Question

Varun, Tarun, Arun, and Barun were partners in a firm sharing profits in the ratio of 5:3:2:2. Arun retired on 31\textsuperscript{st March, 2023. Varun, Tarun, and Barun decided to share future profits equally. On Arun’s retirement, goodwill of the firm was valued at \rupee 9,00,000. Showing your workings clearly, pass the necessary Journal Entry for treatment of Goodwill on Arun’s retirement without opening a goodwill account.}

Hint:

Adjust the retiring partner's share of goodwill in the remaining partners’ capital accounts in the gaining ratio, without opening the goodwill account.

Answer 1

Step 1: Calculate Goodwill Share for Arun: \[ \text{Goodwill} = \rupee 9,00,000 \] \[ \text{Arun’s Share} = \frac{2}{12} \times \rupee 9,00,000 = \rupee 1,50,000 \] Step 2: Adjust Goodwill in the Remaining Partners’ Capital Accounts: The gaining ratio of the remaining partners (Varun, Tarun, and Barun) is calculated as: \[ \text{New Ratio} = 1:1:1 \] \[ \text{Old Ratio of Remaining Partners} = 5:3:2 \] \[ \text{Gaining Ratio} = \text{New Ratio} - \text{Old Ratio} = \left( \frac{1}{3} - \frac{5}{12}, \frac{1}{3} - \frac{3}{12}, \frac{1}{3} - \frac{2}{12} \right) = \frac{3}{12} : \frac{1}{12} : \frac{-1}{12} \] Journal Entry: \begin{center} \begin{tabular}{|c|c|c|c|} Date & Particulars & Debit (\rupee) & Credit (\rupee)
2023-03-31 & Varun’s Capital A/c & 62,500 &
& Tarun’s Capital A/c & 37,500 &
& To Arun’s Capital A/c & & 1,50,000
\end{tabular} \end{center}