Question

Madhu, Mayav and Mukul were partners in a firm sharing profits in the ratio of 3:2:1. On 31st March, 2021 Mukul retired from the firm. On Mukul's retirement, goodwill of the firm was valued at Rs. 3,00,000. Pass necessary Journal entry for the treatment of goodwill without opening goodwill account on Mukul's retirement.

Hint:

When a partner retires and goodwill account is not opened, the gaining partners compensate the retiring partner directly through their capital accounts.

Answer 1

Adjustment of Goodwill on Mukul's Retirement 

Step 1: Determine the share of the retiring partner in goodwill.
Goodwill of the firm = Rs. 3,00,000
Mukul's share of goodwill = $\frac{1}{6} \times 3,00,000$
$$= \text{Rs. } 50,000$$

Step 2: Calculate the gaining ratio.
Old profit sharing ratio = $3 : 2 : 1$
Mukul retires; therefore, the remaining partners, Madhu and Mayav, will share profits in the ratio of their old shares.

Madhu's new share = $\frac{3}{5}$
Mayav's new share = $\frac{2}{5}$

Gain of Madhu = $\frac{3}{5} - \frac{3}{6} = \frac{18-15}{30} = \frac{3}{30} = \frac{1}{10}$

Gain of Mayav = $\frac{2}{5} - \frac{2}{6} = \frac{12-10}{30} = \frac{2}{30} = \frac{1}{15}$

Gaining ratio = $\frac{1}{10} : \frac{1}{15} = 3 : 2$

Step 3: Distribute Mukul's share of goodwill.
Madhu's share of goodwill = $\frac{3}{5} \times 50,000 = \text{Rs. } 30,000$

Mayav's share of goodwill = $\frac{2}{5} \times 50,000 = \text{Rs. } 20,000$

Step 4: Journal Entry (without opening Goodwill Account).

$$ \begin{array}{|l|r|r|} \hline \textbf{Particulars} & \textbf{Dr. (Rs.)} & \textbf{Cr. (Rs.)} \\ \hline \text{Madhu's Capital A/c Dr.} & 30,000 & \\ \text{Mayav's Capital A/c Dr.} & 20,000 & \\ \quad \text{To Mukul's Capital A/c} & & 50,000 \\ \text{(Being Mukul's share of goodwill adjusted)} & & \\ \text{(in gaining ratio 3:2)} & & \\ \hline \end{array} $$

Step 5: Conclusion.
Thus, the remaining partners compensate the retiring partner Mukul for his share of goodwill by debiting their capital accounts in the gaining ratio.