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Admission of Partner
Adjustment made on Admission of Partner:

(1) Change in profit-sharing ratio.

(2) Treatment of Goodwill.
(3) Revaluation & reassessment among assets & liabilities.
(4) Adjustment in accumulated profit, reserve & accumulated losses.
(5) Adjustment in Capital (if required).

(1) Change in profit-sharing ratio & sacrificing ratio:

When a new partner is admitted in the partnership he is entitled to receive share in future profit,
which he acquire from old partner. This will affect in profit sharing ratio of old partner. It is become
necessary to calculate new profit sharing ratio and sacrificing ratio.

(2) Treatment of Goodwill:

AS – 10 prescribes that goodwill be recorded in the books only when consideration in money or
money worth has been paid for it. Thus, in case of admission or retirement or death of a partner or
in case of change in profit sharing ratio, goodwill should not be raised in the books.

Accounting Treatment of Goodwill:

(1) When goodwill is paid privately by new partner:

No entry is required if premium for goodwill is paid privately by new partner.

(2) When goodwill is brought in cash or kind by new partner:

Transaction Journal Entry

(1) For Premium brought by new Partner Cash / Bank / Other assets A/c Dr.
To Premium A/c

(2) For Capital brought by new Partner Cash / Bank / Other assets A/c Dr.
To New Partner Capital A/c

(3) For Premium of Goodwill distributed Premium A/c Dr.

among Sacrificing Partner Gaining Partner Capital A/c
To Sacrificing Partner Capital A/c

(4) For Premium is withdrawn by the Sacrificing Partner Capital A/c Dr.
Sacrificing Partner To Cash / Bank A/c

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(3) When new partner could not bring his share of goodwill:

Transaction Journal Entry

(1) For Capital brought by new Partner Cash / Bank / Other assets A/c Dr.
To New Partner Capital A/c

(2) For Premium not brought by new New Partner Capital A/c Dr.
Partner or
New Partner Current A/c Dr.
Gaining Partner Capital A/c Dr.
To Sacrificing Partner Capital A/c

(4) If goodwill is appearing in Balance Sheet:

*If goodwill is appearing in balance Old Partner Capital A/c Dr.

sheet then it should be write off among To Goodwill A/c
old partner in old ratio.

(3) Revaluation &Reassessment among Assets & Liabilities:

Transaction Journal Entries

(1) For increase in Assets Assets A/c Dr.
To Revaluation

(2) For decrease in Assets Revaluation A/c Dr.

To Assets

(3) For increase in Liability Revaluation A/c Dr.

To Liability A/c

(4) For decrease in Liability Liability A/c Dr.

To Revaluation A/c

(5) For unrecorded Assets Assets A/c Dr.

To Revaluation A/c

(6) For unrecorded Liability Revaluation A/c Dr.

To Liability A/c

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Dr. Revaluation Account Cr.

Particulars Amount Particulars Amount

To ↑ in Liability XXX By ↑ in Assets XXX
To ↓ in Assets XXX By ↓ in Liability XXX
To unrecorded Liability XXX By unrecorded Assets XXX
To Profit tfd. to: By Loss tfd. to:
A’s Capital A/c XXX A’s Capital A/c XXX
B’s Capital A/c XXX XXX B’s Capital A/c XXX XXX

XXX XXX

(4) Adjustment in Accumulated Profit, General Reserve and Accumulated Losses:

In case of reconstitution in partnership firm, we should distribute Accumulated Profit, General

Reserve and Accumulated Losses among partner of old partnership firm.

Accounting Treatment of Accumulated Profit, General Reserve and Accumulated Losses:

Transaction Journal Entry

For Accumulated Profit Accumulated Profit A/c Dr.

P&L A/c Dr.
To Partner Capital A/c

For General Reserve General Reserve A/c Dr.

To Partner Capital A/c

For Accumulated Losses: Partner Capital A/c Dr.

To Accumulated Loss A/c
To P&L A/c

(5) Adjustment of Capital:

(I) Adjustment in old partner capital A/c on the basis of new partner capital A/c.

For this the following steps are necessary:

Step (1) Calculate the total capital of the firm:

Total Capital of the Firm = Capital of the new partner X Reciprocal of new partner Share

Step (2) Divide total capital of the firm among all partners in profit sharing ratio.

Step (3) Find surplus or deficiency in capital of old partner.

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(II) Calculate the Capital of new partner on the basis of capital of old partner.

For this the following steps are necessary:

Step (1) Calculate the Capital of old partner after all adjustment such as treatment of goodwill,
accumulated profit or loss etc.

Step (2) Determine total capital of new firm:

Total Capital of new firm = total capital of old partner after all adjustment
X
reciprocal of total share of old partner

Step (3) Determine capital of new partner:

Capital of new partner = total capital of new firm X share of new partner.

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