Chapter # 12

Partnership – Admission

Principles of Accounting – B.Com Part – I

Sameer Hussain

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Partnership – Admission
Chapter # 12

WHAT THE EXAMINER USUALLY ASK?

 Computation of Admission of new partner by:
o Purchase Method.
o Bonus Method – Bonus to old partners.
o Bonus Method – Bonus to new partner.
o Goodwill Method – Goodwill to old partners.
o Goodwill Method – Goodwill to new partner.
o Sufficient Cash Method.
o Total Capital Method.
o Revaluation of assets.
 General Journal entries for admission.
 Balance Sheet after admission.

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 Partnership – Admission
Chapter # 12

Chapter # 12
PARTNERSHIP – ADMISSION
ADMISSION OF A PARTNER
Admission of a partner means that a new person wants to join the partnership. A new partner
can admit in the partnership by the following ways:
 By purchasing interest of old partners.
 By making investment.

Admission

Purchase Bonus Goodwill

Method Method Method

Bonus to Old Goodwill to Goodwill to

Bonus to New
Partners - Old Partners - New Partner -
Partner - Less
More than More than Less than
than Capital
Capital Capital Capital

Capital is to be Old partners are

Capital is Capital is credited with
increased by increased by not ready to
entire amount of reduce their
new partner's new partner's his/her
invetsment investment capitals
invetsment

Admission by purchase method

In this case the new partner purchases the interest of old partner or partners by paying cash to
them from his private sources which is not recorded in the partnership.

Entry to Record Admission of New Partner by Purchase Method:

Old partners’ capital DR. (with the share purchases by new partner)
New partner’s capital CR. (with the shares purchased of old partners)
(To record the admission of new partner)
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Partnership – Admission
Chapter # 12

ILLUSTRATION # 1: (Admission by Purchasing Interest of Old Partners)

1992 Regular & Private (Case – a) – BIEK
Akhtar and Hafeez are partners in a firm sharing profit s and losses in the ratio of 3:2. The
balance sheet of the firm on December 31, 1991 was as under:
Total assets 255,000 A/c payable 55,000
Akhtar Capital 120,000
Hafeez Capital 80,000
255,000 255,000
On January 1, 1992 Kashif is admitted as a partner.
REQUIRED
Give entries in the General Journal for admission of Kashif. Show computation.
Case (i): Kashif is to purchase 1/4 interest from Akhtar and 1/4 from Hafeez and pay to
them privately Rs.60,000 and Rs.30,000 respectively.

SOLUTION # 1:
Computation:
Akhtar = 120,000 x 1/4 = 30,000
Hafeez = 80,000 x 1/4 = 20,000
________
Kashif Capital = 50,000
________

________ PARTNERSHIP
GENERAL JOURNAL
Date Particulars P/R Debit Credit
1 Akhtar Capital 30,000
Hafeez Capital 20,000
Kashif Capital 50,000
(To record the admission of Kashif)

Admission by investment
In this case new partner makes investment in the partnership. When the new partner makes
investment, bonus or goodwill arises in the partnership.

Bonus method
Old partners’ capital XXX
Add: New partner’s investment XXX
Total capital of firm XXX
For xx interest new partner’s capital (total capital x new partner’s ratio) XXX
Less: New partner’s investment (XXX)
Bonus to old/new partner (XXX)/XXX
Note: Negative value shows the bonus goes to old partners and positive value shows the bonus
goes to new partner.

Entry to Record Admission of New Partner by Bonus Method:

 When bonus goes to new partner:
Cash/other assets DR. (with investment amount)
Old partners’ capital DR. (with the amount of bonus goes to new partner)
New partner’s capital CR. (with the capital amount)
(To record the admission of new partner)
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 Partnership – Admission
Chapter # 12
 When bonus goes to old partners:
Cash/other assets DR. (with investment amount)
Old partners’ capital CR. (with amount of bonus goes to old partners)
New partner’s capital CR. (with the capital amount)
(To record the admission of new partner)
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ILLUSTRATION # 2: (Admission by Bonus Method – Bonus to Old Partners)

1993 Regular & Private (Case – b) – BIEK
A and B, partners, with capital balances of Rs.60,000 and Rs.40,000, respectively, sharing profits
and losses in the ratio of 2:1, agree to admit C as a partner.
REQUIRED
Give General Journal entries to record the admission of C. (Show also necessary computations.)
Case (ii): C invests Rs.68,000 cash for 1/3 interest. (The total capital of the firm is to be
increased only by the amount of C’s investment).

