When goodwill already appears in the books at the time of a partner's retirement, it must be written off by debiting all partners' capital accounts (including the retiring partner) in their old profit sharing ratio.
Since P, Q and R share profits equally, their profit sharing ratio is 1:1:1.
When goodwill of Rs. 3,000 is written off:
Amount debited to P's Capital A/c = Rs. 3,000 × 31 = Rs. 1,000
Journal Entry for writing off goodwill:
| Account | Debit (Rs.) | Credit (Rs.) |
|---|---|---|
| P's Capital A/c | 1,000 | |
| Q's Capital A/c | 1,000 | |
| R's Capital A/c | 1,000 | |
| To Goodwill A/c | 3,000 |
The existing goodwill is removed from the books because it represents an old valuation. Fresh goodwill (if any) calculated at retirement will be adjusted separately through the gaining ratio adjustment between continuing partners.