K, N and P are partners sharing profits and losses in the ratio of 4:3:2. N retires and the goodwill is valued at Rs. 72,000. K and P decided to share future profits and losses in the ratio of 5:3. Identify the correct journal entry in this scenario.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) →
K's Capital A/c Dr. 13,000
P's Capital A/c Dr. 11,000
To N's Capital A/c 24,000
Gaining Ratio = K : P = 13 : 11
N’s share of goodwill= 72,000×3 /9 =24,000
Goodwill to be credited to N’s Capital Account by the gaining partners (K and P) in their gaining ratio (13 : 11).
K’s share= 24,000× 13/24 = 13,000
P’s share=24,000× 11/ 24 = 11,000
K’s Capital A/c ……Dr 13,000
P’s Capital A/c ……Dr 11,000
To N’s Capital A/c ……24,000
(Being N’s share of goodwill adjusted in gaining ratio)