SOLUTION # 2:
Computation (Bonus Method):
Old partners’ capital (60,000 + 40,000) 100,000
Add: C’s investment 68,000
Total capital of firm 168,000
For 1/3 C’s capital (168,000 x 1/3) 56,000
Less: Cr’s investment (68,000)
Bonus to old partners 12,000

________ PARTNERSHIP
GENERAL JOURNAL
Date Particulars P/R Debit Credit
1 Cash 68,000
A Capital (12,000 x 2/3) 8,000
B Capital (12,000 x 1/3) 4,000
C Capital 56,000
(To record the investment of C)

ILLUSTRATION # 3: (Admission by Bonus Method – Bonus to New Partner)

2002 Private (Case – b) – BIEK
Nazia and Shazia are partners with capitals Rs.120,000/- and Rs.80,000/- respectively. They
share profits and losses in their capital ratio. They admit Razia as a new partner.
REQUIRED
Pass entries in general journal to record admission of Razia and show necessary computations.
(i) Razia invests Rs.50,000/- cash for a 1/4 interest in the capital and total capital of the
new firm is to be increased only by the amount of Razia’s investment.

SOLUTION # 3:
Computation: (Bonus Method):
Old partners’ capital (120,000 + 80,000) 200,000
Add: Razia’s investment 50,000
Total capital of firm 250,000
For 1/4 interest Razia’s capital (250,000 x 1/4) 62,500
Less: Razia’s investment (50,000)
Bonus to Razia 12,500

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Partnership – Admission
Chapter # 12
________ PARTNERSHIP
GENERAL JOURNAL
Date Particulars P/R Debit Credit
1 Cash 50,000
Nazia Capital (12,500 x 3/5) 7,500
Shazia Capital (12,500 x 2/5) 5,000
Razia Capital 62,500
(To record the admission of Razia)

goodwill method
check:
New partner’s investment XXX
Multiply by opposite interest of new partner X/X
Total capital of firm XXX
Less: Old partners’ capital XXX
Less: New partner’s investment (XXX)
(XXX)/XXX

Note: Negative amount shows the goodwill goes to new partner and positive amount shows the
goodwill goes to old partners. If goodwill goes to new partner, computation will be started with
old partners’ capital. And if goodwill goes to old partners, computation will be started with new
partner’s investment.

Goodwill to old partners

For xx interest, new partner’s investment XXX
Total capital of firm (new partner’s investment x opposite interest of new partner) XXX
For xx interest old partners’ capital (total capital x old partners’ interest) XXX
Less: Old partners’ capital before admission (XXX)
Goodwill to old partners XXX

Entry to Record Admission of New Partner by Goodwill Method:

 Goodwill goes to old partners:
Cash /other assets DR. (with investment amount)
New partner’s capital CR. (with investment amount)
(To record the admission of new partner)
----------------------------------------------------------------------------------------------------------------------
Goodwill DR. (with the amount of total goodwill)
Old partners’ capital CR. (with their ratio)
(To record the distribution of goodwill)
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ILLUSTRATION # 4: (Admission by Goodwill Method – Goodwill to Old Partners)

2002 Private (Case – d) – BIEK
Nazia and Shazia are partners with capitals Rs.120,000/- and Rs.80,000/- respectively. They
share profits and losses in their capital ratio. They admit Razia as a new partner.
REQUIRED
Pass entries in general journal to record admission of Razia and show necessary computations.
(i) Razia invests cash Rs.50,000/- for a 1/6 interest in the firm. Her capital account is to be
credited with the entire amount of her investment.

