ADMISSION OF A

PARTNER
Presenters:1.Armaan
2.Lakshay
3.Shivam
4.Nikhil
5.Ritik
6.Harsh

XII-H

Admission Of a Partner
An existing partnership firm may take up

expansion/diversification of the business. In that

case it may need managerial help or additional
capital. An option before the partnership firm is to
admit partner/partners, when partner is admitted
to the existing partnership firm, it is called
admission of a partner.
According to the Partnership Act 1932, a person
can be admitted into partnership only with the
consent of all the existing partners unless
otherwise agreed upon.
On admission of a new partner, the partnership
firm is reconstituted with a new agreement.

Rights of a new partner

A

newly admitted partner

acquires two main rights in
the firm

1. Right to share the assets of the

partnership firm;
2. Right to share the profits of the
partnership firm.

Why A New
Partner Is
Admitted ?
To increase the capital investment.
To fulfill requirement of more skills.
For risk sharing.
To expand the business.
To replace the retirement of old
partner.

Adjustment required at the

time of admission
in profit sharing ratio.
Adjustment of goodwill.
In profit/loss arising from the

revaluation of assets and

liabilities.
In accumulated profits
reserves and losses
In capital(if agreed)

NEW PROFIT SHARING RATIO

The

ratio in which all partners(including

incoming partner) share the future profits
and losses is known as the new profit
sharing ratio.
An incoming partner may acquire his
share from
old partners through any of the following

a)

alternatives :In their old profit sharing ratio; or

Q X and Y are
partners sharing
profits in the
ratio of 3:1. They
admitted
Z as a new
partner for
share in the
future profits of
the firm.
Calculate
new profit
sharing ratio of
X, Y and Z.

Ans

Let total profit = 1

Zs share = 1/4
Remaining profit = 1 1 = 4 - 1
4
4
= 3
4
Xs new share = 3 of 3 = 9
4
4
16
Ys new share = 1 of 3 =
3
4
4
16
Zs share =
1 of 1 = 1
4
4
16
New ratio = 9:3:1

Goodwill
Over a period of time, a wellestablished business develops an
advantage of good name,
reputation and wide business
connections. This helps the
business to earn more profits as
compared to a newly set up
business. In accounting, the
monetary value of such advantage

Premium for Goodwill

NEW PARTNERS A , R & J

Partner A
&R

ACCOUNTING
TREATMENT OF
GOODWILL

ACCOUNTING TREATMENT OF GOODWILL

1. Goodwill No entry.
(Premium)
paid
privately.
2. Premium Cash/Bank A/c
for goodwill Dr.
brought in
To Premium for Goodwill
cash .
A/c
Distribution
of goodwill. Premium for Goodwill
A/c ...Dr.

ACCOUNTING TREATMENT OF
GOODWILL

3. Goodwill Sacrificing Partners Capital A/cs

Dr.
withdraw
To Cash/Bank A/c
n
by
sacrificing
partners.
4. When
New Partners Capital A/c
goodwill
.Dr.
not
To Sacrificing Partners
brought Capital A/cs
in
( in sacrificing ratio)
cash.

Hidden or Inferred Goodwill

Sometimes, the value of the goodwill of the firm is not
given, it has to be inferred on the basis of net worth
(capital) of the firm.
Hidden Goodwill = New partners capital x
Reciprocal
of his share
Less:
Net worth of reconstituted firm
For ex. If A and B are two partners having capitals of
50,000 and 1,00,000 respectively decide to admit C for
1/4 share and capital of 60,000.
Goodwill = (60,000 x 4/1) ( 50,000+1,00,000+60,000)
= 2,40,000 2,10,000 = 30,000

Revaluation of Assets and

Reassessment of Liabilities
With the time, the value of assets
and liabilities may change. It is
necessary to show the true position
of the firm at the time of admission
of a new partner so that he/she is
not put to an advantage or
disadvantage.
For this purpose a Revaluation
Account is prepared. This account
is credited with all increases in the
value of assets and decrease in the
value of liabilities. It is debited

Revaluation
Particulars
Rs.
Particulars
Account
Dr.

To Decrease in
Value of Assets
To Increase in
Value of
Liabilities
To Unrecorded
Liabilities
To Gain trfd. to
the Old
Partners
Capital A/cs in
(old ratio)

xxx
xxx
xxx

xxx

To Decrease in
Value of Assets
To Increase in
Value of
Liabilities
To Unrecorded
Liabilities
To Gain trfd. to
the Old
Partners
Capital A/cs in
(old ratio)

Cr.
Rs.
xxx
xxx
xxx

xxx

Journal
Entries
For
Revaluati
on ...

(i) For increase in the value of assets:

Asset A/c
Dr.
To Revaluation A/c
(ii) For decrease in the value of Asset:
Revaluation A/c
To Asset A/c

Dr.

(iii) For increase in the value of Liabilities:

Revaluation A/c
Dr.
To Liabilities A/c
(iv) For decrease in the value of Liabilities:
Liabilities A/c
Dr.
To Revaluation A/c

(v) For unrecorded Assets:

Asset A/c [unrecorded]
Dr.
To Revaluation A/c
(vi) For unrecorded Liability :
Revaluation A/c
Dr.
To Liability A/c [unrecorded]
(vii) For transfer of gain on revaluation:
Revaluation A/c
Dr.
To Existing Partners Capital/Current A/c
(viii)For transfer of loss on revaluation:

Reserves And Accumulated

Profits/Losses
If at the time of admission of a partner, a balance in

Reserve and Accumulated Profits/Losses exists in

the Balance Sheet, they are trfd. to Old Partners
Capital A/cs in old profit-sharing ratio.

They are trfd. To Old Partners Capital A/cs because

they had been set aside out of profits in the earlier

periods ,i.e., before the partner was admitted. As a
principle, the new partner should not be put to
advantage or disadvantage.

Journal Entries
(i)For distribution of undistributed profit
and reserve.
Reserves A/c
Dr.
Profit & Loss A/c(Profit)
Dr.
To Partners Capital A/c
(ii)For distribution of loss.
Partners Capital A/c
ToProfit and Loss A/c [Loss]

Dr.

Adjustment Of Capital
It may be decided on the admission of a new
partner that either new partner will contribute as
capital an amount in proportion to his share of
profit or that the capital of other partners will be
adjusted to make them proportionate to their
respective shares of profits.
So capital can be adjusted on two basis :1. Adjustment of old partners capital on
basis of new partners capital Or
2. Calculating capital of new partner on
basis of old partners capital.

ON BASIS OF NEW PARTNERS CAPITAL

Step 1. Calculate total capital of the firm.
Total Capital = Capital of new partner x
Reciprocal of his/her share
Step 2. Determine new capital of each partner by
dividing total capital in new profit-sharing
ratio.
Step 3. Ascertain present capital of the old
partners (after all adjustments)
Step 4. Find out surplus/deficit capital by
comparing Step 2 and Step 3.
Step 5. Adjust the surplus/deficit through
Cash/Current A/cs

On Basis of Old Partners Capital

Step

1.

Determine total adjusted capital of old

partners (after all adjustments).

Step

2.

Determine total capital of the new firm as:

Total adjusted capital of old partners x
Reciprocal of total share of old partners

Step

3.

Determine the total capital of new partner as

follows:
Total capital (step 2) x Share of new partner