Read the following information and answer the question.
A, B & C are partners sharing profits in the ratio of 5:4:1. Their capital accounts showing balance of ₹300000, ₹150000, ₹150000 respectively. It is decided between partners that they will share future profits equally. Firm has the following information-
Creditors- ₹1,10,000
Salary payable- ₹30,000
O/s expenses- ₹10,000
General reserve- ₹40,000
Bank balance- ₹2,10,000
Sundry debtors- ₹1,00,000
Provision for doubtful debts- ₹10,000
Stock -₹50,000
Furniture- ₹40,000
Computers- ₹2,00,000
Vehicle- ₹2,00,000
The goodwill of the firm is valued at ₹50,000. Pass the journal entry for its adjustment.
Answer & explanation
Correct answer: option 4
The correct answer is option 4-
C's Capital A/c Dr. ₹11,667
To A's Capital A/c ₹8,333
To B's Capital A/c ₹3,334
Old ratio is 5:4:1
New ratio is 1:1:1
Sacrifice of B = Old share - New share
= 4/10 - 1/3
= (12-10)/30
= 2/30
Gain of C = New share - old share
= 1/3 -1/10
= (10-3)/30
= 7/30
Sacrifice of A = Old share - New share
= 5/10 - 1/3
= (15-10)/30
= 5/30
So, C will compensate both A and B IN THEIR SACRIFICING RATIO.
C's share in goodwill = 50,000 X 7/30
= 11,667
A's share in goodwill = 50,000 X 5/30
= 8,333
B's share in goodwill = 50,000 X 2/30
= 3,334
So, journal entry will be-
C's Capital A/c Dr. ₹11,667
To A's Capital A/c ₹8,333
To B's Capital A/c ₹3,334