Class-12 Accountancy
Chapter 4 – Admission of a Partner
Introduction
When a new partner is admit ed in a running business due to the requirement of more capital
or may be to take advantage of the experience and competence of the newlyadmit ed partner
or any other reason, it is cal ed admission of a partner in partnership firm. According to
section 31(1) of Indian partnershipAct,1932, “A new partner can be admitted only with the
consent of al the existing partners.” At the time of admission of a new partner, fol
owing adjustments are required:
1. Calculation of new profit sharing ratio and sacrificing ratio.
2.Accounting treatment of Goodwil .
3. Accounting treatment of accumulated profit.
4. Accounting treatment of revaluation of assets and reassessment of liabilities. 5.Adjustment
of capital in newprofit sharing ratio
‘Section 31 of the Indian Partnership Act 1932’ _____
Provides that a new partner can be admitted into a firm with the consent of all the partners.
When a new partner is admitted, the existing partnership agreement comes to an end and a
new agreement comes into effect. This is called reconstitution of partnership.
The Main Rights of a new partner:
1. Right to share in the future profits of the partnership firm.
2. Right to share the assets of the partnership firm.
Effects of admission of a Partner
1. Old partnership agreement comes to an end, and a new partnership agreement takes place.
2. He will share the future profits of the firm.
3. He will contribute capital and his share of premium for goodwill.
4. Goodwill of the firm is valued , assets are revalued, liabilities are Re-assessed and
necessary adjustments are made.
, Calculation of Ratios
Meaning of Sacrificing Ratio : Ratio in which partners sacrifice their share of profit in favour of a new
partner or incoming partner is called sacrificing ratio. It is the difference of old share and new share of
the partners.
Formula of Sacrificing Ratio
Sacrificing Ratio = Old Ratio - New Ratio
Formula of new ratio :
New Ratio = old Ratio – Sacrificing ratio
Difference Between Sacrificing Ratio and New Ratio
Basis Sacrificing Ratio New Ratio
Meaning Ratio in which old partners sacrifice Ratio in which all partners share the future
in favour of the new partner profits of the firm (including new partner)
Main purpose is to know the Main purpose is to know the new ratio in
sacrifice made by the partners which future profits are to be shared
Purpose
Related to old partners only Related to all partners (including new
Relation with partner)
the partners
Formula Old Ratio - New Ratio Old Ratio – Sacrificing Ratio
Treatment of Goodwill
At the time of admission of a new partner goodwill is valued and Old goodwill (purchased
goodwill) is written off by the old partners. Goodwill is the result of hard work and the efforts
made by the existing partners. At the time of the admission of a new partner who will share
the future profits of the firm, he must compensate the existing partners by making payment to
them. This compensation is called premium for goodwill. From accounting point of view, there
may be different situations related to treatment of goodwill which are given below :
Chapter 4 – Admission of a Partner
Introduction
When a new partner is admit ed in a running business due to the requirement of more capital
or may be to take advantage of the experience and competence of the newlyadmit ed partner
or any other reason, it is cal ed admission of a partner in partnership firm. According to
section 31(1) of Indian partnershipAct,1932, “A new partner can be admitted only with the
consent of al the existing partners.” At the time of admission of a new partner, fol
owing adjustments are required:
1. Calculation of new profit sharing ratio and sacrificing ratio.
2.Accounting treatment of Goodwil .
3. Accounting treatment of accumulated profit.
4. Accounting treatment of revaluation of assets and reassessment of liabilities. 5.Adjustment
of capital in newprofit sharing ratio
‘Section 31 of the Indian Partnership Act 1932’ _____
Provides that a new partner can be admitted into a firm with the consent of all the partners.
When a new partner is admitted, the existing partnership agreement comes to an end and a
new agreement comes into effect. This is called reconstitution of partnership.
The Main Rights of a new partner:
1. Right to share in the future profits of the partnership firm.
2. Right to share the assets of the partnership firm.
Effects of admission of a Partner
1. Old partnership agreement comes to an end, and a new partnership agreement takes place.
2. He will share the future profits of the firm.
3. He will contribute capital and his share of premium for goodwill.
4. Goodwill of the firm is valued , assets are revalued, liabilities are Re-assessed and
necessary adjustments are made.
, Calculation of Ratios
Meaning of Sacrificing Ratio : Ratio in which partners sacrifice their share of profit in favour of a new
partner or incoming partner is called sacrificing ratio. It is the difference of old share and new share of
the partners.
Formula of Sacrificing Ratio
Sacrificing Ratio = Old Ratio - New Ratio
Formula of new ratio :
New Ratio = old Ratio – Sacrificing ratio
Difference Between Sacrificing Ratio and New Ratio
Basis Sacrificing Ratio New Ratio
Meaning Ratio in which old partners sacrifice Ratio in which all partners share the future
in favour of the new partner profits of the firm (including new partner)
Main purpose is to know the Main purpose is to know the new ratio in
sacrifice made by the partners which future profits are to be shared
Purpose
Related to old partners only Related to all partners (including new
Relation with partner)
the partners
Formula Old Ratio - New Ratio Old Ratio – Sacrificing Ratio
Treatment of Goodwill
At the time of admission of a new partner goodwill is valued and Old goodwill (purchased
goodwill) is written off by the old partners. Goodwill is the result of hard work and the efforts
made by the existing partners. At the time of the admission of a new partner who will share
the future profits of the firm, he must compensate the existing partners by making payment to
them. This compensation is called premium for goodwill. From accounting point of view, there
may be different situations related to treatment of goodwill which are given below :
