Question

Varun, Tarun, Arun and Barun were partners in a firm sharing profits in the ratio of 5:3:2:2. Arun retired on 31st 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 goodwill account.

Hint:

For retiring partners, goodwill adjustment is made using the gaining ratio of the remaining partners to compensate the retiring partner for their share of goodwill.

Answer 1

Workings: Step 1: Calculate Arun's share of goodwill:
Goodwill of the firm = \rupee 9,00,000
Arun's share in goodwill = \(\rupee 9,00,000 \times \frac{2}{12} = \rupee 1,50,000\) Step 2: Adjustment for goodwill:
Gaining ratio of Varun, Tarun, and Barun after Arun’s retirement = 1:1:1
Adjustment entry: Varun, Tarun, and Barun compensate Arun for his share of goodwill in their gaining ratio. Journal Entry: \begin{center} \begin{tabular}{|l|p{8cm}|r|r|} Date & Particulars & Debit (\rupee) & Credit (\rupee)
31st March, 2023 & Varun’s Capital A/c & 50,000 & --
& Tarun’s Capital A/c & 50,000 & --
& Barun’s Capital A/c & 50,000 & --
& To Arun’s Capital A/c & -- & 1,50,000
& \textit{(Arun’s share of goodwill adjusted through gaining partners’ capital accounts in their gaining ratio)} & &
\end{tabular} \end{center}