Valuation of Goodwill

Goodwill is the value attributed to the reputation, brand, customer loyalty, and overall positive image of a business. It is an intangible asset and is recorded in the books of accounts when a new partner joins or an existing partner retires from a partnership firm. In this case, B is retiring from the firm and the goodwill of the firm needs to be valued at ₹90,000.

Calculation of B's Share of Goodwill

To determine B's share of goodwill, we need to consider the ratio in which the partners share profits and losses. The given ratio is 1/2:1/3:1/6 for A, B, and C respectively.

The sum of the ratios is 1/2 + 1/3 + 1/6 = 3/6 + 2/6 + 1/6 = 6/6 = 1.

Now, we can calculate B's share of goodwill using the ratio of B's profit-sharing ratio to the sum of all the partners' profit-sharing ratios.

B's share of goodwill = (B's profit-sharing ratio / Sum of all partners' profit-sharing ratios) * Goodwill

= (1/3 / 1) * 90,000

= 30,000

Therefore, B's share of goodwill is ₹30,000.

Adjustment of B's Share of Goodwill

B's share of goodwill will be adjusted in the capital accounts of A and C. The adjustment will be made by increasing the capital accounts of A and C by their respective shares in the goodwill.

The new profit-sharing ratio between A and C will be 1/2 + 1/6 : 1/3 + 1/6 = 3/6 : 2/6 = 1/2 : 1/3.

Journal Entry for the Adjustment

The journal entry to adjust B's share of goodwill in the capital accounts of A and C will be as follows:

A's Capital A/c Dr. 15,000
C's Capital A/c Dr. 15,000
To B's Capital A/c 30,000

In this entry, A and C's capital accounts are debited and B's capital account is credited with ₹30,000, which represents B's share of goodwill. This adjustment will ensure that the new profit-sharing ratio reflects the retirement of B and the transfer of his share of goodwill to the remaining partners.

Conclusion

In conclusion, B's share of goodwill is valued at ₹30,000, which will be adjusted in the capital accounts of A and C. This adjustment will maintain the new profit-sharing ratio between A and C after B's retirement and ensure a fair distribution of profits and losses in the partnership firm.