L, M, N and O are partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1 : 1. M and O decided to retire from the firm. The goodwill of the firm was valued at ₹ 3,60,000

L, M, N and O are partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1 : 1. M and O decided to retire from the firm. The goodwill of the firm was valued at ₹ 3,60,000. L and N decided to share future profits equally.

Find out Gaining Ratio and Pass necessary journal entry for the treatment of goodwill.

[Ans. Debit L’s Capital A/c by ₹ 60,000 and N’s Capital A/c by ₹ 1,20,000; and Credit M’s Capital A/c by ₹ 1,20,000 and O’s Capital A/c by ₹ 60,000.]