At what amount that Day be credited as new partner?

>
a. 13,000 Solution:
b. 20,000
c. 10,000
=
d. 23,000

Module 2
Lesson 2 Admission of New Partner (Part 2)

Learning Outcomes:
At the end of the module you will be able to:
1. Explain the effects of the entries when a new partner is admitted.
2. Compute bonus resulting from admission of a new partner by investment
3. Prepare journal entry related to admission of new partner by investment
of assets.
______________________________________________________________________

Content Focus

ADMISSION OF A PARTNER
B. Admission by Investment: Here, the assets are invested into the partnership and not given
to the individual partners. The investment will increase the total assets and the total partners’
equity.
Definition of Terms:
 Total Contributed Capital. It is the sum of the capital balances of the old partner’s and the actual
investment of the new partner.

 Total Agreed Capital. It is the total capital of the partnership after considering capital credits given
to each of the partners. Under the bonus method, total agreed capital is equal to the total contributed
capital though the capital credits to each partner may be equal to, greater than or less than his capital
contributions.

 Bonus. It is the amount of capital or equity transferred by one partner to another partner.

 Capital credit. It is the equity of a partner in the new partnership and is obtained by multiplying the
total agreed capital by the applicable percentage interest of the partner.

KEY POINTS
 When total agreed capital cannot be determined, assume that the total agreed capital is equal
to the total contributed capital.
 The new partner’s capital credit is assumed to be equal to his contribution in case the former
cannot be arrived at.
 To determine whether or not there is bonus to be given to the new or to the old partners, simply
compare the capital credit of the new partner against this contribution, so as:
a. Contributed Capital > Agreed Capital = Bonus to the old partners
b. Contributed Capital < Agreed Capital = Bonus to the new/incoming partner
c. Contributed Capital = Agreed Capital = No bonus

ILLUSTRATIVE CASE:
 Naruto Uzumaki and Sasuke Uchiha are partners with capital balances of
P400,000 and P200,000, respectively. They share profits in the ratio of 3:1. The
partners agreed to admit Sakura Haruno as a member of the firm. The foregoing
information will be the basis of the following cases.

BONUS TO OLD PARTNERS

Case 1. Total Agreed capital is stated. Assume that Sakura Haruno invested P250,000 for a
1/4 interest in the business. The partners decided not to revalue the assets of the partnership and
that the total agreed capital is P850,000.

Total Total
Contributed Bonus Agreed
Capital Capital
N. Uzumaki 400,000 28,125 428,125
S. Uchicha 200,000 9,375 209,375
Total 600,000 37,500 637,500

S.Haruno 250,000 (37,500) 212,500 1/4 of total

agreed
capital
Total 850,000 0 850,000

Distribution of Bonus:
N. Uzumaki 37,500 x 3/4 = P28,125
S. Uchiha 37,500 x 1/4 = P 9,375

The entry will be:

(1)
Cash 250,000
S. Haruno, Capital 250,000
(2)
S. Haruno, Capital 37,500
N. Uzumaki, Capital 28,125
S. Uchiha, Capital 9,375

Case 2. Total Agreed capital is not explicitly stated. Assume that Sakura Haruno invested
P400,000 in the business. Out of the total cash investment, P100,000 is considered as a bonus
to partners N. Uzumaki and S. Uchiha.
The investment of Haruno resulted to a bonus as stated. Under the bonus method, the
total contributed capital is equal to the total agreed capital. It is also clearly specified that the old
partners will receive the bonus.

T.C.C. Bonus T.A.C.

N. Uzumaki 400,000 75,000 475,000
S. Uchiha 200,000 25,000 225,000
Total 600,000 100,000 700,000
S. Haruno 400,000 (100,000) 300,000
Total 1,000,000 -0- 1,000,000

Distribution of Bonus:
N. Uzumaki 100,000 x 3/4 75,000
S. Uchiha 100,000 x ¼ 25,000
The entry will be
1) To record Sakura’s investment. Effects of Bonus to Old Partners
Cash 400,000
S. Haruno, Capital 400,000 Total Assets = Increase
Total Equity = Increase
Old partner’s capital credit = Increases
2) To record the bonus to the old partners
New partner’s capital credit is lower than
his/her capital contribution.
 S. Haruno, Capital 100,000
N. Uzumaki, Capital 75,000
S. Uchicha, Capital 25,000

BONUS TO NEW PARTNERS

Case 1. Total Agreed capital is stated. Assume that Sakura Haruno invested P240,000 for a
1/3 interest in the business. The total agreed capital is P840,000. The investment of Haruno
resulted to a business as shown below.

