why a new partner is admitted?
- A new partner may be admitted when the firm needs
- additional capital
- managerial help
- both
How can a new partner be admitted?
unless it is otherwise provide in the partnership deed a new partner can be admitted only when the existing partners unanimously agree for it.
Two main Rights acquired by a newly admitted partner
- Right to share the assets of the partnership firm
- Right to share the profits of the partnership firm
- Right to participate in the business activity
What does a new partner bring to acquired
To acquired share in the assets and profits of the firm, the partner brings.
- an agreed amount of capital either in cash or kind and / or some technical skill
- additional amount known as premium of goodwill
why is new partner required to bring premium ?
this is due to compensate the existing partners for loss of their share in the super profits of the firm, when a person pays for goodwill he pays for sacrifice of the profits by old partners .
why new ratio is calculated in case of an admission of a partner?
there is a need to ascertain the new profit sharing ratio among all the partner because on admission of a partner , the profit sharing ratio among the old partners will change keeping in view their respective contribution to the share of profit of the incoming partner.
matters that need adjustment at the time of admission.
- calculation of new profit-sharing ratio and sacrificing
- valuation and adjustment of goodwill
- accounting treatment of revaluation of assets and reassessment of liabilities
- Distribution of accumulated profits reserves and accumulated losses
- adjustment of capital in new profit sharing ratio
Question:1 (when new partner acquires his share from old partners in their old ratio. ) A and B are partners in a firm sharing profits and losses in the ratio 1:2 they admitted C into the partnership and decided to given him 1/3rd share of the future profits, find the new ratio of the partners,
Answer: (1) calculation of sacrifice share:
A’s sacrifice = 1/3 of 1/3 = 1/9
B’s sacrifice =2/3 of 1/3 =2/9
sacrificing Ratio= 1/9:2/9 = 1:2
(2) calculation of new profit sharing Ratio;
new share = old share–sacrifice share
A’s new share = 1/3–1/9 =(3–1)/9 =2/9
B’s new share =2/3–2/9 =(6–2)/9 = 4/9
C’s new share = 1/9+2/9 =3/9
New ratio among A, B and C; 2/9:4/9:3/9 = 2:4:3 respectively
Note: ratio agreed otherwise , it is presumed that the new partner acquires his share in profits from the old partners in their old profit sharing ratio,
Question:2 (when the new partner acquires his share from old partners in agreed share) L and M are partners in a firm sharing profits and losses in the ratio of 7:3 they admitted N for 3/7th share which he takes 2/7th from L and 1/7 from M calculate the new profit sharing ratio,
Answer: (1) As sacrifice share of old partners are given in the question itself, hence there is no need to calculate it,
(2) calculate of new profit sharing ratio:
new share = old share–sacrifice share
L’s new share =7/10–2/7 =49–20/70 =29/70
M’s new share = 3/10–1/7 =10–21/70 =11/70
N’s new share = 2/7+1/7 =3/7 (given)
new ratio among L,M,and N =29/70:11/70:3/7 = 29:11:30/70 = 29:11:30
Question:3 X and Y are partners in a firm sharing profit and losses in the ratio of 3:2 Z is admitted as partner in the firm for 1/6th share in profits, Z acquires his share from X and Y in the ratio of 2:1 calculate new profit sharing ratio of partners.
Answer: calculation of sacrifice share”
(1) given sacrificing Ratio =X:Y 2:1
therefore,
x’s sacrifice share =2/3 of 1/6 = 2/18
Y’s sacrifice share = 1/3 of 1/6 = 1/18
(2) calculation of new profit sharing ratio:
new share = old share–sacrifice share
X’s new share = 3/5-2/18 = 54-10/90 =44/90
Y’s new share = 2/5 -1/18 =36-5/90 =31/90
Z’s new share = 2/18+1/18 or 1/6 (given)
new ratio among X , Y and Z = 44/90:31/90;1/6 = 44:31:15/90 = 44:31:15
Question:4 ( when new partner acquires his share from old partners as a fraction of their share). A and B are partners in a firm sharing profit and losses in the ratio of 5;3 A surrenders 1/5th of his share, whereas B surrenders 1/3 of his share in favour of C, a new partner. calculate the new profit sharing ratio.
