Chapter 8: Admission of Partner: Rohit Agarwal
Chapter 8: Admission of Partner: Rohit Agarwal
Chapter 8: Admission of Partner: Rohit Agarwal
The ratio in which the old partners have agreed to sacrifice their shares in profit in favour of a new partner
is called the sacrificing ratio. This ratio is calculated by taking out the difference between old profit share
and new profit share.
Unless agreed otherwise it is presumed that the new partner acquires his share in profits from the old
partners in their old profit sharing ratio and the old partners continue to share the remaining profit in the old
ratio.
Example 1: A and B are partner sharing profits in the ratio of 3:2. They admit C as a new Partner. Calculate
sacrificing ratio and new profit sharing ratio in the following cases:
1. If C is admitted for 3/10th share.
2. If C is admitted for 3/10th share, which he acquires from A.
3. If C is admitted for 3/10th share, which he acquires from B.
4. If C is admitted for 3/10th share, which he acquires from A & B in the ratio 2:1.
5. If C acquires his share1/5th from A and 1/10th from B
6. If A surrenders 1/3rdof his share and B surrenders 1/10th from his share.
7. If they decide to share future profits in the ratio 4:3:3.
8. If C is admitted for 3/10th share, and A and B decide to share the future profits in the ratio 4:3.
9. If C is admitted for 3/10th share, and C acquires3/10th of his share from A.
10. If they decide to share future profits in the ratio 2:5:3.
The amount of compensation should be equal to the proportionate amount of firm’s goodwill.
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Note:-
• When the incoming partner pays his share of Firm’s Goodwill privately, no entry is passed in the books
of the firm.
• If the new partner is bringing his personal goodwill, then such goodwill has to be immediately written
off in the new ratio.
• When the value of the goodwill of the firm is not specifically given in the problem, the value of such
hidden goodwill has to be calculated in the following steps:
1. Total Capital = Incoming Partner’s Capital / Incoming Partner’s Share
2. Actual Capital = Sum of capitals of all the partners, including the new partner.
3. Goodwill = Total Capital – Actual Capital
The second method is of making the adjustment through Goodwill Account, by raising and writing off
goodwill. In this method, the whole of the amount brought by the new partner is credited to his capital
account and then goodwill is raised at its full value by crediting the old partners’ capital accounts in old
ratio and immediately it is written off by debiting all the partners’ in new ratio. The entries for this are:
1. For amount brought in cash by new partner:
Bank Account Dr. [Amount brought by Partner]
To New Partner’s Capital Account
2. For raising goodwill in old ratio:
Goodwill Account Dr.
To Old Partner’s Capital Accounts [in old ratio]
3. For writing off Goodwill in new ratio:
All Partner’s Capital Accounts [in new ratio]
To Goodwill Account
Step 2: Transfer Reserves, Accumulated Profit/Losses and goodwill appearing in the balance sheet to
the Partners’ Capital Account.
• This is done because the Accumulated Profit/Losses and goodwill appearing in the balance sheet belong
to the old partners and not to the new partner.
¾ For Transfer of Reserves and Accumulated Profits:
Reserve A/c Dr.
P & L A/c Dr.
Workmen Compensation Reserve A/c Dr. [Excess of Reserve over actual liability]
Investment Fluctuation Reserve A/c Dr.
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Step 3: Make entry for capital brought in by the incoming partner along with the adjustment of
premium for goodwill.
As discussed earlier.
Step 5: Prepare Bank Account & Revised Balance sheet of the firm.
• When Revaluation Account is prepared the assets and liabilities appear in the Balance Sheet of new
firm at their revised figures