Revision: Admission of a Partner Accountancy HSC Commerce Class 12 Tamil Nadu Board of Secondary Education

\[\text{Total Capital of the New Firm}=\frac{\text{Capital of the New Partner}}{\text{Share of Profit of New Partner}}\]

\[\text{Total Capital of the New Firm}=\frac{\text{Total adjusted Capital of Old Partners}}{\text{Total Profit Share of Old Partners}}\]

Sacrificing Ratio = Old Profit - Sharing Ratio

Sacrificed Profit Share = Old Profit Share - New Profit Share

New Partner’s Share = Sum of Profit Share Sacrificed by Old Partners

New Share of Old Partner = Old Share − Sacrificed Share

Sacrifice Ratio = Old Ratio - New Ratio

• Need for Admission: A new partner may be admitted to bring additional capital, skilled management, improve goodwill, or reward a capable employee.
• Legal Requirement: As per Section 31(1) of the Indian Partnership Act, a new partner can be admitted only with the consent of all existing partners.
• New Partner's Rights: Share in profits, assets, and liable for future debts.
• Goodwill & Capital: A new partner brings capital and goodwill to gain a share in profits and assets; existing partners sacrifice a share of profits in return.
• Adjustments at Admission: New profit-sharing ratio, Valuation of goodwill, Revaluation of assets and liabilities, and Adjustment of reserves, profits, and capital.

A. Accounting Entry to Adjust Deficit Capital:

1. If amount is brought in cash or cheque:

Cash/Bank A/c      ...Dr.

     To Concerned Partner's Capital Account

2. If amount is transferred to Current Account of the partner:

Concerned Partner's Current A/c    ...Dr.

     To Concerned Partners Capital A/c

B. Accounting Entry to Adjust Surplus Capital:

1. If amount is paid:

Concerned Partner's Capital A/c     ....Dr.

     To Cash/Bank A/c

2. If amount is transferred to Current Account of the partner:

Concerned Partner's Capital A/c    ...Dr.

      To New Partner's Current A/c 

C. When a new partner brings certain assets towards his capital:

Assets A/c        ...Dr.

       To New Partner's Capital A/c

                                                     Revaluation Account

Dr.                                                                                                                               Cr.

1. For a decrease in the value of assets : 

Revaluation A/c or Profit & Loss Adjustment A/c     ...Dr. 

           To Assets A/c

(Decrease in the value of assets) 

2. For an increase in the value of assets :

Assets A/c      ...Dr.

       To Revaluation A/c or Profit & Loss Adjustment A/c

(Increase in the value of assets) 

3. For an increase in the value of liabilities:

Revaluation A/c or Profit & Loss Adjustment A/c     ...Dr.

         To Liabilities A/c

(Increase in the value of liabilities) 

4. For a decrease in the value of liabilities : 

Liabilities A/c     ...Dr.

      To Revaluation A/c or Profit & Loss Adjustment A/c

(Decrease in the value of liabilities)

5. For accounting unrecorded assets

Unrecorded Assets A/c     ...Dr.

       To Revaluation A/c

(accounting of unrecorded assets)

6. For accounting unrecorded liabilities

Revaluation A/c      ...Dr.

      To Unrecorded Liabilities A/c

(Accounting of unrecorded liabilities)

7. For transferring Gain (Profit):

Revaluation A/c     ...Dr.

     To Old Partner's Capital A/cs

(Gain on revaluation credited to Old Partner's Capital A/cs) 

8. For transferring loss: 

Old Partner's Capital A/cs    ...Dr.

      To Revaluation A/c

(Loss on revaluation debited to Old Partner's Capital A/cs)

A. Premium for Goodwill is paid privately:

No Entry is passed

B. Premium for Goodwill is brought in cash by the New Partner:

1. When the Premium for Goodwill brought in by the New Partner is Retained in the Business:

(i) Cash/Bank A/c     ...Dr.

     To Premium for Goodwill A/c

(Amount of goodwill/premium brought in cash by new partner) 

(ii) Premium for Goodwill A/c    ...Dr.

       To Old Partners' Capital A/cs

(Amount of goodwill/premium transferred to old partners' capital accounts in sacrificing ratio)

2. When Goodwill/Premium brought in by the New Partner is Withdrawn by the Old Partners:

Old Partner's Capital A/cs    ...Dr.

     To Cash/Bank A/c

(Amount of goodwill/premium withdrawn by the old partners)

C. Premium for Goodwill is brought in kind

1. For assets brought by the incoming partner:

Assets A/c      ...Dr.

     To Incoming Partner's capital A/c

     To Premium for Goodwill A/c

2. For giving credit for goodwill to sacrificing partners in their sacrificing ratio:

Premium for Goodwill A/c     ....Dr.

       To Sacrificing Partners' Capital/Current A/c

D. Premium for Goodwill is brought by New Partner and is withdrawn by the Sacrificing Partners either fully or partly:

1. For premium for goodwill brought in cash by the new partner:

Cash/Bank A/c     ...Dr.

      To Premium for Goodwill A/c

2. For sharing of premium for goodwill:

Premium for Goodwill A/c    ...Dr.

      To Sacrificing Partners' Capital/Current A/c

3. For withdrawal of premium for goodwill amount fully/partly

Sacrificing Partners' Capital/Current A/cs    ...Dr.

       To Cash/Bank A/c

E. New Partner cannot bring his share of Premium for Goodwill; adjustment is made through the Current account of the New Partner:

New Partners' Current A/c    ...Dr.

      To Sacrificing Partners' Capital/Current A/cs

F. New Partner brings a part of Premium for Goodwill in cash or by Cheque or in Kind:

1.Cash/Bank/Assets A/c     ...Dr.

     To Premium for Goodwill A/c

2. New Partners' Current A/c    ...Dr.

Premium for goodwill A/c        ...Dr.

       To Sacrificing Partners' Capital/Current A/cs

G. Goodwill appears (exists) in the Balance Sheet and Incoming Partner brings Premium for Goodwill in full or in part:

1. Write-off of Existing Goodwill

Old Partners' Capital/Current A/cs     ...Dr.

        To Goodwill A/c

2. Entry for Premium for Goodwill Brought by New Partner

Cash/Bank A/c      ...Dr.

      To Premium for Goodwill A/c

3. Distribution of Premium for Goodwill to Sacrificing Partners

Premium for Goodwill A/c       ...Dr.

        To Sacrificing Partners' Capital A/cs

4. Adjustment Entry for Premium Not Brought by New Partner

New Partner's Current A/c     ...Dr.

      To Sacrificing Partners' Capital/Current A/cs

H. Goodwill exists in the Balance Sheet and incoming partner is unable to bring his or her share of Premium for Goodwill in Cash or by Cheque:

1. Write-off of Existing Goodwill

Old Partners' Capital/Current A/cs     ...Dr.

       To Goodwill A/c

2. Adjustment for Incoming Partner’s Share of Goodwill Not Brought in Cash

Incoming Partner's Current A/c    ...Dr.

       To Sacrificing Partners' Capital/Current A/cs