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Question
Amar, Ram, Mohan and Sohan were partners in a firm sharing profits in the ratio of 2 : 2 : 2 : 1. On 31st January, 2017 Sohan retired. On Sohan's retirement the goodwill of the firm was valued at Rs 70,000. The new profit sharing ratio between Amar, Ram and Mohan was agreed as 5 : 1 : 1.
Showing your working notes clearly, pass necessary Journal Entry for the treatment of goodwill in the books of the firm on Sohan's retirement.
Solution
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Journal |
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Date |
Particulars |
L.F. |
Debit Amount (Rs) |
Credit Amount (Rs) |
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Amar’s Capital A/c |
Dr. |
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30,000 |
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To Ram’s Capital A/c |
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10,000 |
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To Mohan’s Capital A/c |
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10,000 |
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To Sohan’s Capital A/c |
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10,000 |
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(Goodwill adjusted through capitals) |
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Notes
`"Gaining Ratio"= "New Ratio"-"Old Ratio "`
Amar=`5/7-2/7=3/7`
Ram=`1/7-2/7=-1/7` (sacrifice)
Mohan=`1/7-2/7=-1/7` (sacrifice)
Amar's share of goodwill =`70,000xx3/7=Rs30,000`
Ram 's share of goodwill=`70,000xx1/7=Rs10,000`
Mohan's share of goodwill=`70,000xx1/7=Rs 10,000`
Sohan's share of goodwill=`70,000xx1/7=Rs 10,000`
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