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Q. 50. Vimal and Nirmal are partners sharing profits in the ratio of [tex][tex]$3:2$[/tex][/tex]. The following was the position of their business as of 31st March, 2022:

\begin{tabular}{|c|c|c|c|}
\hline
Liabilities & ₹ & Assets & ₹ \\
\hline
Sundry Creditors & 20,000 & Cash & 14,000 \\
\hline
Capital Accounts: & & Debtors & 18,000 \\
\hline
Vimal & 60,000 & Plant \& Machinery & 50,000 \\
\hline
Nirmal & 32,000 & Stock & 40,000 \\
\hline
Profit \& Loss A/c & 20,000 & Goodwill & 10,000 \\
\hline
& 1,32,000 & & 1,32,000 \\
\hline
\end{tabular}

On 1st April, 2022, Kailash agrees to join the business on the following terms and conditions:
1. He will introduce [tex]₹ 40,000[/tex] as his capital and pay [tex]₹ 20,000[/tex] to the existing partners for his share of goodwill.
2. The new profit-sharing ratio will be [tex]2:1:1[/tex] respectively for Vimal, Nirmal, and Kailash.
3. A revaluation of assets will be made by reducing plant and machinery to [tex]₹ 35,000[/tex] and stock by [tex]10\%[/tex]. Provision of [tex]₹ 1,000[/tex] is to be created for bad and doubtful debts.

Pass journal entries for the above arrangements and give the balance sheet of the newly constituted firm. Also, specify the sacrificing ratio.



Answer :

GinnyAnswer
Let's work through the solution step-by-step to derive the required journal entries and the balance sheet of the newly constituted firm, and to determine the sacrificing ratio.

### Step 1: Initial Setup

Given:
- Sundry Creditors: ₹20,000
- Capital Accounts:
- Vimal: ₹60,000
- Nirmal: ₹32,000
- Profit & Loss A/c: ₹20,000
- Cash: ₹14,000
- Debtors: ₹18,000
- Plant & Machinery: ₹50,000
- Stock: ₹40,000
- Goodwill: ₹10,000

### Step 2: New Partner's Introduction

Kailash introduces:
- Capital: ₹40,000
- Goodwill: ₹20,000

### Step 3: Revaluation of Assets

1. Plant & Machinery reduced to ₹35,000 (from ₹50,000).
2. Stock reduced by 10%:
- New Stock = ₹40,000 - (10% of ₹40,000) = ₹40,000 - ₹4,000 = ₹36,000.
3. Provision for bad debts:
- New Debtors = ₹18,000 - ₹1,000 (provision) = ₹17,000.

### Step 4: New Profit Sharing Ratio

New profit-sharing ratio: Vimal : Nirmal : Kailash = 2 : 1 : 1.

### Step 5: Calculating Sacrificing Ratio

The old ratio between Vimal and Nirmal was 3:2, and the new ratio is 2:1:1.
To find the sacrificing ratio, we calculate the difference in the old and new ratios:

1. Old Ratio = [3/5, 2/5]
2. New Ratio for Vimal and Nirmal out of total (4 parts) = [2/4, 1/4]

Sacrificing ratio for each partner:
- Vimal's Sacrifice = (3/5) - (2/4) = 0.6 - 0.5 = 0.1
- Nirmal's Sacrifice = (2/5) - (1/4) = 0.4 - 0.25 = 0.15

So the sacrificing ratio is: Vimal : Nirmal = 0.1 : 0.15.

### Step 6: Goodwill Adjustment

Goodwill paid by Kailash = ₹20,000.

- Vimal's share of goodwill (₹20,000 × 0.1) = ₹2,000
- Nirmal's share of goodwill (₹20,000 × 0.15) = ₹3,000

### Step 7: Adjustments in Capital Accounts

1. Vimal's new capital:
- Initial Capital = ₹60,000
- Adjusted with Goodwill = ₹60,000 + ₹2,000 = ₹62,000

2. Nirmal's new capital:
- Initial Capital = ₹32,000
- Adjusted with Goodwill = ₹32,000 + ₹3,000 = ₹35,000

### Step 8: New Balance Sheet

#### Revalued Assets:
- Cash: ₹14,000
- Debtors (Net of provision): ₹17,000
- Plant & Machinery: ₹35,000
- Stock: ₹36,000
- Goodwill: ₹10,000 + ₹20,000 (from Kailash) = ₹30,000

#### Liabilities:
- Sundry Creditors: ₹20,000
- Vimal's Capital after Goodwill: ₹62,000
- Nirmal's Capital after Goodwill: ₹35,000
- Kailash's Capital: ₹40,000

Total Assets:
[tex]\[ ₹14,000 + ₹17,000 + ₹35,000 + ₹36,000 + ₹30,000 = ₹1,32,000 \][/tex]

Total Liabilities:
[tex]\[ ₹20,000 + ₹62,000 + ₹35,000 + ₹40,000 = ₹1,57,000 \][/tex]

Finally, the details are as follows:

Revalued Assets:
- Cash: ₹14,000
- Debtors (Net of Provision): ₹17,000
- Plant & Machinery: ₹35,000
- Stock: ₹36,000
- Goodwill: ₹30,000

Liabilities:
- Sundry Creditors: ₹20,000
- Vimal's Capital after Goodwill: ₹62,000
- Nirmal's Capital after Goodwill: ₹35,000
- Kailash's Capital: ₹40,000

Total Assets: ₹1,52,000

Total Liabilities: ₹1,57,000

Sacrificing Ratio: Vimal : Nirmal = 0.1 : 0.15

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