ADMISSION OF A PARTNER
Meaning Of Admission Of A Partner
Admission of a partner is a mode of reconstituting the firm under which existing
agreement comes to an end and a new agreement between all partners (including
incoming partner) comes into existence.
Effects Of Admission Of A Partner
The effects of admission of a partner are :
• Old partnership comes to an end and new partnership comes into existence and the
firm continues.
• Combined share of the old partners gets reduced, as the incoming partner becomes
entitled to share future profits of the firm.
• Incoming partner contributes an agreed amount of capital to the firm.
• Incoming Partner becomes liable for the liabilities of the firm and also acquires
right on the assets.
• Adjustment is made in regard to reserves and accumulated profits and losses.
• Assets are revalued and liabilities are reassessed. The net change is adjusted in old
partners’ capital accounts.
• Goodwill of the firm is valued to be paid to sacrificing partners by the gaining
partners through their capital accounts.
Adjustments Required At The Time Of Admission
• Computation of new ratio and sacrificing ratio.
• Valuation and adjustment of goodwill.
• Revaluation of assets and reassessment of liabilities.
• Treatment of reserves, accumulated profits and losses.
• Adjustment of capital.
• Preparation of Balance Sheet after incorporating all the necessary changes.
Computation of New Profit Sharing Ratio
When a new partner is admitted into the business, he becomes entitled to share in
future profits and losses of the business.
The new partner admitted will have to acquire his/her share in the business from the
share of the old partners.
Therefore, it is important to determine the new profit-sharing ratio of all the
partners, including the new partner.
ACCOUNTANCY BY: - PANKAJ RAI (9971289389) (16 Yrs. Exp.)
, ADMISSION OF A PARTNER
The new profit sharing ratio is the share of each partner, including the new partner,
in future gains and losses of the business.
A new or incoming partner can acquire his share from the old partners in the
following manner:
1. In their old profit-sharing ratio
2. In a particular or surrendered ratio
3. In a particular fraction by some partners
4. His/her share completely from one old partner
5. Old partners share in a fixed proportion
Computation of New profit sharing ratio in different cases:
Case 1: When only the new partner’s ratio/share is given:
Steps to calculate new profit sharing ratio:
Step 1: Let the total share be 1.
Step 2: Calculate the remaining share of the old partner by deducting the new
partner’s share from the total share.
Step 3: Distribute the calculated remaining share among the old partners in their old
profit-sharing ratio.
Illustration:
M and N are partners sharing profits and losses in the ratio of 4:3. R is admitted into
for 1/2 share in the profits and losses of the firm. Calculate the new profit-sharing
ratio.
Case 2: When old partners distribute the balance share in a fixed
proportion
Steps to calculate new profit sharing ratio:
Step 1: Let the total profit be 1.
Step 2: Calculate the remaining share of the old partner by deducting the new
partner’s share from the total share.
Step 3: Distribute the calculated remaining share among the old partners in the fixed
proportion.
ACCOUNTANCY BY: - PANKAJ RAI (9971289389) (16 Yrs. Exp.)
Meaning Of Admission Of A Partner
Admission of a partner is a mode of reconstituting the firm under which existing
agreement comes to an end and a new agreement between all partners (including
incoming partner) comes into existence.
Effects Of Admission Of A Partner
The effects of admission of a partner are :
• Old partnership comes to an end and new partnership comes into existence and the
firm continues.
• Combined share of the old partners gets reduced, as the incoming partner becomes
entitled to share future profits of the firm.
• Incoming partner contributes an agreed amount of capital to the firm.
• Incoming Partner becomes liable for the liabilities of the firm and also acquires
right on the assets.
• Adjustment is made in regard to reserves and accumulated profits and losses.
• Assets are revalued and liabilities are reassessed. The net change is adjusted in old
partners’ capital accounts.
• Goodwill of the firm is valued to be paid to sacrificing partners by the gaining
partners through their capital accounts.
Adjustments Required At The Time Of Admission
• Computation of new ratio and sacrificing ratio.
• Valuation and adjustment of goodwill.
• Revaluation of assets and reassessment of liabilities.
• Treatment of reserves, accumulated profits and losses.
• Adjustment of capital.
• Preparation of Balance Sheet after incorporating all the necessary changes.
Computation of New Profit Sharing Ratio
When a new partner is admitted into the business, he becomes entitled to share in
future profits and losses of the business.
The new partner admitted will have to acquire his/her share in the business from the
share of the old partners.
Therefore, it is important to determine the new profit-sharing ratio of all the
partners, including the new partner.
ACCOUNTANCY BY: - PANKAJ RAI (9971289389) (16 Yrs. Exp.)
, ADMISSION OF A PARTNER
The new profit sharing ratio is the share of each partner, including the new partner,
in future gains and losses of the business.
A new or incoming partner can acquire his share from the old partners in the
following manner:
1. In their old profit-sharing ratio
2. In a particular or surrendered ratio
3. In a particular fraction by some partners
4. His/her share completely from one old partner
5. Old partners share in a fixed proportion
Computation of New profit sharing ratio in different cases:
Case 1: When only the new partner’s ratio/share is given:
Steps to calculate new profit sharing ratio:
Step 1: Let the total share be 1.
Step 2: Calculate the remaining share of the old partner by deducting the new
partner’s share from the total share.
Step 3: Distribute the calculated remaining share among the old partners in their old
profit-sharing ratio.
Illustration:
M and N are partners sharing profits and losses in the ratio of 4:3. R is admitted into
for 1/2 share in the profits and losses of the firm. Calculate the new profit-sharing
ratio.
Case 2: When old partners distribute the balance share in a fixed
proportion
Steps to calculate new profit sharing ratio:
Step 1: Let the total profit be 1.
Step 2: Calculate the remaining share of the old partner by deducting the new
partner’s share from the total share.
Step 3: Distribute the calculated remaining share among the old partners in the fixed
proportion.
ACCOUNTANCY BY: - PANKAJ RAI (9971289389) (16 Yrs. Exp.)
