18 :- A, B, C and D are partners sharing profits in the ratio of 3:3:2:2 respectively. D retires and A, B and C decide to share future profits in the ratio of 3:2:1. Goodwill of the firm is valued at Rs 6,00,000. Goodwill existed in the books at Rs 4,50,000. Profits for the first year after D’s retirement was Rs 12,00,000. Give necessary journal entries to record Goodwill and to distribute the profits. Show your calculations.
Solution :-
WORKING NOTES :-
(a) Calculation of gaining ratio of partners
New ratio – old ratio
A = 3/6 – 3/10 = 12/60
B = 2/6 – 3/10 = 2/60
C = 1/6 – 2/10 = -2/60 (sacrifice)
Only A and B gain, C also has sacrifices his share so he will be compensated too
(b) Calculation of share of goodwill
D’s share of goodwill = 6,00,000 x 2/10 = Rs 1,20,000
C’s share of goodwill = 6,00,000 x 2/60 = Rs 20,000
A and B will brought their goodwill in 6:1.
A’s share of goodwill = 1,40,000 x 6/7 = Rs 1,20,000
B’s share of goodwill = 1,40,000 x 1/7 = Rs 20,000