Page 2 - Lesson Note 1
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(iii) Treatment of goodwill
(iv) Revaluation of assets and liabilities
(v) Adjustment of accumulated profits and losses
(vi) Adjustment of capital
(vii) Determination of the amount payable to the retiring partner
New Profit Sharing Ratio The ratio in which the continuing partners will share
profits and losses is called new profit sharing ratio. It is the sum total of his old
share and the ratio in which the outgoing partner’s share of profit is acquired.
New Ratio = Old Ratio + Gaining Ratio
Gaining Ratio The ratio in which the remaining i.e. continuing partners have
acquired the share from the retiring partner is called gaining ratio.
Gaining Ratio = New Ratio – Old Ratio
Treatment of Goodwill and Revaluation of Assets and Re-assessment
of Liabilitie
1. Treatment of Goodwill
Goodwill is a compensation paid to an outgoing partner payable by remaining
partners in their gaining ratio.
Adjustment for retiring partner’s share of goodwill will be made through the
following journal entry
Gaining Partners’ Capital A/c Dr [Continuing partners] [in gaining ratio]
To .Sacrificing Partner’s Capital A/c [Retiring partner]
If goodwill already appears in the old balance sheet, then it is to be written-off in
old ratio.
All Partners’ Capital/Current A/c Dr
To Goodwill A/c