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SOLUTION # 4:
Computation: (Goodwill to Old Partners):
(Sentence “Her capital account is to be credited with the entire amount of her investment”
shows goodwill old partners).
For 1/6 interest, Razia’s investment 50,000
Therefore total capital of firm (50,000 x 6/1) 300,000
For 5/6 interest, old partners’ capital (300,000 x 5/6) 250,000
Less: Old partners’ capital before admission (120,000 + 80,000) (200,000)
Goodwill to old partners 50,000
________ PARTNERSHIP
GENERAL JOURNAL
Date Particulars P/R Debit Credit
1 Cash 50,000
Razia Capital 50,000
(To record the admission of Razia)
2 Goodwill 50,000
Nazia Capital (50,000 x 3/5) 30,000
Shazia Capital (50,000 x 2/5) 20,000
(To record the distribution of goodwill)

Goodwill to new partner

For xx interest, old partners’ capital XXX
Total capital of firm (old partners’ capital x opposite interest of old partners) XXX
For xx interest new partner’s capital (total capital x new partner’s interest) XXX
Less: New partner’s investment (XXX)
Goodwill to new partner XXX

Entry to Record Admission of New Partner by Goodwill Method:

 Goodwill goes to new partner:
Cash /other assets DR. (with investment amount)
Goodwill DR. (with total goodwill amount)
New partner’s capital CR. (with capital amount)
(To record the admission of new partner)
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ILLUSTRATION # 5: (Admission by Goodwill Method – Goodwill to New Partner)

1999 Regular & Private (Case – c) – BIEK
Adeel and Raees are partners with capital balance of Rs,60,000 and Rs.40,000 respectively. They
share profit and loss in the ratio of 3:2. They agree to admit Azim as a partner.
REQUIRED
Give the necessary journal entries in proper form and prepare balance sheet.
Case III: Azim invests Rs.20,000 cash for 1/5 interest. Old partners are not ready to
reduce their capitals.

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Partnership – Admission
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SOLUTION # 5:
Computation: (Goodwill Method):
(Sentence “Old partners are not ready to reduce their capitals” represents goodwill goes to new
Azim).
For 4/5 interest, old partners’ capital (60,000 + 40,000) 100,000
Therefore total capital of firm (100,000 x 5/4) 125,000
For 1/5 interest Azim’s capital (125,000 x 1/5) 25,000
Less: Azim’s investment (20,000)
Goodwill to Azim 5,000

________ PARTNERSHIP
GENERAL JOURNAL
Date Particulars P/R Debit Credit
1 Cash 20,000
Goodwill 5,000
Azim Capital 25,000
(To record the admission of Azim)

________ PARTNERSHIP
BALANCE SHEET
ASSETS EQUITIES
Cash 20,000 Owner’s Equity:
Other assets 100,000 Adeel Capital 60,000
Goodwill 5,000 Raees Capital 40,000
Azim Capital 25,000
Total owner’s equity 125,000
Total assets 125,000 Total equities 125,000

Sufficient cash
In this case new partner’s investment is equal to his/her capital.

For xx interest, old partners’ capital XXX

Total capital of firm (old partners’ capital x opposite interest of old partners) XXX
For xx interest new partner’s capital (total capital x new partner’s interest) XXX

Entry to Record Admission of New Partner by Sufficient Cash:

Cash/other assets DR. (with investment amount)
New partner’s capital CR. (with capital amount)
(To record the admission of new partner)
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ILLUSTRATION # 6: (Admission by Sufficient Cash)

1993 Regular & Private (Case – a) – BIEK
A and B, partners, with capital balances of Rs.60,000 and Rs.40,000, respectively, sharing profits
and losses in the ratio of 2:1, agree to admit C as a partner.
REQUIRED
Give General Journal entries to record the admission of C. (Show also necessary computations.)
Case (i): C invests sufficient cash to acquire 1/3 interest in the total capital and profits of
the firm

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SOLUTION # 6:
Computation:
For 2/3 interest, old partners’ capital (60,000 + 40,000) 100,000
Therefore total capital of firm (100,000 x 3/2) 150,000
For 1/3 interest C’s capital (150,000 x 1/3) 50,000

________ PARTNERSHIP
GENERAL JOURNAL
Date Particulars P/R Debit Credit
1 Cash 50,000
C Capital 50,000
(To record the investment of C)

ILLUSTRATION # 7: (Admission when Total Capital is Given)

2009 Regular & Private – BIEK
Iqbal and Fayyaz were partners, sharing profit and loss in the ratio of their capitals. The
following is the balance sheet of the firm on December 31, 2008:
Assets Equities
Cash 125,000 Accrued expense 125,000
Merchandise inventory 75,000 Capital Iqbal 150,000
Accounts receivable 50,000 Capital Fayyaz 225,000
Machinery 250,000
500,000 500,000
On January 1, 2009 they decided to admit Rahat as a new partner. Rahat invests merchandise of
Rs.15,000 and machinery of Rs.100,000 for his 1/5th interest in the total capital of the firm
Rs.500,000.
REQUIRED
(i) Prepare journal entries to record admission of Rahat. (Computation is compulsory).
(ii) Prepare balance sheet of the firm after admission of the new partner.

