Partners A, B and C share profits in the ratio $3:2:5$ (total 10 parts). The firm's balance sheet shows net assets (book value) of $\text{Rs.}3,00,000$. Goodwill is valued at $\text{Rs.}80,000$. On the retirement of partner C, the partners decide to write off goodwill in the sacrificing ratio of the remaining partners A and B (i.e., $3:2$). Additionally, assets are revalued: machinery increases by $\text{Rs.}15,000$ and stock decreases by $\text{Rs.}5,000$. Calculate the amount that should be paid to the retiring partner C.

Step-by-step solution

1. Determine C's share in the profit sharing ratio: $\frac{5}{10}=0.5$ (50%).
2. C's share of net assets = 50% of $\text{Rs.}3,00,000=\text{Rs.}1,50,000$.
3. Goodwill to be given to C = 50% of $\text{Rs.}80,000=\text{Rs.}40,000$.
4. Revaluation surplus = increase in machinery $\text{Rs.}15,000$ – decrease in stock $\text{Rs.}5,000=\text{Rs.}10,000$.
5. Revaluation reserve is distributed only among the continuing partners (A and B); C does not receive any part of it.
6. Total amount payable to C = share of net assets + share of goodwill = $1,50,000+40,000=\text{Rs.}1,90,000$.

Concept tested: Retirement of partner – settlement with goodwill and revaluation

Published 22 September 2026 · How this solution was prepared and checked