Revision: Partnership Accounts >> Admission of Partner Accounts ISC (Commerce) Class 12 CISCE

(i) Old Partner’s New Share = Old Share – Sacrificed Share

(ii) New Partner’s Share = Sum of Sacrificed Shares (as per agreed ratio)

(i) Old Partners’ New Shares = Remaining Share × Old Ratio

(ii) Remaining Share = 1 – New Partner’s Share

(i) New Partner's Share = Sum of Profit Shares Given by Old Partners

(ii) New Share of Old Partner = Old Share – Share Given to New Partner

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

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

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

• 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. 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 When Goodwill/Premium brought in by the New Partner is Withdrawn by the Old Partners: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(Amount of goodwill/premium withdrawn by the old partners)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

                                                     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)

1. For distributing Reserves and Accumulated Profits :

General Reserve A/c                          ...Dr.

Reserve Fund A/c                              ...Dr.

Profit & Loss A/c (Credit balance)   ...Dr.

      To Old Partner's Capital A/cs or Current A/cs

2. For distributing accumulated losses among old partners in the old ratio :

Old Partner's Capital A/c or Current A/c     ...Dr.

      To Profit & Loss A/c (Debit balance) 

      To Advertisement Suspense A/c

      To Deferred Revenue Expenditure A/c

3. For distributing surplus of specific reserves : 

Workmen's Compensation Reserve A/c      ...Dr.

Investment Fluctuation Reserve A/c           ....Dr.

     To Old Partner's Capital Ales or Current A/c

1. If there is no claim against Workmen's Compensation Reserve:

Workmen's Compensation Reserve A/c     ....Dr.

     To Partner's Capital A/cs

(Workmen's Compensation Reserve credited to old partners' Capital Accounts in their old profit-sharing ratio) 

2. If the claim for workmen's compensation is lower than the amount of Workmen's Compensation Reserve:

Workmen's Compensation Reserve A/c     ...Dr.

      To Provision for Workmen's Compensation Claim A/c

      To Partner's Capital A/cs 

(Amount of claim transferred to liability and balance to partner's Capital Accounts in their old profit-sharing ratio) 

3. If the claim is equal to Workmen's Compensation Reserve:

Workmen's Compensation Reserve A/c    ...Dr.

    To Provision for Workmen's Compensation Claim A/c

(Provision made for Workmen's Compensation Claim) 

4. If the claim is more than the amount of Workmen's Compensation Reserve:

(a) Workmen's Compensation Reserve A/c      ...Dr.

Revaluation A/c                                                ...Dr.

     To Provision for Workmen's Compensation Claim A/c

(Amount of claim debited to Workmen's Compensation Reserve and Revaluation A/c)

(b) Partner's Capital A/cs     ...Dr.

         To Revaluation A/c

(Loss on revaluation transferred to capital accounts of old partners in their old profit-sharing ratio) 

A. When Book Value and Market Value of Investments is same:

Investment Fluctuation Reserve A/c     ....Dr.

     To Partner's Capital A/cs

B. When the Market Value of Investments is less than the Book Value:

1. Fall in the value is less than Investment Fluctuation Reserve:

Investment Fluctuation Reserve A/c     ...Dr.

      To Investments A/c                            (Book value - Market value)  

      To Partner's Capital A/cs                    (In old ratio) 

2. Fall in the value is Equal to Investment Fluctuation Reserve:

Investment Fluctuation Reserve A/c      ...Dr.

       To Investments A/c

3. Fall in the value is More than the Investment Fluctuation Reserve:

Investment Fluctuation Reserve A/c       ...Dr.

Revaluation A/c                                      ...Dr.

     To Investments A/c

C. When Market Value of Investments is More than the Book Value:

1. The entire amount of the Investment Fluctuation Reserve is credited to old Partner's Capital A/cs:

Investment Fluctuation Reserve A/c     ...Dr.

      To Partner's Capital A/cs                   (In old ratio)

2. Increase in the value of Investments is debited to Investments Ale and
credited to Revaluation A/c:

Investments A/c     ....Dr.

      To Revaluation A/c 

(To bring up the value of Investments to Market value.) 

3. Revaluation A/c        ....Dr.

       To Partner's Capital A/cs                       (In old ratio)

1. Adjustment for Surplus of Accumulated Profits, Losses and Reserves

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

       To Sacrificing Partners' Capital/Current A/cs

2. Adjustment for Deficit of Accumulated Profits, Losses and Reserves

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

      To Gaining Partners' Capital/Current A/cs

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