A, B and C are sharing profits in the ratio of 3 : 2 : 1. B retires and on the day of B's retirement, Goodwill is valued at ₹60,000. A and C decided to share future profits in the ratio of 3 : 2. Journal entry will be :
Answer & explanation
Correct answer: option 2
The correct answer is option 2-
A's Capital A/c Dr. ₹6,000
C's Capital A/c Dr. ₹14,000
To B's Capital A/c ₹20,000
Old ratio = 3:2:1
New ratio after B's retirement = 3:2
Gained share = New share -Old share
Gain of A = 3/5-3/6
= (18-15)/30
= 3/30
Gain of C = 2/5-1/6
= (12-5)/30
= 7/30
Gaining ratio = 3/30 : 7/30 i.e. 3:7
Goodwill of firm = 60,000
B' share in goodwill = 60,000 x 2/6
= ₹20,000
This 20,000 is borne by gaining partners in their gaining ratio. There accounts are debited and retiring partner is credited.
A's debited by = 20,000 x 3/10
= 6,000
C's debited by = 20,000 x 7/10
= 14,000
Journal entry will be-
A's Capital A/c Dr ₹6,000
C's Capital A/c Dr ₹14,000
To B's Capital A/c ₹20,000