Answer: (1) calculation of sacrifice share
A sacrifice 1/5 of his share i;e 1/5 of 5/8 = 1/8
B sacrifice 1/3th of his share i:e 1/3 of 3/8 = 3/24 or 1/8
(2) calculation of new profit sharing ratio.
new share = old share-sacrifice share
A’s new share = 5/8-1/8 =4/8
B’s new share = 5/8-1/8 =2/8
C’s new share = 1/8+1/8 =2/8
new ratio among A, B and C = 4/8:2/8:2/8 = 4:2:2/8 = 2:1:1
Question:5 (old partners sacrifice): A and B partners sharing profits and losses in the ratio of 3:2 they admit C into partnership for 1/4 share in profits C brings , 3,00,000 as capital and ,1.00.000 as goodwill new profit sharing ratio of the partners shall be 3:3:2 pass necessary journal entries.
Answer;
Journal
date | particulars | L.F | Debit | Credit |
bank A/c ——–Dr | 4,00,000 | |||
To premium for goodwill A/c | 1,00,000 | |||
To C’s capital A/c | 3,00,000 | |||
being the amount of goodwill and capital brought in by new partner C | ||||
premium for goodwill A/c —-Dr | 1,00,000 | |||
To A’s capital A/c | 90,000 | |||
To B’s capital A/c | 10,000 | |||
(being the amount of goodwill distributed between A and B in their sacrificing ratio i:e 9:1) |
Note: sacrificing = old ratio-new ratio
A= 3/5-3/8 = 24-15/40 = 9/40
B’ = 2/5-3/8 =16-15/40 = 1/40
this sacrificing ratio between A and B i;e 9:1
Question:6 (existing goodwill to be written off): A and B are partners in a firm sharing profits and losses in the ratio of 3;2 they admit C into partnership for 1/5 share, C brings” 30,000 as capital and 10,000 as goodwill at the time of admission of C’ goodwill appears in the balance sheet of A and B at 3,000, new profit sharing ratio of partners shall be 5:3:2 pass necessary entries.
Answer:
Journal
date | particulars | L.F | debit | credit |
A’s capital A/c ——–Dr | 1,800 | |||
B’s capital A/c ————-Dr | 1,200 | |||
To goodwill A/c | 3,000 | |||
(being existing goodwill written off between old partners in their old ratio i:e 3:2) | ||||
bank A/c ————Dr | 40,000 | |||
To premium for goodwill A/c | 10,000 | |||
To C’s capital A/c | 30,000 | |||
(being ” the amount of goodwill and capital brought in by new partner C ) | ||||
premium for goodwill A/c —–Dr | 10,000 | |||
To A’s capital A/c | 5,000 | |||
To B’s capital A/c | 5,000 | |||
(being the amount of goodwill distributed between A and B in their sacrificing ratio i:e 1:1) |
Notes sacrificing ratio = old ratio-new ratio
A= 3/5-5/10 =6-5/10 =1/10
B = 2/5-3/10 =4-3 /10 =1/10
sacrificing ratio between A and B = 1:1 i:e equal
Question:7 following is the balance sheet of shashi and ashu sharing profit and losses in the ratio of 3;2
particulars | Amount | Assets | Amount |
creditors | 18,000 | debtors 22,000 | |
general reserve | 25,000 | less: provision for DD 1000 | 21,000 |
workmens compensation fund | 15,000 | land and building | 18,000 |
capital shashi | 15,000 | plant & machinery | 12,000 |
capital ashu | 10,000 | stock | 11,000 |
bank | 21,000 | ||
83,000 | 83,000 |
On admission of Tanya for 1/6th share in the profit it was decided that :
- provision for doubtful debts to be increased by Rs, 1,500
- value of land and building to be increased To Rs, 21,000
- value of stock to be increased by Rs, 2,500
- the liability of workmen’s compensation fund was determined to be Rs, 12,000
- Tanya brought in as her share of goodwill Rs, 10,000 in cash
