Class notes Accountancy admission of partner

ACCOUNTANCY


CLASS 12th -commerce

Admission of a PARTNER


ADMISSION OF PARTNER-:Admission of a partner is a reconstitution of the firm,and a new partnership
agreement comes into effect.


ACCOUNTING TREATMENT

1.​ Change in profit sharing ratio.
2.​ Treatment of goodwill .
3.​ Revaluation of assets and reassessment of liabilities.
4.​ Hidden goodwill
5.​ treatment of Reserves.
6.​ Adjustment of capital.




Change in profit sharing ratio .

1.sacrifing ratio=old ratio - new ratio.

CASE-1.when ratio is not specified in question.

Example -A and B are partner sharing profits in the ratio of 3:2 .they admitted C for ⅕ share .
calculate new ratio?

Solution -let Total share =1



C’s share=⅕

Remaining share = 1-⅕=⅘

New share of = old share ×remaining

A=3/5×4/5=12/25

B=2/5×4/5=8/25

, C=⅕ (make denominator same)=1/5×5/5=5/25

New ratio=12:8:5

CASE-2 when admitted partner acquires his share equally from partners.

Example -A and B are partners sharing profits in the ratio of 3:2 .C admitted for ⅕ share he
acquire his share equally from A and B.

Solution –C’s share= ⅕

Sacrifice of A=1/5×1/2(half of ⅕)=1/10

Sacrifice of B=1/5×1/2=1/10

New ratio A=old-sacrifice=3/5-1/10 =



CASE-3 when admitted get his share of old partner's share

Example -A and B are partners sharing profits in the ratio of 3:2 C admitted for ⅕ share .A
sacrifice ½ OF his share and B sacrifice ⅓ OF his share . calculate new ratio sharing ratio?

SOLUTION - sacrifice of A =3/5×1/2=3/10

B= 2/5×1/3=2/15

New profit sharing ratio= old- sacrifice

A=3/5-3/10=

B= ⅖-2/15=

TREATMENT Of GOODWILL

1)if goodwill exist in the old balance sheet written off-

Journal entry of writing off

Goodwill AC………………..DR

To Partner's capital AC…………….

…(Being goodwill written off)

2) when admitted partner bring premium for GOODWILL.

Cash ac …………………..