• We have already examined the entries required to record Goodwill in the books upon the death or retirement of one of the partners here
• We will now look at an example to demonstrate the stages involved

#### Death/Retirement Example

Peter, George and Muchineripi have been in partnership for the past five years. They own a retail shop in Harare’s CBD where they sell groceries. They share their profits/losses equally. On 31 December 20×8 George decided to retire due to old age. Peter and Muchineripi have decided they will continue with the businesses and continue to share profits equally.

The partners agree that goodwill is to be valued at \$150 000 and is to be written off immediately in the new partnership.

The partner’s capital balance on 31 December 20×8:

• Peter \$125 000
• George \$125 000
• Muchineripi \$125 000

Required:

1. Show the Goodwill entries required to show this change using without using a Goodwill Account
2. Show the Goodwill entries required to show the retirement of George using a Goodwill Account

#### Solution

a. Entries without using a Goodwill Account

 Peter George Muchineripi Capital Accounts Peter George Muchineripi Details \$ \$ \$ Details \$ \$ \$ Goodwill Adjustment 25 000 25 000 Balance b/d 125 000 125 000 125 000 Balance c/d 100 000 175 000 100 000 Goodwill adjustment 50 000 125 000 175 000 125 000 125 000 175 000 125 000

b. Entries using the Goodwill Account

 Peter George Muchineripi Capital Accounts Peter George Muchineripi Details \$ \$ \$ Details \$ \$ \$ Goodwill 75 000 75 000 Balance b/d 125 000 125 00 125 000 Balance c/d 100 000 175 000 100 000 Goodwill 50 000 50 000 50 000 175 000 000 175 000 000 175 000 000 175 000 000 175 000 000 175 000 000 Goodwill Account Details Amount (\$) Details Amount(\$) Capital: Capital: Peter 50 000 Peter 75 000 George 50 000 Muchineripi 75 000 Muchineripi 50 000 150 000 150 000

NB:

• Both methods yield the same result but as always the second method is to be preferred when answering examination questions unless of course when told otherwise

To access more topics go to the Principles of Accounts Notes.