On retirement of a partner, goodwill will be credited to Capital Account of
Show Hint
- Retiring partner
- Remaining partners
- All partners
- None of them
The Correct Option is A
Solution and Explanation
A retiring partner is leaving behind the reputation and future earning capacity he helped build, so the firm compensates him for his share of goodwill before he exits.
Step 2: Identify who pays and who receives:
The remaining partners, who now gain the retiring partner's share of profit, bear this compensation in their gaining ratio — their capital accounts are debited, and the amount is credited to the retiring partner's capital account.
Final Answer: Goodwill is credited to the Retiring partner's Capital Account.
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Top UP Board XII Retirement and Death of a Partner Questions
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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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