ADMISSION OF NEW
PARTNER
ADMISSION OF NEW PARTNER
• Admission of a partner is one of the modes of reconstitution
of partnership firm, under which existing agreement comes
to an end and a new one comes into existence.
• According to section 31 (1) of the Partnership Act, a new
partner can be admitted only with the consent of all the
existing partners.
Need for Admission of Partner
1. When more capital is needed for the expansion of the
Business.
2. When a competent and experienced person is needed
for the efficient running of the business.
3. To increase the goodwill and reputation of the business
by taking a reputed and renowned person into the
partnership.
4. To encourage a capable employee by taking him into
the partnership.
Calculation of New Profit Sharing
Ratio
A, B and C are partners in proportion of 3:2:1 respectively. D was admitted for
1/6 share of profits. Calculate the new profit sharing ratios of the partners.
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Let the total profit = 1 A’s New Share = ×
D’s Share of Profit =
B’s New Share = ×
Remaining Profit =
C’s New Share = ×
New Ratio = : : : OR D’s Share
New Ratio =
Calculation of New Profit Sharing
Ratio
A, B and C are partners in proportion of 5:4:3 respectively. D was admitted for
10% profits. Calculate the new profit sharing ratios of the partners.
Let the total profit = 1 A’s New Share = × OR
D’s Share of Profit = 10% or or
B’s New Share = × 12
OR40
Remaining Profit =
C’s New Share = ×
OR
New Ratio = ::: OR D’s Share
New Ratio =
7 5
R & S are partners in the ratio of12, 12. They admit G for 1/6th share, which he
acquires equally from R & S. Calculate New Profit Sharing Ratio of the partners.
G’s Share of Profit =
R’s New Share =
G acquires from R =
S’s New Share =
G acquires from S =
G’s Share =
New Ratio = :: OR
New Ratio =
Accounting Treatment of
Goodwill
There may be situation related to treatment of goodwill (premium) at
the time of admission of a new partner.
1. When the amount of goodwill is paid privately. (No Entries)
2. When the new partner brings his share of goodwill in cash.
3. When the new partner does not bring his/her goodwill in cash.
Note : Premium for goodwill which
the New Partner bought into the
firm must shared among Old
Partners in Sacrificing Ratio.
Note : If goodwill is already
appearing in the Balance Sheet
then that should be distributed
among the Old Partners in the Old
Ratio. (Old Ratio = 1:1)
X’s Cap. A/c Dr. 10,000
Y’s Cap. A/c Dr. 10,000
To Goodwill A/c 20,000
When the new partner brings his share of goodwill in cash.
X & Y are partner in the ratio of 2:1. They admit z for 1/4th share of
profits which he acquires equally from X & Y. Z brings in Rs.1,65,000
as capital and Rs.30,000 as goodwill in cash. Show the accounting
treatment of goodwill of the firm.
Z’s Share of Profit = X’s New Share =
Z acquires from X = Y’s New Share =
Z acquires from Y = Z’s Share =
New Ratio = :: OR
New Ratio =
Old Ratio of X and Y = 2:1
New Ratio of X, Y and Z = 13:5:6
Cash/Bank A/c Dr. 1,95,000
To Z’s Cap. A/c 1,65,000
X= To Prem. For Goodwill A/c 30,000
Prem. For Goodwill A/c Dr. 30,000
To X’s Cap. A/c 15,000
Y=
To Y’s Cap. A/c 15,000
If Old Partner withdraw the goodwill:
: OR 3:3 OR 1:1 X’s Cap. A/c Dr. 15,000
Y’s Cap. A/c Dr. 15,000
To Cash/Bank A/c 30,000
When the new partner does not brings his share of goodwill in cash.
X & Y are partner in the ratio of 2:1. They admit z for 1/4th share of
profits which he acquires equally from X & Y. Z brings in Rs.1,65,000
as capital and his share of goodwill is Rs.30,000. Show the
accounting treatment of goodwill of the firm.
Z’s Share of Profit = X’s New Share =
Z acquires from X = Y’s New Share =
Z acquires from Y = Z’s Share =
New Ratio = :: OR
New Ratio =
Old Ratio of X and Y = 2:1
New Ratio of X, Y and Z = 13:5:6
Cash/Bank A/c Dr. 1,95,000
To Z’s Cap. A/c 1,65,000
X=
Z’s Current A/c Dr. 30,000
To X’s Cap. A/c 15,000
To Y’s Cap. A/c 15,000
Y=
: OR 3:3 OR 1:1
Steps for Solving Admission question
• Prepare Revaluation Account
• Calculation of New and Sacrificing Ratio, if required.
• Accounting Treatment of Goodwill bought by New
Partner.
• Distribution of reserves among the Partners, if given.
• Prepare Partners’ Capital Account.
• Then Prepare Balance Sheet.
