Partners D and E have capital balances of ₹10,00,000 and ₹6,00,000 respectively and share profits in the ratio 5:3. The profits for the last two years were ₹1,00,000 and ₹1,40,000. Goodwill is valued at 2 times the average profit. Partner E retires and is bought out at book value. After retirement, a new partner F is admitted with a 30% profit share, leaving D with a 70% share. Goodwill is transferred to the remaining partners D and F in proportion to their new profit shares. Determine (i) the amount payable to retiring partner E, (ii) the goodwill transferred to D, and (iii) the goodwill transferred to F.

Step-by-step solution

1. Average profit = (1,00,000 + 1,40,000) / 2 = ₹1,20,000.
2. Goodwill = 2 $\times$ average profit = 2 $\times$ 1,20,000 = ₹2,40,000.
3. E's share of profit for the current year (assumed equal to average profit) = 3/(5+3) $\times$ 1,20,000 = ₹45,000.
4. E's book value = capital balance + profit share = 6,00,000 + 45,000 = ₹6,45,000.
5. Since the buy‑out is at book value, E is paid ₹6,45,000.
6. E's share of goodwill = profit‑sharing proportion = 3/8 $\times$ 2,40,000 = ₹90,000.
7. Goodwill is now to be shared between D and F in the ratio of their new profit shares (70:30).
8. D receives (70/100) $\times$ 90,000 = ₹63,000.
9. F receives (30/100) $\times$ 90,000 = ₹27,000.

Concept tested: Retirement followed by admission of a new partner

Published 27 September 2026 · How this solution was prepared and checked