Question

Amar, Ali and Ajay were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. On 1^st April, 2024, Ajay decided to retire from the firm. On that day, the balance in his capital account after making necessary adjustments on account of reserves, revaluation of assets and reassessment of liabilities was ₹2,64,000. Amar and Ali agreed to pay him ₹3,00,000 in full settlement of his claim.

Calculate Ajay’s share of goodwill and pass the necessary journal entry for the same.

Hint:

At the time of retirement, goodwill is compensated by the continuing partners in the gaining ratio.

Answer 1

Ajay's final claim = ₹3,00,000
Balance in Ajay’s Capital A/c = ₹2,64,000
Excess payment = ₹3,00,000 – ₹2,64,000 = ₹36,000
This excess is considered as Ajay’s share of goodwill, which is to be borne by the continuing partners Amar and Ali in their gaining ratio.
Step 1: Calculate gaining ratio
Old ratio = 2 : 2 : 1 = Amar:Ali:Ajay
Ajay retires → New ratio of Amar and Ali = 2 : 2 = 1:1
Gaining Ratio = New Ratio – Old Ratio
Amar’s gain = 1/2 – 2/5 = (5 – 4)/10 = 1/10
Ali’s gain = 1/2 – 2/5 = (5 – 4)/10 = 1/10
Gaining Ratio = 1 : 1
Step 2: Distribute goodwill in gaining ratio
Amar’s share = ₹18,000 Ali’s share = ₹18,000

Amar’s Capital A/c       Dr.   18,000  
Ali’s Capital A/c        Dr.   18,000  
   To Ajay’s Capital A/c             36,000  
(Being Ajay’s share of goodwill adjusted to continuing partners)