T.C.C. **Bonus T.A.C.

N. Uzumaki 400,000 (30,000) 370,000
S. Uchiha 200,000 (10,000) 190,000
Total 600,000 (40,000) 560,000
1/3 of total
S.Haruno 240,000* 40,000 280,000
agreed capital
Total 840,000 -0- 840,000

*840,000 x 1/3 = P280,000

**Distribution of Bonus:
N. Uzumaki P40,000 x ¾ = P30,000
S. Uchiha P40,000 x ¼ = P10,000 Effects of Bonus to New Partner

Total Assets = Increase

The entry will be:
Total Equity = Increase
(1)
Old partner’s capital credit = Decreases
Cash 240,000
S. Haruno, Capital 240,000
New partner’s capital credit is higher than
(2) his/her capital contribution.
N. Uzumaki, Capital 30,000
S. Uchiha, Capital 10,000
S. Haruno, Capital 40,000

Case 2. Total Agreed capital is not explicitly stated. Assume that Sakura Haruno invested
P300,000 for a 50% interest in the business. N. Uzumaki and S. Uchiha transferred part of their
capital balance to that of S. Haruno as a bonus.
The investment of S. Haruno resulted to a bonus as stated. Under the bonus method, the total
contributed capital is equal to the total agreed capital. It is also clearly specified that the new
partner will receive the bonus.

T.C.C. Bonus T.A.C.

N. Uzumaki 400,000
S. Uchiha 200,000
Total 600,000
S.Barbo 300,000 150,000 450,000
Total 900,000 900,000

Distribution of Bonus:
N. Uzumaki 150,000 x 3/4 ____________
S. Uchiha 150,000 x 1/4 ____________

The entry will be:

(1)

(2)
NEITHER THE NEW PARTNER NOR THE OLD PARTNERS RECEIVE BONUS
Assume that Sakura Haruno invested P600,000 for a 50% interest in the business. Since the total
agreed capitalization cannot be determined, it is assumed that it is equal to the total contributed
capital.

T.C.C. **Bonus T.A.C.

N. Uzumaki 400,000 -0- 400,000
S. Uchiha 200,000 -0- 200,000
50% of total
Total 600,000 -0- 600,000
agreed capital
S.Haruno 600,000* -0- 600,000
Total 1,200,000 -0- 1,200,000

The entry will be:

Cash P600,000
S. Haruno, Capital P600,000
T record Haruno’s cash investment.
PRACTICE:
Partners Mavis and Zeref have capital account balances of P30,000 and P20,000, respectively,
and they share profits and losses in a 3:1 ratio.

Required: Prepare the journal entries to record the admission of August under each of the
following conditions:
1. August invested P30,000 for a ¼ interest in net assets, the total partnership capital
(agreed capitalization) after August’s admission will be P80,000.
2. August invested P30,000, of which P10,000 is a bonus to Mavis and Zeref. In conjunction with
the admission of August, the carrying amount of the inventories is increased by P16,000.
August’s capital account is credited for P20,000.

Case 1:
T.C.C. **Bonus T.A.C.
Mavis 30,000 7,500 37,500
Zeref 20,000 2,500 22,500
Total 50,000 10,000
August 30,000 (10,000) 20,000
Total 80,000 80,000
The entry will be:
1) Cash 30,000
August, Cap. 30,000

2) August, Cap. 10,000

Mavis, Cap 7,500
Zeref, Cap. 2,500
Case 2: (Solution guide)
The adjusting journal entry before admission will be:
Inventory 16,000
Capital Adjustment 16,000 T.C.C BONUS T.A.C
Mavis 42,000 7,500 49,500
Capital Adjustment 16,000 Zeref 24,000 2,500 26,500
Mavis, Cap. 12,000 Total 66,000 10,000 76,000
August 30,000 (10,000) 20,000
Zeref, Cap. 4,000
Total 96,000 96,000
The journal entry to record August’s admission will be:
1) ____________ ________
____________ ________ Note: The amount recorded in T.C.C. should be equal
to the adjusted capital balance.
2) ____________ ________