Mr. P was carrying on a business. On 1 st April, 2023, he admitted Q as a partner giving him one-fourth profit. It was agreed that the goodwill of…

CA Foundation · Accounting · PYQS · September 2025
Mr. P was carrying on a business. On 1 st April, 2023, he admitted Q as a partner giving him one-fourth profit. It was agreed that the goodwill of the firm would be - 24,000. On 1 st July, 2023, R was admitted as a partner and it was agreed that the goodwill of the firm be determined at 40,000 and the new profit sharing ratio of P, Q and R will be3:1:1. On 1 st September, 2023, S was also admitted as a partner and at this time, goodwill was valued at 72,000/- and they agreed to share profits in the ratio of 3:1:1:1. On 1 st April, 2024, R decided to retire and T was admitted as a partner. Goodwill was agreed at 96,000 and the profit sharing ratio amongst P, Q, S and T now agreed to be5:4:3:4. All these agreements about goodwill have not been taken into account. On 1 st April, 2024, when R retires and T is admitted, the partners decided to account for the goodwill by making necessary entries in respect of goodwill in the books without keeping the goodwill account in books. You are required to show working of the goodwill and to pass the required journal entry.

Suggested Answer and Working Notes:

Journal Entry Dr. (₹) Cr. (₹) Q’s Capital A/c Dr. 9,600 S’s Capital A/c Dr. 14,000 T’s Capital A/c Dr. 24,000 To P’s Capital A/c 37,200 To R’s Capital A/c 10,400 (Being Capital A/c of the partners adjusted on admission and Retirement (See Working Note)) Working Note: Calculation of Ratios and Goodwill 1.1-4-23 Q is admitted Q’s share = 24,000 x 1 / 4 = 6,000 New Profit sharing Ratio of P and Q is3:1 Sacrifice Ratio = 1 since entire sacrifice is made by P only. 2.1-7-23 R is admitted old Ratio3:1 New Ratio3:1:1 Sacrifice Ratio P:Q 3:1 R’s share = 40,000 x 1 / 5 = 8,000 3.1-9-23 S is admitted old Ratio3:1:1 New Ratio P:Q:R:S3:1:1:1 Sacrifice Ratio P:Q:R3:1:1 S share of Goodwill - 72,000 x 1 / 6 = 12,000 4.1-4-24 R is retired and T is admitted Old Ratio P:Q:R:S3:1:1:1 New Ratio P:Q:S:T5:4:3:4 Partners Sacrifice/Gain Allocation = old Share - New Share P = 3 / 6 - 5 / 16 = 24 -15 / 48 = 9 / 48 (Sacrifice) Q = 1 / 6 - 4 / 16 = 8 -12 / 48 = -4 / 48 (Gain) R = 1 / 6 (Sacrifice) S = 1 / 6 - 3 / 16 = 8 -9 / 48 = -1 / 48 (Gain) T = -4 / 16 (Gain) Statement showing Goodwill Distribution among Partners Goodwill share distribution P Q R S T On Admission of Q 6,000 (Cr) 6,000 (Dr) On Admission of R 6,000 (Cr) 2,000 (Cr) 8,000 (Dr) On Admission of S 7,200 (Cr) 2,400 (Cr) 2,400 (Cr) 12,000 (Dr) On retirement of R and Admission of T 18,000(Cr) 8,000(Dr) 16,000(Cr) 2,000 (Dr) 24,000 (Dr) Total Effect 37,200 (Cr) 9,600 (Dr) 10,400 (Cr) 14,000(Dr) 24,000(Dr) Alternatively, distribution of Goodwill and calculation of ratios can also be presented in the following format: Statement showing the effect of raising and immediately writing back of goodwill Total P Q R S T Particulars ₹ Particulars ₹ Particulars ₹ 1-04-2023 Credit in old ratio1 : nil +24,000 +24,000 - - - - Debit in new ratio3 :1 -24,000 -18,000 -6,000 - - - 1-07-2023 Credit in old ratio3 :1 +40,000 +30,000 +10,000 - - - Debit in new ratio3 :1 :1 -40,000 -24,000 -8,000 -8,000 - - 1-09-2023 Credit in old ratio3 :1 :1 +72,000 +43,200 +14,400 +14,400 - - Debit in new ratio3 :1 :1 :1 -72,000 -36,000 -12,000 -12,000 -12,000 - 1-04-2024 Credit in old ratio3 :1 :1 :1 +96,000 +48,000 +16,000 +16,000 +16,000 - Debit in new ratio5 :4 :3 :4 -96,000 -30,000 -24,000 - -18,000 -24,000 Net amount payable/ receivable - +37,200 -9,600 +10,400 -14,000 -24,000

Topics: Treatment of Goodwill in Partnership Accounts

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic