Admission of a Partner

Learning objectives:-
After studying this lesson, the students will be able to:
i. Identify and deal effectively with the situation of reconstitution of partnership.
ii. Identify the problem arising due to admission of a partner in the firm.
iii. Calculate new and sacrifice ratio in different cases.
iv. Understand, calculate and make treatment of goodwill in different cases.
v. Make accounting treatment of the revaluation of assets and liabilities and distribute the profit and loss on revaluation among the old partners.
vi. Make accounting treatment of unrecorded assets and liabilities
vii. Prepare capital Accounts, Cash A/c and Balance Sheet of the New firm
viii. Adjust the Partners’ Capital Accounts

Salient Points:-
1.     Goodwill is the monetary value of business reputation. It is an intangible asset.
2.     Goodwill may be of two types:
a.      Purchased goodwill
b.     Non-purchased goodwill
3.     When existing firm faces problem of limited financial resources and man power then one new additional partner enters into firm.
4.     There are three methods of valuation of goodwill:
a.      Average Profit Method
b.     Super Profit method
c.      Capitalisation Method
5.     When new partner is admitted into existing partnership then existing partners have to sacrifice in favour of new partner, it is called sacrificing ratio.
6.     Share of goodwill of new partner will be credited to sacrificing partners into their sacrificing ratio.

7.     At the admission of new partner Profit & Loss on revaluation of assets and liabilities and balances of accumulated profits & losses will be distributed among old partners (only) in old ratio.

15. The following is the Balance Sheet of Shubha and Leena of Aurangabad who share profits in the ration 3:2 respectively as on 31.03.2012. [Ans.]

16. Madhu and Amar are partners in a firm sharing profits and losses in the proportion of 3/5 and 2/5 respectively. Their Balance Sheet as on 31st March, 2012 was as follows: [Ans. ]

17. Manish and Nitin are partners in a firm sharing Profits and Losses in the ratio of 3:1. Their Balance Sheet as on 31st March, 2012 was as follows:   [Ans]

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