Dear Teachers,
These slides have been prepared based on the NCERT syllabus to support you in teaching Plus One and Plus Two Accountancy and Computerised Accounting.
Please review and verify the content before using it in your classrooms. If you find any errors or have feedback, please let me know.
Mujeeb Rahiman C
HSST Commerce
GHSS Pattikkad
Malappuram Dt.
✉️ mujeebchemmala@gmail.com
9995983075 �
Chapter - 3
Reconstitution of a Partnership Firm
Retirement / Death of a Partner
Treatment of Goodwill
Treatment of Goodwill
The retiring or deceased partner is entitled to his share of goodwill at the time of retirement/death because the goodwill has been earned by the firm with the efforts of all the existing partners.
Goodwill is valued at the time of retirement/death of a partner and the retiring/deceased partner is compensated for his share of goodwill by the continuing partners in their gaining ratio.
01
02
When Goodwill is already Appearing in the Books
When Goodwill does not Appear in the Books
Treatment of Goodwill
01
When Goodwill does not Appear in the Books
To Retiring/deceased Partner’s Capital A/c
Gaining Partners’ Capital A/c
Dr.
Gaining Ratio
Accounting Standard 26 specifies that goodwill can be recorded only when some consideration in money or money’s worth has been paid for it
(Goodwill adjusted to capital account in Gaining Ratio)
For example : A, B. and C are partners in a firm sharing profits in the ratio of 3:2:1. B retires. The goodwill of the firm is valued at Rs. 60,000 and the remaining partners A and C continue to share profits in the ratio of 3:1.
A’s capital A/c Dr. 15,000
C’s capital A/c Dr. 5,000
To B’s Capital A/c 20,000
(B’s share of goodwill adjusted to remaining
partners’ capital accounts in gaining ratio)
Keshav, Nirmal and Pankaj are partners sharing profits and losses in the ratio of 4 : 3 : 2. Nirmal retires and the goodwill is valued at Rs. 72,000. Keshav and Pankaj decided to share future profits and losses in the ratio of 5 : 3. Record necessary journal entries
Illustration
Gaining Share = New share – Old share
Keshav’s Gaining share =
4
9
5
8
-
=
45-32
72
Pankaj’s Gaining share =
2
9
3
8
-
=
27-16
72
13
72
11
72
Gaining Ratio = 13:11
Nirmal’s share of Goodwill = 72000 x 3/9 = 24000
Calculation Gaining Ratio
OR = 4:3:2 NR = 5:3
=
=
Date
Particulars
LF
Debit Amt
Credit Amt
Keshav’s Capital A/c
Pankaj’s Capital A/c
Dr.
Journal
(Share of goodwill adjusted to capital accounts in gaining ratio 13:11)
To Nirmal’s Capital A/c
13,000
11,000
24,000
Dr.
02
When Goodwill is already Appearing in the Books
To Retiring/deceased Partner’s Capital A/c
Gaining Partners’ Capital A/c
Dr.
Gaining Ratio
To Goodwill A/c
Old Partners’ Capital A/c
Dr.
Old Ratio
1.
2.
(Goodwill adjusted to capital account in Gaining Ratio)
(Goodwill written off)
Mujeeb Rahiman C
HSST Commerce
GHSS Pattikkad
Malappuram Dt.
Hidden Goodwill
If the firm has agreed to settle the retiring or deceased partner’s account by paying him a lump sum amount, then the amount paid to him in excess of
credit balance in his capital account after making necessary adjustments shall be treated as his share of goodwill (known as hidden goodwill).
For example, P, Q and R are partners in a firm sharing profits in the ratio of 3:2:1. R retires, and the balance in his capital account after making necessary adjustments on account of reserves, revaluation of assets and liabilities workout to be Rs. 60,000. P and Q agreed to pay him Rs. 75,000 in full settlement of his claim.
Excess amount paid = 75000 – 60000 = 15000
P’s Capital A/c Dr. 9,000
Q’s Capital A/c Dr. 6,000
To R’s Capital A/c 15,000
(R’s share of goodwill adjusted in P’s and Q’s capital
accounts in their gaining ratio of 3:2)
Mujeeb Rahiman C
HSST Commerce
GHSS Pattikkad
Malappuram Dt.