Question 14 Chapter 6 of +2-A
14. P, Q, R, and S were partners in firm sharing profits in the ratio of 5 : 3 : 1: 1. On 1st January 2019, S retired from the firm. On S’s retirement, the goodwill of the firm was valued at 4,20,000.
The new profit-sharing ratio among P, Q, and R will be 4 : 3 : 3.
Showing your working notes clearly, pass necessary journal entry for the treatment of goodwill in the books of the firm on S’s retirement.
The solution of Question 14 Chapter 6 of +2-A: –
| Date | Particulars |
L.F. | Debit | Credit | |
| R’s Capital A/c | Dr | 84,000 | |||
| To P’s Capital A/c | 42,000 | ||||
| To S’s Capital A/c | 42,000 | ||||
| (Being share of R’s goodwill adjusted) | |||||
Working Note: –
Old Ratio of P, Q, R, and S = 5: 3: 1: 1
S retires from the firm
New Ratio of P, Q, and R = 4: 3: 3
Calculation of Gaining Ratio: –
Gaining Ratio = New Ratio – Old Ratio
| P’s Sacrificing Share | = | 4 | – | 5 |
| 10 | 10 | |||
| = | 4 | – | 5 | |
| 10 | ||||
| = | 1 | |||
| 10 | ||||
| Q’s Gaining Share | = | 3 | – | 3 |
| 10 | 10 | |||
| = | 3 | – | 3 | |
| 10 | ||||
| = | Nil | |||
| R’s Gaining Share | = | 3 | – | 1 |
| 10 | 10 | |||
| = | 3 | – | 1 | |
| 10 | ||||
| = | 2 | |||
| 10 | ||||
Firm’s Share of Goodwill = 4,20,000
P’s Share of Goodwill = Firm’s Goodwill X P’s Sacrificing Shares
| P’s Share of Goodwill | = | 4,20,000 | X | 1 |
| 10 | ||||
| = | 42,000 |
R’s Share of Goodwill = Firm’s Goodwill X R’s Gaining Shares
| R’s Share of Goodwill | = | 4,20,000 | X | 2 |
| 10 | ||||
| = | 84,000 |
S’s Share of Goodwill = Firm’s Goodwill X S’s Sacrificing Shares
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| S’s Share of Goodwill | = | 4,20,000 | X | 1 |
| 10 | ||||
| = | 42,000 |
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
- Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
- Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
- Chapter No. 3 – Goodwill: Nature and Valuation
- Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
- Chapter No. 5 – Admission of a Partner
- Chapter No. 6 – Retirement/Death of a Partner
- Chapter No. 7 – Dissolution of a Partnership Firm
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
- Chapter No. 4 – Accounting Ratios
- Chapter No. 5 – Cash Flow Statement
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
