Question 19 of 38intermediate🔧 ApplyNumerical4 marks

Sangeeta, Saroj and Shanti are partners sharing profits in the ratio of 2:3:5. Goodwill is appearing in the books at a value of Rs. 60,000. Sangeeta retires and goodwill is valued at Rs. 90,000. Saroj and Shanti decided to share future profits equally. Record necessary journal entries.

Correct Answer

Journal Entries in the books of the firm:

DateParticularsL.F.Dr. (Rs.)Cr. (Rs.)
Sangeeta's Capital A/c Dr.12,000
Saroj's Capital A/c Dr.18,000
Shanti's Capital A/c Dr.30,000
To Goodwill A/c60,000
(Being existing goodwill written off in old ratio)
Saroj's Capital A/c Dr.18,000
To Sangeeta's Capital A/c18,000
(Being retiring partner's share of goodwill adjusted through gaining partner's capital)

Working Notes:

1. Calculation of Gaining Ratio:

  • Old Profit Sharing Ratio = 2:3:5 (Sangeeta : Saroj : Shanti)
  • New Profit Sharing Ratio = 1:1 (Saroj : Shanti)
  • Gaining Share = New Share – Old Share
  • Saroj's Gaining Share = 1/2 – 3/10 = 5/10 – 3/10 = 2/10
  • Shanti's Gaining Share = 1/2 – 5/10 = 5/10 – 5/10 = 0
  • Hence, Gaining Ratio = 2:0 (Only Saroj gains)

2. Sangeeta's Share of Goodwill:

  • Sangeeta's Share = 2/10 × Rs. 90,000 = Rs. 18,000
Exercise: Questions for Practice | Q: 2 | (Chapter: 42)
For More Understanding

Explanation

This question involves two adjustments: (1) Writing off the existing goodwill from books in the old profit sharing ratio, and (2) Adjusting the retiring partner's share of goodwill through the gaining partner(s). The gaining ratio is calculated as the difference between new share and old share. Since only Saroj gains (Shanti's share remains unchanged), the entire goodwill adjustment is made through Saroj's Capital Account.

Solution Steps

  1. Step 1: Write off existing goodwill of Rs. 60,000 in old ratio 2:3:5 by debiting all partners' capital accounts

  2. Step 2: Calculate gaining ratio: Saroj gains 2/10, Shanti gains 0

  3. Step 3: Calculate Sangeeta's share of new goodwill: 2/10 × Rs. 90,000 = Rs. 18,000

  4. Step 4: Pass entry to credit Sangeeta's Capital A/c and debit gaining partner Saroj's Capital A/c by Rs. 18,000

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