A, B & C are partners sharing profits and losses in the ratio of 6:5:4 with capitals ₹100000, ₹80000 & ₹60000 respectively. A decides to retire and the goodwill of the firm is valued at ₹180000 on the retirement. The remaining partners decide to share the future profits and losses in the ratio of 1:4.
What will be the journal entry for the treatment of goodwill?
Answer & explanation
Correct answer: option 4
Old ratio 6:5:4
After A retirement new ratio is 1:4
B gain=1/5-5/15= -2/15 means B sacrifice
C gain= 4/5-4/15= 8/15
Goodwill= 180000
As B sacrifices, B's share of goodwill= 180000*2/15= 24000 and A is retiring so he will get this amount from C.
A share of goodwill= 180000*6/15= 72000 and get this amount from C.
C will pay total of both= 24000+72000= 96000.
So, a journal entry will be
C's Capital A/c Dr.. ₹96000
To A's Capital A/c ₹72000
To B's Capital A/c ₹24000