Tarun, Abhishek, Kamal and Vivek were partners in a firm sharing profits in the ratio of 5: 3 : 2: 2. Kamal……………

Question :Tarun, Abhishek, Kamal and Vivek were partners in a firm sharing profits in the ratio of 5: 3 : 2: 2. Kamal retired on 31* March, 2022. Tarun, Abhishek and Vivek decided to share future profits equally. On Kamal’s retirement goodwill of the firm was valued at % 9,00,000. Showing your working clearly, pass the necessary journal entry for treatment of goodwill on Kamal’s retirement. It was decided not to show goodwill in the books of the firm.

The correct answer is -As per the question, the existing partners Tarun, Abhishek, and Vivek will share future profits equally after Kamal’s retirement. Therefore, the sacrificing ratio of Tarun, Abhishek, and Vivek will be 2:2:1.

The value of goodwill on Kamal’s retirement is % 9,00,000. As it is decided not to show goodwill in the books of the firm, the entire amount of goodwill will be distributed among the existing partners Tarun, Abhishek, and Vivek in their sacrificing ratio.

Journal entry for the distribution of goodwill:

Goodwill Account Dr. % 9,00,000 To Tarun’s Capital Account % 3,60,000 To Abhishek’s Capital Account % 3,60,000 To Vivek’s Capital Account % 1,80,000

(Being the distribution of goodwill among Tarun, Abhishek, and Vivek in their sacrificing ratio of 2:2:1)