Question

L, M and O are partners sharing profits and losses in the ratio of 4:3:2. M retires and the goodwill is valued at Rs.72,000. Calculate M’s share of goodwill and pass the necessary Journal entry for the same without opening the Goodwill Account. L and 0 decided to share the future profits and losses in the ratio of 5:3.

Answer 1

1. Calculation of gaining ratio

old Ratio ( L, M and O) = 4:3:2

M retires from the firm.

New Ratio ( L and O ) = 5:3

Gaining Ratio = New Ratio - old ratio

2. Adjustment of goodwill

goodwill of the firm = Rs.72,000

This share of goodwill is to be debited to remaining parters's captial account in their gaining ratio (i,e,13:11)