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Question
Select the most appropriate answer from the alternatives given below :
If the goodwill is raised to the extent of retiring partners share ___________ account is to be debited.
Options
cash
goodwill
all partner’s capital
retiring partners capital
Solution
If the goodwill is raised to the extent of retiring partner’s share, goodwill account is to be debited.
Explanation: If the goodwill is raised to the extent of the retiring partner’s share, Goodwill Account is to be debited. It means that the continuing partners have not compensated their share in favour of the retiring partner; so, there is no need to calculate gaining ratio. Still, the retiring partner’s share of goodwill is to be paid, due to which the goodwill account is to be debited.
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| Year | Profit (₹) |
| 2017 - 18 | 90,000 |
| 2018 - 19 | 1,00,000 |
| 2019 - 20 | 1,30,000 |
| 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.
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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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- 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.
