Question

Rani, Manav and Pushpa were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 1st April, 2024, Rani decided to retire from the firm. On that day, the balance in her capital account after making necessary adjustments on account of reserves, revaluation of assets and reassessment of liabilities was 3,08,000. Manav and Pushpa agreed to pay her 3,80,000 in full settlement of her claim. 
Calculate Rani’s share of goodwill and pass the necessary journal entry for the same.

Hint:

If retiring partner is paid more than their capital balance, the difference is treated as goodwill. This goodwill is borne by remaining partners in their gaining ratio.

Answer 1

Step 1: Amount agreed to be paid = 3,80,000
Capital balance after adjustments = 3,08,000
Excess paid = Goodwill Share = 3,80,000 - 3,08,000 = 72,000
Step 2: This is Rani’s share of goodwill. It must be borne by Manav and Pushpa in their gaining ratio.
Old ratio (Rani : Manav : Pushpa) = 5 : 3 : 2
Rani retires. Her share = \( \frac{5}{10} = \frac{1}{2} \)
Remaining partners’ shares = Manav = \( \frac{3}{10} \), Pushpa = \( \frac{2}{10} \)
Assume New Ratio between Manav and Pushpa = Same as old ratio (3 : 2)
Gaining Ratio = New Share - Old Share:
Manav: \( \frac{3}{5} - \frac{3}{10} = \frac{6 - 3}{10} = \frac{3}{10} \)
Pushpa: \( \frac{2}{5} - \frac{2}{10} = \frac{4 - 2}{10} = \frac{2}{10} \)
Gaining Ratio = 3 : 2
Step 3: Rani’s goodwill share of 72,000 to be distributed in 3 : 2:
- Manav = \( \frac{3}{5} \times 72,000 = 43,200 \)
- Pushpa = \( \frac{2}{5} \times 72,000 = 28,800 \)
Manav’s Capital A/c Dr. & 43,200
Pushpa’s Capital A/c Dr. & 28,800
To Rani’s Capital A/c & 72,000