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Admission of Partner CMA Inter FIXED

The document outlines the process of admitting a new partner in a partnership, including changes in profit-sharing ratios, goodwill treatment, and asset revaluation. It provides key concepts and common journal entries necessary for accounting adjustments, along with solved problems based on previous year questions. The examples illustrate how to calculate and distribute goodwill, revaluation profits, and general reserves among partners.

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85 views3 pages

Admission of Partner CMA Inter FIXED

The document outlines the process of admitting a new partner in a partnership, including changes in profit-sharing ratios, goodwill treatment, and asset revaluation. It provides key concepts and common journal entries necessary for accounting adjustments, along with solved problems based on previous year questions. The examples illustrate how to calculate and distribute goodwill, revaluation profits, and general reserves among partners.

Uploaded by

aboutabdur16
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Admission of a Partner – CMA Intermediate (Financial Accounting)

🔹 Overview
Admission of a partner involves changes in profit-sharing ratio, revaluation of assets and
liabilities, adjustments for goodwill, and capital restructuring. These are necessary to
ensure a fair treatment of all partners.

🔑 Key Concepts
1. New Profit-Sharing Ratio (NPSR): Sacrificing Ratio = Old Share - New Share

2. Goodwill Treatment: Can be brought in cash or adjusted through capital accounts.

3. Revaluation of Assets and Liabilities: Adjusted through a Revaluation Account.

4. Reserves and Accumulated Profits: Distributed among old partners in old ratio.

5. Adjustment of Capital: Ensures proportional capital balances according to new ratio.

📘 Common Journal Entries


1. Goodwill brought in cash:

Bank A/c Dr.

To Premium for Goodwill A/c

2. Goodwill distributed to old partners:

Premium for Goodwill A/c Dr.

To A’s Capital A/c

To B’s Capital A/c

3. Revaluation profit:

Revaluation A/c Dr.

To A’s Capital A/c

To B’s Capital A/c

4. Revaluation loss:

A’s Capital A/c Dr.


B’s Capital A/c Dr.

To Revaluation A/c

5. General Reserve transferred:

General Reserve A/c Dr.

To A’s Capital A/c

To B’s Capital A/c

6. Capital brought in by new partner:

Bank A/c Dr.

To C’s Capital A/c

🧮 Solved Problems (Based on Previous Year Questions)

Problem 1:
A and B share profits equally. C is admitted for 1/4th share. He brings ₹50,000 capital and
₹10,000 as goodwill. Assets are revalued upwards by ₹20,000; liability increases by ₹5,000.
General reserve is ₹15,000.

Solution:

• Revaluation Profit: ₹15,000 → A and B get ₹7,500 each

• Goodwill: ₹10,000 → Distributed between A and B: ₹5,000 each

• General Reserve: ₹15,000 → A and B get ₹7,500 each

Problem 2:
A and B are partners in 3:2 ratio. C is admitted for 1/5th share. Goodwill of firm is valued at
₹50,000. C brings his share in cash. Show necessary journal entries.

Solution:

• C's Share of Goodwill = ₹50,000 × 1/5 = ₹10,000


• Sacrificing Ratio = A:B = 3:2 (unchanged)

• Distribution: A gets ₹6,000; B gets ₹4,000

Problem 3:
X and Y are partners sharing profits in 4:1 ratio. Z is admitted for 1/5th share. He brings
₹30,000 as capital and goodwill ₹5,000. Revaluation profit is ₹10,000. General Reserve is
₹5,000.

Solution:

• Revaluation profit: ₹10,000 → X gets ₹8,000; Y gets ₹2,000

• Goodwill: ₹5,000 → X gets ₹4,000; Y gets ₹1,000

• General Reserve: ₹5,000 → X gets ₹4,000; Y gets ₹1,000

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