Reconstitution of Partnership : Retirement of a Partner

₹30,000

Step 1: Total goodwill = ₹90,000. Step 2: Old ratio of X:Y:Z = 4:3:2, so total parts = 9. Step 3: Y's share = 3/9 of total goodwill. Step 4: Y's share of goodwill = ₹90,000 × 3/9 = ₹90,000 × 1/3 = ₹30,000. Why ₹40,000 is wrong: That would be X's share (4/9 × ₹90,000). Why ₹27,000 is wrong: That would be incorrect fraction applied. The retiring partner gets their proportionate share based on their OLD profit sharing ratio.

Written off by debiting all partners' capital accounts in old profit sharing ratio

Step 1: When goodwill appears in the Balance Sheet, it means it was previously recorded at some value. Step 2: As per AS-26, goodwill should not remain in the books unless purchased goodwill. Step 3: At retirement, the existing goodwill is first written off — meaning ALL partners (including the retiring partner) bear the write-off. Step 4: Journal entry: All Partners' Capital A/cs Dr. (in old ratio) To Goodwill A/c. Step 5: After writing off, the retiring partner's new share of goodwill is credited to their account from the gaining partners. This is a TWO-step process when goodwill exists in b

The amount paid to a retiring partner exceeds his adjusted capital account balance

Step 1: 'Hidden goodwill' (also called inferred goodwill) is not explicitly stated. Step 2: It is calculated when a lump sum settlement amount is agreed upon for the retiring partner. Step 3: Formula: Hidden Goodwill = Amount agreed to be paid − Adjusted Capital of retiring partner. Step 4: This excess represents the retiring partner's share of goodwill that was not separately calculated. Example: If adjusted capital = ₹64,000 and payment agreed = ₹80,000, then hidden goodwill = ₹16,000. Options B and C describe different situations not related to hidden goodwill.

All partners including the retiring partner in old profit sharing ratio

Step 1: At the time of retirement, assets and liabilities are revalued to determine the true financial position. Step 2: The profit or loss on revaluation belongs to ALL partners — including the retiring partner — because it arose during the period when all were partners. Step 3: This is different from admission of a partner, where the new partner does NOT share revaluation profit/loss. Step 4: The Revaluation Account (Profit and Loss Adjustment A/c) is prepared and its balance is distributed in the OLD profit sharing ratio among all partners. This ensures the retiring partner gets a fair shar