Admission and Withdrawal of a partner

2) purchase of interest of old partners.

In this case the capital of the partnership will not be

changed since the transaction is a personal transaction
between the partners. And the amount paid by the new
partner will be distributed between the old partners
outside the partnership. (However, sometimes the partners
agree to revaluate the assets before the admission).
 Example

A and B are partners in a general partnership. They share

the profit and losses on a basis of 2:3. their capital is 100,000
and 200000 respectively. Tamer is a new partner to be
admitted to the partnership for 25% of the partner A’s
capital and 20% of the partner B’s capital and Tamer paid
to them 65000 cash.
Required:
Prepare the journal entry required to record the admission
of Tamer .
 Solution
The capital of the new partner( Tamer):
from partner A= 100000 X 25% = 25000
from partner A= 200000 X 20% = 40000
65000
SO, we will decrease the capital of A and B and increase the capital of
the new partner and the entry will be as follows:

Dr Cr
Capital, A 25000
Capital, B 40000
Capital, Tamer 65000
 Withdrawal of a partner
In this case, it is important to know that we have to do the
following steps :
1) Determining the capital of the partner at the time
of withdrawal.
It means that any profits or losses, loans, drawings should be
closed in the capital account of the partner.
2) Comparing between the balance of his capital and
the amount paid to the partner.
The difference (excess payment or underpayment) could be treated
as:
1- Goodwill 2- Bonus
 Example (1)
A, B and Nour are partners in a general partnership.
They share net income on a basis of 2:1:4 respectively.
If you know that:
1) The partner Nour withdrew from the partnership
on 31 Dec. 2011 for 30,000 in cash.
2) The capital of Nour at the date of withdrawing was
30000.
Required:
Prepare the journal entry to record the withdrawal of
Nour.
 Solution
Firstly ,we compare between the capital of withdrawing partner
Nour and the paid amount to him as follows:
1) The capital of withdrawing partner Nour = 30000.
2) The paid amount = 30000.
There is no difference between the capital of Nour and the paid
amount ,so there is no problem and the entry is:

Dr Cr
Capital, Nour 30000
Cash 30000
 Example (2)
The same facts in ex. (1) but
Partner Nour withdrew from the partnership for
36,000 in cash.
Required :
Prepare the journal entry to record the withdrawal using
the bonus method.
 Solution
1)The capital of withdrawing partner Nour = 30000.
2) The paid amount = 36000.
The paid amount to the partner (36000) is more than his capital
(30000) , so the difference (6000) is a bonus to Nour and will be
deducted from the capital of remaining partners (A& B) by the ratio
between them as follows:
A B Total
2 1 = 3
The share of ( A) = 6000 * ( 2/3) = 4000
The share of ( B) = 6000 * ( 1/3) = 2000
So, the entry is:
Capital, Nour 30000
Capital, A 4000
Capital, B 2000
Cash 36000
 Example (3)
The same facts in ex. (1) but
Partner Nour withdrew from the partnership for
36,000 in cash.
Required :
Prepare the journal entry to record the withdrawal using
the goodwill method.
 Solution
1)The capital of withdrawing partner Nour = 30000.
2) The paid amount = 36000.
The paid amount to the partner (36000) is more than his capital
(30000) , so the difference (6000) is a goodwill to Nour and will be
recorded in the entry .
So, the entry is:

Capital, Nour 30000

Goodwill 6000
Cash 36000
 Example (4)
The same facts in ex. (1) but
Partner Nour withdrew from the partnership for
27,000 in cash.
Required :
Prepare the journal entry to record the withdrawal using
the bonus method.
 Solution
1)The capital of withdrawing partner Nour = 30000.
2) The paid amount = 27000.
The paid amount to the partner (27000) is less than his capital
(30000) , so the difference (3000) is a bonus to remaining partners
(A&B) and will be added to their capital by the ratio between them as
follows:
A B Total
2 1 = 3
The share of ( A) = 3000 * ( 2/3) = 2000
The share of ( B) = 3000 * ( 1/3) = 1000
So, the entry is:
Capital, Nour 30000
Capital, A 2000
Capital, B 1000

Cash 27000
 Example (5)
The same facts in ex. (1) but
Partner Nour withdrew from the partnership for
27,000 in cash. If you know that the partnership has a
goodwill account with balance 50000.
Required :
Prepare the journal entry to record the withdrawal using
the goodwill method.
 Solution
1)The capital of withdrawing partner Nour = 30000.
2) The paid amount = 27000.
The paid amount to the partner (27000) is less than his capital
(30000) , so the difference (3000) is will be deducted from the goodwill
account and will be recorded in the entry .
So, the entry is:

Capital, Nour 30000

Goodwill 3000
Cash 27000