M, N and R are partners sharing Profit and Losses in the Ratio of 3: 3:2. They decided to change their ratio equally. On that date goodwill appearing in the Balance Sheet was ₹2,40,000, which the partners decided to write off. The journal entry to write off this goodwill will be:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → M’s Capital A/c Dr. ₹90,000; N’s Capital A/c Dr. ₹90,000; R’s Capital A/c Dr. ₹60,000; To Goodwill A/c ₹2,40,000
A change in the profit sharing ratio is treated like an admission: goodwill already appearing in the books belongs to the partners in the ratio in which they shared profits when it was built up, so it is written off by debiting all the partners’ capital accounts in the old ratio 3:3:2.
M = 2,40,000 × 3/8 = Rs. 90,000
N = 2,40,000 × 3/8 = Rs. 90,000
R = 2,40,000 × 2/8 = Rs. 60,000
The entries debiting R (or M and N) with Rs. 20,000 adjust a value of goodwill between the gaining and sacrificing partners; they do not write off the goodwill standing in the books, and “no entry” would leave it there.
NCERT (2026-27 edition): NCERT (2026-27 edition): |