- Tanya was to bring further cash of 15,000 for her capital . prepare Revaluation A/c capital A/c and the balance sheet of the new
Answer:
Revaluation Account
particulars | Amount | Assets | Amount |
To provision for DD | 1,500 | by land & building A/c | 3,000 |
To capital shashi 3/5 | 24,00 | by stock | 2,500 |
To capital ashu 2/5 | 1,600 | ||
5,500 | 5,500 |
partners’ capital Account
particulars | shashi | ashu | Tanya | particulars | shashi | ashu | Tanya |
To balance c/d | 40,200 | 26,800 | 15,000 | by balance b/d | 15,000 | 10,000 | – |
by general reserve | 15,000 | 10,000 | |||||
by workmen’s compensation fund A/c | 18,00 | 12,00 | |||||
by Revaluation A/c | 24,00 | 16,00 | |||||
by bank A/c | 15,000 | ||||||
by premium for goodwill | 6,000 | 4,000 | |||||
40,200 | 26,800 | 15,000 | 40,200 | 26,800 | 15,000 |
balance sheet
liabilities | Amount | Assets | Rf | Amount |
creditors | 18,000 | debtors | 22,000 | |
liability for workmen compensation fund | 12,000 | less: provision for DD | 25,00 | 19,500 |
capital / shashi | 40,200 | land & building | 21,000 | |
capital / ashu | 26,800 | plant & machinery | 12,000 | |
capital / Tanya | 15,000 | stock | 13,500 | |
bank | 46,000 | |||
1,12,000 | 1,12,000 |
Question:8 A,B and C are partners sharing profits and losses and the ratio of 2:3:5, on 31st march 2015, their balance sheet was as follows
particulars | Amount | particulars | Amount |
capital | cash | 18,000 | |
A | 36,000 | bill receivable | 24,000 |
B | 44,000 | furniture | 28,000 |
C | 52,000 | stock | 44,000 |
creditors | 64,000 | debtors | 42,000 |
bill payable | 32,000 | Investment | 32,000 |
profit & loss account | 14,000 | machinery | 34,000 |
goodwill | 20,000 | ||
2,42,000 | 2,42,000 |
they admit D into particulars on the following terms:
- furniture and machinery to be depreciated by 15%
- stock is revaluated at Rs, 48,000
- goodwill to be valued at Rs, 24,000
- outstanding rent amount Rs, 1,800
- prepaid salaries Rs, 800
- D to bring Rs, 32,000 towards his capital for 1/6th share.
prepare Revaluation account, partners capital account and balance sheet of the new firm .
Answer:
Revaluation A/c
particulars | Amount | particulars | Amount |
To furniture A/ c | 4,200 | by stock A/c | 4,000 |
To machinery A/c | 5,100 | by prepaid salaries A/c | 800 |
To outstanding rent A/c | 18,00 | by capital A/c loss | |
A 2/10 | 1,260 | ||
B 3/10 | 1,890 | ||
C 5/10 | 3,150 | ||
11,100 | 11,100 |
partners capital account
particulars | A | B | C | D | particulars | A | B | C | D |
To Revaluation | 1,260 | 1,890 | 3,150 | — | by balance c/d | 36,000 | 44,000 | 52,000 | — |
To goodwill A/c | 4,000 | 6,000 | 10,000 | by P& L A/c | 2,800 | 4,200 | 7,000 | — | |
To A’s capital | — | — | — | 800 | By D’s capital A/c | 800 | 12,00 | 2,000 | — |
To B’s capital | 12,00 | by cash A/c | — | — | — | 32,000 | |||
To C’s capital | 2,000 | ||||||||
To balance c/d | 34,340 | 41,510 | 47,850 | 28,000 | |||||
39,600 | 49,400 | 61,000 | 32,000 | 39,600 | 49,400 | 61,000 | 32,000 |
balance sheet of the new firm
liabilities | Amount | Assets | Amount |
creditors | 64,000 | cash | 50,000 |
bill payable | 32,000 | bill Receivable | 24,000 |
outstanding rent | 1,800 | furniture | 23,800 |
capital : | stock | 48,000 | |
A | 34,340 | debtors | 42,000 |
B | 41,510 | Investment | 32,000 |
C | 47,850 | machinery | 28,900 |
D | 28,000* | prepaid salaries | 800 |
2,49,500 | 2,49,500 |