## A, B and C shared profits and losses in the ratio of 3 : 2 : 1 respectively. With effect from 1st April, 2019, they agreed to share profits equally. The goodwill of the firm was valued at Rs. 18,000. Pass necessary Journal entries when: (a) Goodwill is adjusted through Partners’ Capital Accounts; and (b) Goodwill is raised and written off.

Solution

Gaining ratio or sacrificing ration will be calculated as:
Gaining/Sacrificing Ratio = New Ratio – Old Ratio

Therefore:
For A =  1/3 – 3/6
=   2/6 – 3/6
= 1/6 Gaining Ratio

For B =  1/3 – 2/6
=   2/6 – 2/6
= No Change

For C =  1/3 – 1/6
2/6 – 1/6
= 1/6  Sacrificing Ratio

If no Goodwill account is not opened than an adjustment entry will be passed as under: Rs.18000 * 1/6 = Rs. 3000
C’s Capital Account                      Dr.  3000
To A’s Capital Account                            3000

If Goodwill Account is opened, first goodwill account is created by crediting partners capital account in their old profit sharing ratios:
Goodwill Account                          Dr. 18000
To A’s Capital Account                                    9000
To B’s Capital Account                                    6000
To C’s Capital Account                                    3000

Than, Goodwill will be written off in the new profit sharing ratio:
A’s Capital Account                      Dr.6000
B’s Capital Account                      Dr. 6000
C’s Capital Account                    Dr. 6000
To Goodwill Account                                   18000