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Question
P, Q, R and S were partners in a firm sharing profits in the ratio of 5 : 3 : 1 : 1. On 1st January, 2019, S retired from the firm. On S's retirement, goodwill of the firm was valued at ₹ 4,20,000. New profit-sharing ratio among P, Q and R will be 4 : 3 : 3.
Showing your working notes clearly, pass necessary Journal entry for the treatment of goodwill in the books of the firm on S's retirement.
Solution
Journal
|
Date |
Particulars |
L.F. |
Debit Amount (₹) |
Credit Amount (₹) |
|
| 2019 Jan.1 |
R’s Capital A/c |
|
|
||
| To P’s Capital A/c |
42,000 |
||||
| To S’s Capital A/c |
42,000 |
||||
| (Goodwill adjusted) | |||||
Working Notes:
Gaining Ratio = New Ratio – Old Ratio
`"P" = 4/10 - 5/10 = -1/10 ("sacrifice")`
`"Q" = 3/10 - 3/10 = 0`
`"R" = 3/10 - 1/10 = 2/10`
`"P's share" = 4.20,000 xx 1/10 = 42,000`
`"R's share" = 4.20,000 xx 2/10 = 84,000`
`"S's share" = 4.20,000 xx 1/10 = 42,000`
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Creditors |
24,140 |
Cash at Bank | 3,300 | ||
| Capital A/cs: |
|
Sundry Debtors |
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|
|
| X | 12,000 |
|
Less: Provision for Doubtful Debts |
105 |
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| Y |
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|
Stock | 4,800 | |
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|
Land and Building | 15,000 | |||
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|
|
Y's Loan |
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||
|
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Creditors |
7,000 |
Land and Building | 36,000 | ||
| Bills Payable | 3,000 | Plant and Machinery | 28,000 | ||
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|
Sundry Debtors |
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|
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|
Less: Provision for Doubtful Debts |
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|
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||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Creditors |
21,000 |
Cash at Bank | 5,750 | ||
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|
|
| Investments Fluctuation Reserve |
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38,000 |
|
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| Y |
32,000 |
|
Patents | 10,000 | |
| Z |
21,000 |
1,21,000 |
Machinery |
50,000 |
|
| Goodwill | 6,000 | ||||
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|
1,60,000 |
1,60,000 |
||||
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| Liabilities | ₹ | Assets | ₹ | ||
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| 8,70,000 | 8,70,000 | ||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Sundry Creditors |
2,70,000 |
Cash in Hand |
42,500 |
||
|
General Reserve |
1,20,000 |
Cash at Bank |
2,14,500 |
||
|
Capital A/cs: |
Debtors | 1,63,000 | |||
| A |
2,00,000 |
Stock | 17,500 | ||
| B | 1,20,000 | Investment | 1,32,500 | ||
| C |
80,000 |
4,00,000 |
Building | 2,10,000 | |
| B's Loan | 10,000 | ||||
|
7,90,000 |
7,90,000 |
||||
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|
Liabilities |
₹ |
Assets |
₹ |
||
|
Trade Creditors |
40,000 |
Building |
2,00,000 |
||
|
General Reserve |
45,000 |
Plant and Machinery |
80,000 |
||
|
Capital A/cs: |
Stock | 35,000 | |||
| Akhil |
1,95,000 |
Debtors | 80,000 | ||
| Nikhil | 1,20,000 | Cash at Bank | 85,000 | ||
| Sunil |
80,000 |
3,95,000 |
|||
|
4,80,000 |
4,80,000 |
||||
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|
Liabilities |
Amount |
Assets |
Amount |
|
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||
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Assets | Amount (₹) |
|
| Sundry Creditors | 40,000 | Cash at Bank | 40,000 | |
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| 10,30,000 | 10,30,000 | |||
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