Deepa, Neeru and Shilpa were partners in a firm sharing profits in the ratio of `5 : 3 : 2`. Neeru retired and the new profit sharing ratio between Deepa and Shilpa was `2 : 3`. On Neeru's tetirement, the goodwill of the firm was valued at Rs. 1,20,000. Record necessary journal entry for the treatment of goodwill on Neeru's retirement.

Explanation

Working Notes
1. Calculation of Gaining Ratio
Gaining Share = New Share - Old Share
Deepa's Gaining Share = `(2)/(5)-(5)/(10)=(4-5)/(10)=-(1)/(10)=(1)/(10)` i.e., Sacrifice.
Shilpa's Gaining Share = `(3)/(5)-(2)/(10)=(6-2)/(10)=(4)/(10)` i.e., Gain
Hence, Shilpa will compensate both Neeru (retiring partner) and Deepa (continuing partner who has sacrificed) to the extent of their sacrifice worked out as follows:
Deepa's Sacrifice = Goodwill of the firm `xx` Sacrificing Share
`" =Rs. 1,20,000"xx(1)/(10)=Rs. 12,000`
Neeru's (Retiring Partner's Sacrifice) = Rs. `1,20,000 xx (3)/(10)` = Rs. 36,000.