Needing help with a goodwill question

Shane_94 Registered Posts: 2
I am currently studying AAT Level 3 and was wondering if anyone could help me with the following question, I understand the admission of a new partner but the withdrawal of one confuses me slightly. it would be greatly appreciated if someone could give me some pointers, thanks in advance.

Harry, Phil and Jo have been in partnership for a number of years sharing profits in the ratio of 3:2:1. On 30 June 20x3 Harry is to retire from the partnership. At 30 June 20x3 the goodwill of the partnership was estimated to be £30,000 and the partners' capital and current account balances are as follows

Capital Current
Harry 60000 3200
Phil 40000 1600
Jo 30000 4300

On retirement Harry has agreed to be paid £15000 of what is owed to him in cash and to leave the remainder as a loan to the partnership. After Harry's retirement Phil and Jo are to share profits and losses in the ration of 2:1

Write up the partners' capital account and current accounts to reflect the retirement of Harry.


  • Shane_94
    Shane_94 Registered Posts: 2
    Sorry the capital and current account information didn't post properly

    Harry: Cap - 60,000 Cur - 3200
    Phil: Cap - 40,000 Cur - 1600
    Jo: Cap - 30,000 Cur - 4300
  • ariadne
    ariadne Registered Posts: 218
    The goodwill is divided and allocated to each partner according to the ratio 3:2:1 so Harry gets £15,000 and the others £10,000 and £5,000 into their capital accounts.
    D goodwill £30,000
    C capital H £15,000 C capital P £10,000 C capital J £5,000

    = Capital H total £75,000 Capital P total £50,000 Capital J £35,000

    The goodwill is then closed by taking away the goodwill from the remaining partners in the 2:1 ratio £20,000 and £10,000 - the remaining partners are in effect buying the goodwill off the retiring partner as it will reduce their capital.

    C goodwill £30,000 to wipe out the goodwill from the accounts
    D capital P £20,000 D capital J £10,000

    = Capital P total £30,000 Capital J £25,000

    Harry's current and goodwill earnings will be transferred to his capital account for ease and then he can be paid the £15k from the bank. A new account will be set up for the loan amount of £60,000 + £15,000 + £3,200 = £78,200 - £15,000 = £63,200 a liability so a credit entry to open the loan account.

    Usually the accounts are given in the exams to complete so it's not too tricky, although they sometimes give you more info than you need eg the current accounts for the other partners.
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