question_answer

A, B and C are partners sharing profits in the ratio of 1 : 2 : 3. C retires and her capital, after making adjustments for reserves and profits on revaluation stands at Rs. 2,20,000. A and B agreed to pay her Rs. 2,50,000 in full settlement of her claim. Record necessary journal entry for the treatment of goodwill, if the new profit sharing ratio is decided at 1 : 3.

Answer:

JOURNAL

Date	Particulars		LF	Amt (Dr)	Amt (Cr)
	A's Capital A/c \[\left( 30,000\times 1/6 \right)\]	Dr		5,000
	B's Capital A/c \[\left( 30,000\times 5/6 \right)\]	Dr		25,000
	To C's Capital A/c				30,000
	(Being C's share of goodwill adjusted to the capital accounts of A and B in their gaining ratio of 1 : 5)

Working Notes 1. Calculation of Gaining Ratio Gaining Ratio = New Share - Old Share \[A=\frac{1}{4}-\frac{1}{6}=\frac{3-2}{12}=\frac{1}{12}\] \[B=\frac{3}{4}-\frac{2}{6}=\frac{9-4}{12}=\frac{5}{12}\]             \[\text{Gaining}\,\text{Ratio}\,=\frac{1}{12}:\frac{5}{12}\] Or 1 : 5

2. Calculation of Hidden Goodwill	Amt (Rs.)
Amount agreed to be paid in full settlement	2,50,000
(-) C's capital after all adjustments	(2,20,000)
Hidden Goodwill	30,000