P Q and R are partners in the ration 2:2:1.Good will 25000 exists in t...
Ascertaining the Amount Due to Retiring/Deceased Partner
1. Introduction
In a partnership, when a partner retires or dies, the amount due to the retiring or deceased partner needs to be ascertained. This is usually done by calculating the retiring partner's share of the partnership's net assets, which includes the value of the goodwill. The process involves passing journal entries to adjust the books of accounts and determine the amount payable to the retiring partner.
2. Valuation of Goodwill
Goodwill is an intangible asset that represents the reputation, customer base, and other favorable factors of a business. Its value is determined based on various factors such as the profitability, market conditions, and the agreement between the partners. In this case, the goodwill is valued at $21,000.
3. Calculation of Retiring Partner's Share
To ascertain the amount due to the retiring partner, P, we need to calculate their share of the net assets of the partnership. The ratio of the partners is given as 2:2:1 for P, Q, and R, respectively. Since P's share is 2/5 (2 out of 5 parts), we can calculate their share as follows:
P's share = (P's ratio / Total ratio) * Net assets
= (2/5) * Net assets
4. Journal Entries
To adjust the books of accounts and determine the amount payable to the retiring partner, we need to pass the following journal entries:
1. To transfer the goodwill to the remaining partners:
Goodwill A/c Dr. 21,000
To P's Capital A/c 21,000
2. To adjust the partner's capital accounts:
P's Capital A/c Dr. Amount due to P
To Q's Capital A/c Cr. Amount due to P
To R's Capital A/c Cr. Amount due to P
3. To close the goodwill account:
P's Capital A/c Dr. 21,000
Q's Capital A/c Dr. 21,000
R's Capital A/c Dr. 10,500
To Goodwill A/c Cr. 52,500
5. Conclusion
By following the above steps and passing the necessary journal entries, we can ascertain the amount due to the retiring partner. It is important to properly value and allocate the goodwill as per the agreed ratio among the partners. This ensures a fair distribution of the partnership's net assets and facilitates a smooth transition when a partner retires or passes away.
To make sure you are not studying endlessly, EduRev has designed Commerce study material, with Structured Courses, Videos, & Test Series. Plus get personalized analysis, doubt solving and improvement plans to achieve a great score in Commerce.