Journal Entries for New Profit Sharing and Sacrificing Ratio (Part A)

Introduction:
In this scenario, A, B, and C are sharing profits in the ratio of 3:2:1. B retires, and on the day of his retirement, goodwill is valued at Rs.60,000. A and B want to share profits in the ratio of 3:2. The journal entries related to this situation are:

1. Goodwill Adjustment Entry:

Goodwill is appearing in the books at a value of Rs.24,000. B retires, and on the day of his retirement, goodwill is valued at Rs.60,000. Hence, the goodwill adjustment entry is:

Particulars Debit Credit
B's Capital A/c - 8,000 (2/6 of Rs.36,000)
C's Capital A/c - 4,000 (1/6 of Rs.36,000)
Goodwill A/c 28,000
To B's Capital A/c 12,000 (2/5 of Rs.30,000)
To C's Capital A/c 16,000 (3/5 of Rs.30,000)

Explanation:
• B's share of goodwill is credited to his capital account.
• C's share of goodwill is credited to his capital account.
• The remaining goodwill value (Rs.28,000) is debited to Goodwill A/c.
• A receives 3/5th share of the remaining goodwill value (Rs.28,000 x 3/5 = Rs.16,800).
• B receives 2/5th share of the remaining goodwill value (Rs.28,000 x 2/5 = Rs.11,200).

2. B's Retirement Entry:

Particulars Debit Credit
B's Capital A/c 26,000 (20,000 + 6,000)
Goodwill A/c 11,200 (2/5 of Rs.28,000)
To Bank A/c 37,200

Explanation:
• B's capital account is debited by his balance (Rs.20,000) and his share of goodwill (Rs.11,200).
• The total debited amount (Rs.37,200) is credited to the Bank A/c.

3. New Profit Sharing Ratio Entry:

A and B want to share profits in the ratio of 3:2. Hence, the new profit sharing ratio entry is:

Particulars Debit Credit
A's Capital A/c - 4,000 (1/5 of Rs.20,000)
B's Capital A/c - 8,000 (2/5 of Rs.20,000)
C's Capital A/c - 8,000 (2/5 of Rs.20,000)
To Profit and Loss A/c 20,000

Explanation:
• A's share of profit is increased by Rs.1,000 (3/5 - 3/6 = 1/6 of Rs.20,000).
• B's share of profit is decreased by Rs.4,000 (2/5 - 2/6 = 2/30 of Rs.20,000).
• C's share of profit is increased by Rs.3,000 (1/5 - 1

A=6000 c=14000