Question

Isha and Manish were partners in a firm sharing profits and losses in the ratio of 3:2. With effect from 1^st April, 2023, they agreed to share profits equally. On this date, the goodwill of the firm was valued at Rs. 3,00,000. The necessary journal entry for the treatment of goodwill without opening Goodwill Account will be: \[ \begin{array}{|c|l|c|c|} \hline \textbf{Date 2023} & \textbf{Particulars} & \textbf{Dr. Amount (Rs.)} & \textbf{Cr. Amount (Rs.)} \\ \hline \text{(A) April, 1} & \text{Manish’s Capital A/c Dr.} & 30,000 & \text{To Isha’s Capital A/c} 30,000 \\ \text{(B) April, 1} & \text{Isha’s Capital A/c Dr.} & 30,000 & \text{To Manish’s Capital A/c} 30,000 \\ \text{(C) April, 1} & \text{Manish’s Capital A/c Dr.} & 3,000 & \text{To Isha’s Capital A/c} 3,000 \\ \text{(D) April, 1} & \text{Isha’s Capital A/c Dr.} & 3,000 & \text{To Manish’s Capital A/c} 3,000 \\ \hline \end{array} \]

Hint:

When partners agree to change their profit-sharing ratio, goodwill adjustments are made based on the sacrificing and gaining ratios without opening a goodwill account.

Answer 1

The old ratio of Isha and Manish is 3 : 2, and the new ratio is 1 : 1. The sacrificing ratio is calculated as: \[ \text{Sacrificing Ratio} = \text{Old Ratio} - \text{New Ratio} \] For Isha: \[ \frac{3}{5} - \frac{1}{2} = \frac{6}{10} - \frac{5}{10} = \frac{1}{10} \] For Manish: \[ \frac{2}{5} - \frac{1}{2} = \frac{4}{10} - \frac{5}{10} = -\frac{1}{10} \] The goodwill to be adjusted: \[ Rs.3,00,000 \times \frac{1}{10} = Rs.30,000 \] Journal entry: \[ \begin{array}{|l|c|c|} \hline \textbf{Particulars} & \textbf{Dr. Amount (Rs.)} & \textbf{Cr. Amount (Rs.)} \\ \hline \text{Manish’s Capital A/c Dr.} & 30,000 & \\ \text{To Isha’s Capital A/c} & & 30,000 \\ \hline \end{array} \]