Multiple choice

Balances of A Band C sharing profits and losses in proportionate to their capitals, stood as follows: Capital Accounts: A Rs. 4,00,000; B Rs. 6,00,000 and C Rs. 4.00,000. A desired to retire from the B and C share the future profits; equally, Goodwill of the entire firm be valued at Rs. 2,80,000 and no Goodwill account being raised is _______.

  1. credit partner's capital account with old profit sharing ratio for Rs. 2,80,000

  2. credit partner's capital account with new profit sharing ratio for Rs. 2,80,000

  3. credit A's account with Rs. 80,000 and debit B's capital account with Rs. 20,000 and C's capital account with Rs. 60,000.

  4. credit partner's capital account with gaining ratio for Rs. 2,80,000
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C Correct answer
AI explanation

The old profit sharing ratio of A, B, and C is 2:3:2, based on their capital balances of Rs. 4,00,000, Rs. 6,00,000, and Rs. 4,00,000. Since B and C share future profits equally, their gaining ratio is 1:1, meaning B gains 1/14 and C gains 5/14 of the firm's total value. Adjusting the Rs. 2,80,000 goodwill based on the gaining ratio requires crediting A's account with Rs. 80,000, debiting B's account with Rs. 20,000, and debiting C's account with Rs. 60,000.

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