Multiple choice

X,Y and Z are three partners in a firm. They are sharing profit and loss in the ratio of 2:2:1. Y retires from the firm on 31st March. The firm decided not to raise goodwill A/c in the books of a/c. What entry will be made for the treatment of goodwill at the time of retirement of Y?

  1. Debit X and Z ,Credit Y (for share of Y in the gaining ratio)

  2. Goodwill A/c Dr, Credit Y's Capital A/c

  3. Goodwill A/c Dr,Credit X,Y and Z Capital A/c

  4. Goodwill A/c Dr. Credit X and Z A/c
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A Correct answer
Explanation

When a partner retires and goodwill is not raised, the retiring partner's share of goodwill is adjusted by debiting the remaining partners in their gaining ratio and crediting the retiring partner's capital account.

AI explanation

When goodwill is not raised in the books, the continuing partners must compensate the retiring partner in their gaining ratio. The required journal entry debits the continuing partners' capital accounts (X and Z) and credits the retiring partner's capital account (Y).

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