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Question
Answer in one sentence only.
How would you adjust retiring partner’s share of goodwill without opening goodwill account?
Solution
The retiring partner is paid his share of goodwill by debiting the Remaining Partners’ Capital Accounts in their gaining ratio and crediting the Retiring Partner’s Capital Account with the amount of premium.
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RELATED QUESTIONS
Why are heirs of a retiring/deceased partner entitled to a share of goodwill of the firm?
Kavi, Ravi, Kumar and Guru were partners in the firm sharing profits in the ratio of 3:2:2:1. On 1.2.2017, Guru retired and the new profit sharing ratio decided between Kavi, Ravi and Kumar were 3:1:1. On Guru’s retirement, the goodwill of the firm was valued at Rs 3, 60,000. Showing your working notes clearly, pass necessary journal entry in the books of the firm for the treatment of goodwill on Guru’s retirement
Neetu, Meetu and Teetu were partners in a firm. On 1st January, 2018, Meetu retired. On Meetu's retirement the goodwill of the firm was valued at Rs 4,20,000.
Pass necessary journal entry for the treatment of goodwill on Meetu's retirement.
Ashish, Satish and Manish were partners in business profits and losses in the ratio of 3 : 1 : 1 respectively. Their Balance Sheet as on 31st March, 2016 was as follows :
Balance Sheet as on 31st March, 2016
| Liabilities | Amount | Assets | Amount |
| Capital accounts : | Plant and machinery | 70,000 | |
| Ashish | 80,000 | Stock | 50,000 |
| Satish | 60,000 | Debtors | 40,000 |
| Manish | 50,000 | Cash | 60,000 |
| Creditors | 10,000 | ||
| Reserve fund | 20,000 | ||
| 2,20,000 | 2,20,000 |
Manish died on 1st October, 2016 and the partnership deed provided that :
(1) The deceased partner to be given his share of profit upto the date of death on the basis of the profit of the previous year.
(2) His share of goodwill will be calculated on the basis of two years' purchase of average profit of the last four years
The net profits for the last four years were :
First year : Rs 1,40,000, Second year : Rs 1,10,000
Third year : Rs 90,000. Fourth year : Rs 60,000.
(3) Plant and machinery to be valued at Rs. 80,000. Reserve for doubtful debts of Rs. 4,000 to be created.
(4) The drawings of Manish upto the date of death amounted to `Rs 40,000.
(5) Interest on capital is to be allowed at 10% p.a. and interest on drawings is charged at 6% p.a.
Prepare :
(1) Profit and Loss Adjustment Account.
(2) Manish's Capital Account.
(3) Wording of Manish's share in profit and goodwill.
Write the term / word / phrase which can substitute the following statement :
The proportion in which the continuing partners benefit due to retirement of partner.
Select the most appropriate answer from the alternatives given below :
When goodwill is raised at its full value and it is written off __________ account is to be credited.
State whether the following statements is true or false :
If goodwill is written off retiring partner’s capital account is debited.
Complete the following sentence.
"If goodwill already appears in the books, it will be written off by debiting all partner's capital account in their ______ ratio"?
Gobind, Hari and Pratap are partners. On the retirement of Gobind, the goodwill already appears on the Balance Sheet at Rs. 24,000. The goodwill will be written off ______
Which Accounting standard states that Goodwill, in general, is recorded in the books only when some consideration in money or money's worth has been paid for it?
According to AS-26 which goodwill is recorded in the books?
What journal entry will be recorded for writing off the goodwill already existing in Balance Sheet at the time of retirement of a partner?
Retiring partner's share of goodwill is debited to remaining partners in their ______.
How Goodwill is recorded on the retirement of a partner?
Madhu, Manav and Mukul were partners in a firm sharing profits in the ratio of 3 : 2: 1. On 31st March, 2021 Mukul retired from the firm. On Mukul's retirement, goodwill of the firm was valued at ₹ 3,00,000. Pass necessary journal entry for the treatment of goodwill without opening Goodwill Account on Mukul's retirement.
David, Dolly and Divya are partners in a firm sharing profits and losses in the ratio 3 : 2 : 1. Divya retired from the firm and David and Dolly decided to share future profits & losses in the ratio 3 : 2. At the time of Divya's retirement, the goodwill of the firm was valued at ₹ 90,000.
Pass the necessary journal entry for treatment of goodwill without opening goodwill account on Divya's retirement.
Vibha, Sudha and Ashish were partners in a firm sharing profits in the ratio 2:3:1. Sudha retired and the balance in her capital account after making necessary adjustments on account of reserves, revaluation of assets and re-assessment of liabilities was ₹ 85,000. Vibha and Ashish agreed to pay Sudha ₹ 1,15,000 in full settlement of her claim. Record the necessary journal entry for goodwill on Sudha's retirement.
Meena, Beena and Veena were partners in a firm sharing profits & losses equally. Their balance sheet as on 31st March, 2022 was as follow:
| Balance Sheet of Meena, Beena and Veena as on 31st March, 2022 | |||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
| Capitals: | Plant and Machinery | 2,40,000 | |||
| Meena | 1,50,000 | 3,25,000 | Stock | 60,000 | |
| Beena | 1,00,000 | Sundry Debtors | 35,000 | ||
| Veena | 75,000 | Cash at Bank | 50,000 | ||
| General Reserve | 30,000 | ||||
| Sundry Creditors | 30,000 | ||||
| 3,85,000 | 3,85,000 | ||||
Veena died on 30th June,2022. According to the partnership deed, the executors of the deceased partner were entitled to:
- Balance in Capital account
- Salary till the date of death @ ₹ 25,000 p.a.
- Share of Goodwill calculated on the basis of twice the average profits of past three years.
- Share of profit from the closure of last accounting year till the date of death on the basis of average of three completed years' profits before death.
- Profits for 2019-20, 2020-21 and 2021-22 were ₹ 1,20,000, ₹ 90,000 and ₹ 1,50,000 respectively.
Veena withdrew ₹ 15,000 on 1st June, 2022 for paying her daughter's school fees.
Prepare Veena's capital account to be rendered to her executors.
Kamal, Rahul and Neeraj were partners in a firm sharing profits and losses in the ratio of 5: 3: 2. On 31st March, 2002, their Balance Sheet was as under:
| Balance Sheet of Kamal, Rahul and Neeraj on 31st March, 2022 | ||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) |
| Capitals: | Land and Building | 1,70,000 | ||
| Kamal | 1,20,000 | 3,60,000 | Plant and Machinery | 2,60,000 |
| Rahul | 1,20,000 | Stock | 1,00,000 | |
| Neeraj | 1,20,000 | Debtors | 80,000 | |
| General Reserve | 1,20,000 | Cash | 50,000 | |
| Sundry Creditors | 1,80,000 | |||
| 6,60,000 | 6,60,000 | |||
On the above date, Rahul retired and following terms are agreed upon:
- Goodwill of the firm was valued at ₹ 3,50,000.
- An item of ₹ 10,000 included in sundry creditors is not likely to be claimed and hence written off. Stock was valued at ₹ 90,000.
- Capital of the new firm was fixed a ₹ 2,10,000 and the same will be adjusted in the profit sharing ratio of the remaining partners. For this purpose the required cash will be brought in or paid off as the case may be.
- Amount payable to Rahul will be transferred to his loan account.
Prepare Revaluation Account and Partners' Capital Accounts on Rahul's retirement.
