Rohan, Bharti and Leela are partners. On the retirement of Rohan, the goodwill already appears in the balance sheet at Rs. 24,000. The goodwill will be written-off:
Rohan, Bharti and Leela are partners. On the retirement of Rohan, the goodwill already appears in the balance sheet at Rs. 24,000. The goodwill will be written-off:
Solution
When goodwill already appears in the balance sheet at the time of a partner's retirement, it must be written off by debiting all partners' capital accounts in their old profit-sharing ratio.
The logic is straightforward: The existing goodwill of Rs. 24,000 represents an intangible asset that belongs to all three partners (Rohan, Bharti, and Leela) in their old profit-sharing ratio. Since goodwill is merely a notional asset without any realizable value, it should be eliminated from the books.
When writing off this goodwill, all partners (including the retiring partner Rohan) must share the loss in their old ratio because:
- The goodwill was recorded when all three partners were part of the firm
- Each partner had a claim over this asset based on their old profit-sharing ratio
- The loss from writing off should be borne by those who owned the asset
Journal Entry:
| Particulars | Debit (Rs.) | Credit (Rs.) |
|---|---|---|
| Rohan's Capital A/c | ... | |
| Bharti's Capital A/c | ... | |
| Leela's Capital A/c | ... | |
| To Goodwill A/c | 24,000 | |
| (Being existing goodwill written off in old ratio) |
The remaining partners' new ratio (Option 2) is irrelevant here as the retiring partner must also bear their share of the write-off. Options 3 and 4 are incorrect as only the retiring partner cannot bear the entire write-off of an asset that belonged to all partners.
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