Rohan, Mohan and Sohan were partners in a firm sharing profits in the ratio of 5:3:2. Mohan retired and on his retirement goodwill of the firm was valued at ₹1,20,000. Rohan and Sohan decided to share future profits in the ratio 2:3. Record Journal entry for the treatment of Goodwill.
Answer & explanation
Correct answer: option 2
The correct answer is option (2)-
Sohan's Capital A/c Dr. 48,000
To Rohan's Capital A/c 12,000
To Mohan's Capital A/c 36,000
Old ratio = 5:3:2 (Rohan, Mohan and Sohan)
New ratio = 2:3 (Rohan and Sohan)
Gain = New share - Old share
Gain of Rohan = 2/5 - 5/10
= (4-5)/10
= -1/10
As this is in negative means it is sacrifice. Share in goodwill = 1,20,000 x 1/10
= ₹12,000
Gain of Sohan = 3/5 - 2/10
= (6-2)/10
= 4/10
Share in goodwill = 1,20,000 x 4/10
= ₹48,000
Share of Mohan = 3/10
Share in goodwill = 1,20,000 x 3/10
= ₹36,000
So gaining partner will compensate the sacrificing partner and retiring partner for their share of goodwill. Gaining partner is debited and others are debited for the goodwill share. So journal entry will be-
Sohan's Capital A/c Dr 48,000
To Rohan's Capital A/c 12,000
To Mohan's Capital A/c 36,000