PPT

1. ADMISSION OF A PARTNER

2. ADMISSION OF A PARTNER-
MEANING
Inclusion of a new person as a partner to an
existing firm is called admission of a partner.
The new partner who joins the business is
called the incoming partner or new partner.

3. Rights of incoming partners
 For acquisition of the right to share the asset, the new
partner has to bring an agreed amount of the capital.
 For the right to share profit of the partnership firm, the
new partner is required to bring some amount which is
known as premium or his share of goodwill.

4. Admission of a partner necessitates the following
accounting adjustment in the books of the firm
Ascertainment of new profit sharing ratio
Calculation of sacrificing ratio
Revaluation of asset and reassessment of liability
Distribution of reserve and accumulated profit or
loss
Treatment of goodwill
Adjustment of capital

5. New profit sharing ratio
New profit sharing ratio is the ratio in which all
partners(including new partner) share the future profit and
losses

6. Sacrificing Ratio
The ratio in which the old partners sacrifices or surrender
their share of profit in favour of incoming partner is called
sacrificing ratio.

7. Sacrificing Ratio = Old Ratio- New Ratio

8. Revaluation Account
A revaluation account is a nominal account prepared to
bring the asset and liabilities of the firm to their true
values and to find out the profit or loss arising there from.

9. Journal Entries
For increase in the value of assets
Asset a/c Dr
Revaluation a/c
For decrease in the value of assets
Revaluation a/c Dr
Asset a/c
For increase in the value of liability
Revaluation a/c Dr
Liability a/c

10.  For decrease in the value of liability
Liability a/c Dr
Revaluation a/c
 For recording unrecorded assets
Asset a/c Dr
Revaluation a/c
 For recording unrecorded liability
Revaluation a/c Dr
Liability a/c
 For transferring profit on revaluation
Revaluation a/c Dr
Old partners capital a/c
 For transferring loss on revaluation
Old partners capital a/c Dr
Revaluation

11. Proforma of Revaluation Account
Dat
e
Particulars Amou
nt
Dat
e
Particulars Amou
nt
Decrease in
value of Assets
Increase on
reassessment of
liabilities
Capital account
(Gain on
revaluation)
xxx
xxx
xxx
Increase in the
value of assets
Decrease on
reassessment
of liabilities
Capital
accounts
(Loss on
revaluation)
xxx
xxx
xxx
xxxxxx

12. Adjustment for reserve and other
accumulated profit or loss
The incoming partner is not entitled to any share in the
accumulated profit or loss of the business appearing in the
balance sheet as on the date of admission.
The balance appearing in the form of reserves or profit or
loss account balance should be transferred to the capital
account of old partners in their old profit sharing ratio.

13. Methods of treatment of Goodwill
 Premium method
 Revaluation method
 Memorandum Revaluation Method

14. Premium method
Under this method the new partner brings in his share of
goodwill in cash. The amount of premium brought in by
the new partner is shared amongst the old partner in their
sacrificing ratio.
Journal entry
 For bringing the premium (share of goodwill)
Cash/ Bank a/c Dr
Goodwill

15. For transferring goodwill to the capital account of old
partners in sacrificing ratio
Goodwill a/c Dr
Old partners capital a/c
By combining the above two entries, one entry may be
passed as follows
Cash/Bank a/c Dr
Old partners capital a/c

16. If the partnership agreement so permits, the old partners can
withdrawn either fully or partially, the amount brought in
by the new partners for goodwill. In such case two entries
are given in firm books
 For the amount brought in for goodwill
Cash a/c Dr
Old partners capital account
 On withdrawing the amount by old partners
Old partners capital a/c Dr
Cash
Goodwill brought in cash is
withdrawn by old partners

17. When only a portion of goodwill
brought in cash by new partner
In such a situation, the actual amount of goodwill brought
in cash is credited to premium account. The unpaid
amount of goodwill is debited to new partners capital
account.
Journal entry
 Goodwill premium brought by new partner transferred to
the capital account of old partners
Cash a/c Dr
Old partners capital A/C

18.  Unpaid amount of goodwill premium credited to the
capita account of old partners in sacrificing ratio
New Partners Capital a/c Dr
Old Partners Capital a/c

19. Revaluation Method of Treatment of
Goodwill
Under this method, the new partner does not bring in his
share of goodwill in cash instead, a goodwill account is
raised in the firms book. Goodwill account is created in its
full value by crediting the amount in the old partners
capital account in their old ratio. The goodwill account
should be shown on the asset side of the balance sheet.
The journal entry for raising the goodwill is
Goodwill a/c Dr
Old partners capital a/c

20. Memorandum Revaluation Method
Under this method .goodwill is raised in the books at its
full value and written off immediately after admission.
On raising the goodwill, the value is credited to the old
partners capital account in their old ratio. And on
writing it off all partners (including new partners)
capital account are debited with the value of goodwill
in their new profit sharing ratio.
Journal entries
• Goodwill a/c Dr
Old partners capital Account
(Full value of goodwill shared in old ratio)

21. • All partners capital a/c Dr
Goodwill
(The full value of goodwill written off by debiting all
partners including the new partners in their new
profit sharing ratio)

22. Share of Goodwill brought in
kind
The incoming partners may contribute his share of goodwill
in the form of assets instead of bringing cash. The asset
brought in by the new partners will be debited and
goodwill account will be credited. Later the share of
goodwill will be transferred to the capital account will be
credited. Later the share of goodwill will be transferred to
the capital account of old partners in their sacrificing ratio.
Jo

23. Journal entry for recording the transactions
 For asset brought by the new partner
Asset a/c Dr
New Partners Capital a/c
Premium(Goodwill ) a/c
 For transferring the amount to the capital accounts of the
sacrificing partners in their sacrificing ratio
Premium (Goodwill) a/c Dr
Sacrificing Partners Capital a/c

24. Adjustment of Capital
At the time of admission, the partner may agree that their
capital account should be adjusted as to make it in
proportion to the new profit sharing ratio. This can be
done either
 On the basis of new partner capital a/c
 On the basis of old partners capital

25. Adjustment of capital on the basis
of new partners capital
Under this method, the total capital of the firm is
calculated on the basis of the share of new partner and the
amount of capital brought by him. Capital required for
each partner is ascertained on the basis of the total capital
of the firm and new profit sharing ratio. The required
amount of capital will now be compared with actual
amount of capital of each partner after all adjustment are
made. If the balance is more than the required amount, the
excess will be withdrawn by partner from the firm or will
transferred to their current account.

26. Similarly if the balance is less than the required
amount of capital, the deficiency will brought by the
partners in cash or will be transferred to their current
account.

27. New partners bring his capital on
the basis of old partners capital
Under this method, the amount of capital to be
contributed by the new partner is ascertained on the basis
of the combined capital of old partners. In such a case
,first of all ,balance of old partners capital account after
making all adjustments should be calculated. The
combined capital of old partners is found out and on the
basis the old capital of the new firm is ascertained. From
the total capital, the share of new partners capital is
calculated by applying the new profit sharing ratio.