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Vimal and Nirmal are partners in a firm sharing profits and losses in the ratio of 3: 2. A new partner Kailash is admitted. Vimal gives 1/5th of his share and Nirmal gives 2/5th of his share in favour of Kailash. For the purpose of Kailash’s admission, goodwill of the firm is valued at 75,000 and Kailash brings his share of goodwill in cash which is retained in the business. Journalise the above transactions.

SOLUTION

Old Ratio of Vimal and Nirmal is 3: 2
Share of Profits Kailash will get from Vimal 1/5th of his share 3/ 5
= 3/5 × 1/5 = 3/25

Share of Profits Kailash will get from Nirmal 2/5th of his share 2/5
= 2/5 × 2/5 = 4/25

Remaining of –
Vimal = 3/5 – 3/25 = 12/25
Nirmal = 2/5 – 4/25 = 6/25
Share of Kailash = 3/25 + 4/25 = 3 + 4/25 = 7/25

New Profit-sharing ratio of Vimal, Nirmal and Kailash = 12/25: 6/25: 7/25
Kailash brings his share of goodwill in cash = 75,000 × 7/25 = 21,000
Vimal and Nirmal will be compensated in sacrificing = 3: 4
Vimal = 21,000 × 3/7 = 9,000
Nirmal = 21,000 × 4/7 = 12,000

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