Hi all,

Can someone clearly explain how to calculate ratios?

I have an example:

Riva and Sam have been owners of a partnership business for many years, sharing profits and losses in the ratio 3:2, with Riva receiving the larger share.

On 1 Jan 20X7, the partnership agreement was changed so that Riva and Sam will share profits and losses in the ration 2:1, with Riva receiving the larger share.

Goodwill was valued at £72,000 at this date. No entries for goodwill have yet been made in the partnership accounting records.

What is the ratio split to show in the accounts?

Thanks in advance!


  • crispy
    crispy Registered Posts: 466 Dedicated contributor 🦉

    I would first create goodwill in the old profit ratio:

    Dr Goodwill 72,000
    Cr Riva Capital 43,200 (3/5 72,000)
    Cr Sam Capital 28,800 (2/5 72,000)

    And then eliminate the goodwill in the new profit sharing ratio:

    Dr Riva Capital 48,000 (72,000 2/3)
    Dr Sam Capital 24,000 (72,000 1/3)
    Cr Goodwill 72,000

    Hope this is ok
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