13 :- P, Q, R and S were partners in a firm sharing profits in the ratio of 5:3:1:1. On 1st january 2024, S retired from the firm. On S’s retirement, goodwill of the firm was valued at Rs 4,20,000. New profit sharing ratio among P, Q and R will be 4:3:3.
Showing your working notes clearly, pass necessary journal entry for the treatment of goodwill in the books of the firm on S’s retirement.
Solution :-
WORKING NOTES :-
(a) Calculation of gaining/sacrificing share
New ratio – old ratio
P = 4/10 – 5/10 = -1/10 (sacrifice)
Q = 3/10 – 3/10 = 0 (no change)
R = 3/10 – 1/10 = 2/10 (gain)
(b) Calculation of their share of goodwill
S’s share of goodwill = 4,20,000 x 1/10 = Rs 42,000 (credit)
P’s share = 4,20,000 x 1/10 = Rs 42,000 (credit)
R’s share = 4,20,000 x 2/10 = Rs 84,000 (debit)