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Question
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.
Options
Cash
goodwill
all Partners capital account
loan
Solution
When goodwill is raised at its full value and it is written off, goodwill account is to be credited.
Explanation: When goodwill is raised in the books of the firm at its full value and it is written off, then Goodwill Account is to be credited and all partners’ Capital Accounts are to be debited in their old profit sharing ratio.
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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.
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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 |
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(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.
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(2) Manish's Capital Account.
(3) Wording of Manish's share in profit and goodwill.
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| Year | Profit (₹) |
| 2017 - 18 | 90,000 |
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| 2020 - 21 | 80,000 |
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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.
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| 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:
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- 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.
