Question

Varun, Tarun, Arun and Barun were partners in a firm sharing profits in the ratio of 5 : 3 : 2 : 2. Arun retired on 31^st March, 2023. Varun, Tarun and Barun decided to share future profits equally. On Arun's retirement, Goodwill of the firm was valued at ₹ 9,00,000. Showing your workings clearly, pass the necessary Journal entry for treatment of Goodwill on Arun’s retirement without opening goodwill account.

Answer 1

Old ratio= 5 : 3 : 2 : 2

New ratio = 1 : 1 : 1

Calculation of gaining and sacrificing ratio

Varun = `5/12 - 1/3 = 1/12` (sacrifice)

Tarun = `3/12 - 1/3 = -1/12` (gain)

Barun = `2/12 - 1/3 = -2/12` (gain)

Journal Entries
Date	Particulars	L.F.	Amount (₹)	Amount (₹)
	Tarun Capital A/c   ...Dr.		75,000	-
	Barun Capital A/c   ...Dr.		1,50,000	-
	To Arun Capital A/c		-	1,50,000
	To Varun Capital A/c		-	75,000
	(Being goodwill adjusted)