A, B and C are partners sharing Profit in the ratio 1:1:1. They decided to share their profits in 5:3:2 in future. For this purpose, the goodwill of the firm was valued at ₹4,80,000. Pass the journal entry for the adjustment of goodwill.
Answer & explanation
Correct answer: option 2
The correct answer is option 2-
A's Capital A/c Dr ₹80,000
To B's Capital A/c ₹16,000
To C's Capital A/c ₹64,000
(Adjustment of goodwill)
A, B and C Old ratio = 1:1:1
A, B and C new ratio= 5:3:2
Gaining Ratio = New ratio-Old Ratio
A = 5/10 - 1/3
= (15-10) /30
= 5/30
B = 3/10 - 1/3
= (9 -10) /30
= -1/30 means Sacrifice
C = 2/ 10 - 1/3
= (6 -10) /30
= -4/30 means Sacrifice
Only Partner A is gaining. So he will compensate both B & C.
A - 4,80,000 * 5/30
= 80,000
B - 4,80,000 * 1/30
= (16,000)
C - 4,80,000 * 4/30
= ( 64,000)
So, journal entry will be passed with B & C are credited for the sacrifice and A will be debited.
A's Capital A/c Dr ₹80,000
To B's Capital A/c ₹16,000
To C's Capital A/c ₹64,000