Q.X, Y and Z share profits and losses in the ratio 2:2:1. Y retires. The goodwill of the firm on the date of retirement is valued at ₹60,000, and the gaining ratio of X and Z is agreed at 3:2. Pass the necessary journal entry for the treatment of goodwill on Y's retirement, assuming goodwill is not to be raised in the books.

Y is compensated for his 2/5th share of the firm's goodwill, and X and Z bear this cost in their agreed gaining ratio, not in the old ratio between them.

Y's old share is 2/5, so his share of the ₹60,000 goodwill is 2/5 × 60,000 = ₹24,000, credited to his Capital Account. This ₹24,000 is debited to X and Z in their gaining ratio 3:2 — X bears 3/5 × 24,000 = ₹14,400, and Z bears 2/5 × 24,000 = ₹9,600.

Step 1 — Y's share of goodwill. Old ratio X:Y:Z = 2:2:1 (out of 5), so Y's old share = 2/5. Y's share of goodwill = 2/5 × ₹60,000 = ₹24,000.

Step 2 — Distributing this among X and Z in their gaining ratio 3:2.

X's share = ₹24,000 × 3/5 = ₹14,400.

Z's share = ₹24,000 × 2/5 = ₹9,600.

(Check: ₹14,400 + ₹9,600 = ₹24,000, exactly matching Y's total share of goodwill — nothing left over, nothing double-counted.)

Journal entry

(Being Y's share of goodwill adjusted through X's and Z's Capital Accounts in their gaining ratio, 3:2, on Y's retirement)

Notice that the gaining ratio used here (3:2) is the one GIVEN in the question, not the old ratio between X and Z within the original 2:2:1 (which would be 2:1) — a question will sometimes give the gaining ratio directly, in which case there is no need to separately derive it from a new ratio.

A common mistake is dividing Y's share of goodwill between X and Z in the OLD ratio between them (2:1) instead of the GAINING ratio (3:2) actually given in the question — always use whichever ratio the question specifies for splitting the goodwill burden between continuing partners, and default to the gaining ratio derived from a new ratio only when nothing else is given.