Question

Vimal, Bose and Ghosh were partners in a firm sharing profits and losses equally. On 1st April, 2024, Bose retired from the firm and the new profit sharing ratio between Vimal and Ghosh was decided as 4 : 3. On Bose’s retirement, the goodwill of the firm was valued at 2,10,000. It was decided to treat goodwill without opening goodwill account. By what amount will the partners’ capital accounts be debited or credited for the treatment of goodwill on Bose’s retirement?

• A. Debit Bose’s A/c by 70,000, Credit Vimal and Ghosh by 50,000 and 20,000, respectively.
• B. Debit Vimal by 50,000, Debit Ghosh by 20,000 and Credit Bose by 70,000.
• C. Credit Vimal, Bose and Ghosh by 70,000 each and Debit Goodwill A/c by 2,10,000.
• D. Debit Vimal by 1,20,000, Debit Ghosh by 90,000 and Credit Bose’s A/c by 2,10,000.

Hint:

When goodwill is adjusted on retirement without raising a goodwill account, debit the gaining partners in the gaining ratio and credit the retiring partner with their share of goodwill.

Answer 1

The Correct Option is B

Step 1: Old ratio (Vimal : Bose : Ghosh) = 1 : 1 :\(\Rightarrow\)Each had \( \frac{1}{3} \) share 
Step 2: New ratio between Vimal and Ghosh = 4 : 3\(\Rightarrow\)
Vimal = \( \frac{4}{7} \), Ghosh = \( \frac{3}{7} \) 
Step 3: Calculate gain for each continuing partner: 
- Vimal’s gain = \( \frac{4}{7} - \frac{1}{3} = \frac{12 - 7}{21} = \frac{5}{21} \) 
- Ghosh’s gain = \( \frac{3}{7} - \frac{1}{3} = \frac{9 - 7}{21} = \frac{2}{21} \)
Step 4: Bose’s total share = \( \frac{1}{3} = \frac{7}{21} \), which is being distributed between Vimal and Ghosh in the ratio 5 : 2.
Step 5: Total goodwill = 2,10,000\(\Rightarrow\)Bose’s share = \( \frac{1}{3} \times 2,10,000 = 70,000 \)
Step 6: Distribute 70,000 in 5 : 2 ratio:
- Vimal = \( \frac{5}{7} \times 70,000 = 50,000 \) 
- Ghosh = \( \frac{2}{7} \times 70,000 = 20,000 \)
Step 7: Entry (without opening goodwill account): 
Vimal’s A/c Dr. & 50,000 
Ghosh’s A/c Dr. & 20,000 
To Bose’s A/c & 70,000