,000$

Y's share of goodwill will be brought by X and Z in their gaining ratio 1:1

Therefore, X's Capital A/c will be debited with $28,000 \times \frac{1}{2}=\mathrm{Rs} 14,000$

And, Y's Capital A/c will be debited with $28,000 \times \frac{1}{2}=\mathrm{Rs} 14,000$