share of goodwill due to the heirs of the deceased partner. For this purpose, the goodwill is valued on the date of the retirement of death and adjusted through the capital accounts of the partners. Example 6 A, B & C are equal partners. C wanted to retire for which value of goodwill is considered as Rs. 90,000. The necessary journal entry will be A's Capital A/C Dr. Rs. 15,000 B's Capital A/C Dr. Rs. 15,000 To C's Capital A/C Rs. 30,000 (C's share of goodwill adjusted to existing partners' capital accounts in profit gaining ratio) 162 Illustration 5 Wise, Clever and Dull were trading in partnership sharing profits and losses 4:3:3 respectively. The accounts of the firm are made up to 31st December every year. The partnership provided, inter alia, that: On the death of a partner the goodwill was to be valued at three years' purchase of average profits of the three years upto the date of the death after deducting interest @ 8 per cent on capital employed and a fair remuneration of each partner. The profits are assumed to be earned evenly throughout the year. On 30th June, 2005 Wise died and it was agreed on his death to adjust goodwill in the capital accounts with out showing any amount of goodwill in the Balance Sheet. It was agreed for the purpose of valuation of goodwill that the fair remuneration for work done by each partner would be Rs. 15,000 per annum and that the capital employed would be Rs. 1,56,000. Clever and Dull were to continue the partnership, sharing profits and losses equally after the death of Wise, The following were the amounts of profits of earlier years before charging interest on capital employed Rs. 2002 67,200 2003 75,600 2004 72,000 2005 62,400 You are requested to compute the value of goodwill and show the adjustment thereof in the books of the firm