Question

X,Y, and Z were partner sharing profit in proportion to 5:3:2. Good will does not appear in the books, but it is agreed to be worth Rs. 1,00,000. X retires from the firm and Y and Z decide to share future profits equally. You are required to make adjustment entry for good will without opening good will account at all. Show your working clearly.

Answer 1

X’s share of goodwill adjusted through capital accounts in the gaining ratio. 

Old ratio = 5:3:2 

New ratio =1:1 

Gaining ratio = New ratio – Old ratio 

Gain of Y = 1/2 – 3/10 = 2/10 

Gain of Z= 1/2 – 2/10 = 3/10 

Gaining ratio of Y and Z = 2 : 3 

Value of goodwill of the firm = 1,00,000 X’s s

hare of goodwill = 1,00,000 × 5/10 = 50,000 

Journal Entry:

Y's Capital A/c   Dr.	20,000
Z's Capital A/c    Dr.	30,000
To X's capital A/c		50,000

[X’s share of goodwill adjusted through the capital accounts of remaining partners in the gaining ratio of 2:3].