Question

P, Q and R were partners sharing profits in the ratio of 2:1:1. Q retired and the new profit-sharing ratio between P and R was equal. On Q’s retirement, the goodwill of the firm was valued at Rs.40,000. Pass necessary Journal entry for the treatment of goodwill without opening Goodwill Account on Q’s retirement.

Answer 1

Working Note :

1. calculation of gaining ratio

old ratio (P,Q and R ) = 2:1:1

Q retires from the firm 

New Ratio (p and R) = 1 : 1:1

gaining ratio = New ratio - old ratio

2. Adjustment of goodwill

goodwill of the firm = Rs.40,000

This share of goodwill is to be debited to R's capital account.