Question

Aamir, Bashir, and Chirag were partners in a firm sharing profits and losses in the ratio \(3 : 3 : 2\). Chirag retired. Aamir and Bashir decided to share profits and losses in future in the ratio \(1 : 2\). On the day of Chirag’s retirement, goodwill of the firm was valued at \rupee5,40,000. Calculate gaining ratio and pass necessary journal entry to record the treatment of goodwill (without opening goodwill account) on Chirag’s retirement.

Hint:

When goodwill is adjusted without opening a goodwill account, the retiring partner’s share is directly debited or credited to the gaining partners’ capital accounts based on the gaining ratio.

Answer 1

Step 1: Calculation of Gaining Ratio - The old ratio of Aamir, Bashir, and Chirag was \(3 : 3 : 2\).
- Consequently, Aamir’s old share was \(\frac{3}{8}\), Bashir’s old share was \(\frac{3}{8}\), and Chirag’s old share was \(\frac{2}{8}\).
- The new ratio of Aamir and Bashir is \(1 : 2\).
- This means Aamir’s new share is \(\frac{1}{3}\) and Bashir’s new share is \(\frac{2}{3}\). \[\text{Gaining Ratio} = \text{New Share} - \text{Old Share}\]- Aamir's gain is calculated as \(\frac{1}{3} - \frac{3}{8} = \frac{8}{24} - \frac{9}{24} = -\frac{1}{24}\). Since there is no gain, Aamir does not contribute to the adjustment.
- Bashir's gain is calculated as \(\frac{2}{3} - \frac{3}{8} = \frac{16}{24} - \frac{9}{24} = \frac{7}{24}\).
Therefore, Bashir will bear the entire adjustment of goodwill. Step 2: Calculation of Goodwill
- The total goodwill of the firm is \rupee5,40,000.
- Chirag’s share of goodwill amounts to \(\frac{2}{8} \times 5,40,000 = \rupee1,35,000\).
Journal Entry: \[\text{Journal Entries in the Books of the Firm:}\]\begin{center}\begin{tabular}{|l|p{6cm}|c|r|}\hlineDate & Particulars & L.F. & Amount (\rupee)
\hline2025-01-14 & Bashir’s Capital A/c Dr. & & 1,35,000
\cline{2-4} & \quad To Chirag’s Capital A/c & & 1,35,000
\cline{2-4} & \multicolumn{3}{|l|}{(Being Chirag’s share of goodwill adjusted through Bashir’s account as per gaining ratio)}
\hline\end{tabular}\end{center}