On retirement of a partner, goodwill will be credited to the capital account of:
Show Hint
- Retiring partner
- Remaining partners
- All partners
- None of these
The Correct Option is A
Solution and Explanation
Step 1: Understanding the treatment of goodwill.
On the retirement of a partner, goodwill is credited to the retiring partner's capital account because it represents the retiring partner's share of the firm's reputation and intangible value accumulated during their tenure.
Step 2: Identifying the correct account to credit.
The retiring partner is entitled to their share of goodwill as per the partnership agreement or mutual understanding among the partners. This amount is credited directly to their capital account.
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P, Q, and R are partners in a firm sharing profits in the ratio of \(2:2:1\). R retires, and the Balance Sheet of the firm as on that date was as under: Balance Sheet as on the Date of Retirement
\[\begin{array}{|l|r|l|r|} \hline Liabilities & Amount (Rs.) & Assets & Amount (Rs.) \\ \hline \text{Creditors} & \text{30,000} & \text{Cash} & \text{8,000} \\ \hline \text{General Reserve} & \text{60,000} & \text{Debtors} & \text{75,000} \\ \hline \text{P\&L Account} & \text{15,000} & \text{Stock} & \text{90,000} \\ \hline \text{Workmen's Compensation Reserve} & \text{10,000} & \text{Plant} & \text{1,40,000} \\ \hline \text{Capital Accounts:} & \text{} & \text{Patents} & \text{22,000} \\ \hline \text{\hspace{0.5cm} P} & \text{1,00,000} \\ \hline \text{\hspace{0.5cm} Q} & \text{80,000} \\ \hline \text{\hspace{0.5cm} R} & \text{40,000} \\ \hline \text{Total} & \text{3,35,000} & \text{Total} & \text{3,35,000} \\ \hline \end{array}\]Adjustments: 1. Stock is to be reduced to Rs. 82,000.
2. Plant is to be reduced by Rs. 20,000.
3. Patents are found valueless.
4. There is no liability on account of the Workmen's Compensation Reserve.Record the necessary journal entries at the time of retirement.
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