A and B are partners sharing profits and losses in ratio of 3:2. They agreed to change the ratio and decide it to 1:1. The goodwill of the firm was valued at ₹60,000. What will be the adjustment entry for recording this?
Answer & explanation
Correct answer: option 3
The correct answer is option 3-
B's capital A/c Dr. ₹6,000
To A's capital A/c ₹6,000
OLD RATIO IS 3:2
NEW RATIO IS 1:1
Sacrificed share = Old share - New share
A's sacrifice = 3/5-1/2
= (6-5)/10
= 1/10
B's sacrifice = 2/5-1/2
= (4-5)/10
= -1/10
As this figure is negative so it is (GAIN).
B will compensate A.
Goodwill is 60,000 so B share is = 60,000 x 1/10
= 6,000
So, B will compensate A by 6,000
So, adjustment entry is
B's capital A/c Dr... ₹6000
To A's capital A/c ₹6000
(Goodwill is adjusted due to change in profit sharing ratio)