SOLUTION # 7:
Computation:
For 1/5 interest, Rahat capital (500,000 x 1/5) 100,000
Less: Rahat’s investment (15,000 + 100,000) (115,000)
Bonus to Old Partners 15,000
For 4/5 interest, old partners’ capital (500,000 x 4/5) 400,000
Less: Old partners’ capital before admission of Rahat (150,000 + (375,000)
225,000)
(25,000)
Goodwill to Old Partners 10,000

_______ PARTNERSHIP
GENERAL JOURNAL
Date Particulars P/R Debit Credit
1 Machinery 100,000
Merchandise 15,000
Iqbal Capital (15,000 x 2/5) 6,000
Fayyaz Capital (15,000 x 3/5) 9,000
Rahat Capital 100,000
(To record the admission of Rahat)

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Date Particulars P/R Debit Credit
2 Goodwill 10,000
Iqbal Capital (10,000 x 2/5) 4,000
Fayyaz Capital (10,000 x 3/5) 6,000
(To record the distribution of goodwill)

revaluation
New partner can admit into the partnership after the revaluation of assets of the business. It
means that before the admission of new partner, all the assets will be revalued to get the fair
value of business. In that case a revaluation account is created to settle the increase or decrease
in the value of assets and then it is transferred to the old partners’ capital.

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Chapter # 12

Practice questions
Question # 1: 2001 Regular & Private – UOK
A and B are partners with capitals Rs.50,000 each, and share profit or loss equally. They admit C
as a new partner. Pass entries in general journal to record C’s admission under each of the
following independent assumptions showing necessary computations.
(a) C purchases one-half (1/2) of each old partner’s capital paying each Rs.35,000 cash.
(b) C invests Rs.50,000 for a 1/4th interest in capital. C is given credit for the entire amount
of his investment.
(c) C invests Rs.50,000 for a 1/2 interest in capital. Total capital is to be increased only by
C’s investment.
(d) C invests Rs.20,000 for a 1/4th interest in capital, and the total capital is to be
Rs.130,000.

Question # 2: 2002 Regular & Private – UOK

Ahmed and Khalil are partners sharing profits and losses in the ratio of 3:2 respectively. Their
balance sheet on May 31, 2002 shows their capital as under:
Ahmed, Capital……………………………………….Rs.60,000.
Khalil, Capital………………………………………….Rs.40,000.
Mr. Nadir is admitted to the above partnership under the following separate assumptions.
(1) Mr. Nadir invests Rs.10,000 cash & merchandise inventory costing Rs.40,000 for a 1/3
interest.
(2) Mr. Nadir invests Rs.100,000 cash for a 1/4 interest (Use goodwill method only).
(3) Mr. Nadir invests sufficient cash to have 1/2 interest.
(4) Mr. Nadir purchases 1/3 interest of Mr. Ahmed and 1/4 interest of Mr. Khalil paying
Rs.50,000 to Mr. Ahmed and Rs.20,000 to Mr. Khalil.
REQUIRED
Give the necessary journal entries ender each of the above assumptions. Show necessary
computations.

Question # 3: 2005 Regular – UOK

Lalani & Mohsin are partners with capital balance of Rs.270,000 and Rs.180,000 respectively,
shared profit and losses in the ratio of 3:2. They admit Ashraf as a partner.
REQUIRED
Entries to record the admission of Ashraf in each of the following situations separately:
(i) Ashraf invests Rs.70,000 cash for 1/4 interest. Record goodwill.
(ii) Ashraf purchased 1/3 interest of Lalani for Rs.140,000 cash.
(iii) Ashraf invests Rs.200,000 for 1/4 interest and the total capital of the firm to be
Rs.650,000.

Question # 4: 2006 Private – UOK

A and B are partners with capital investments of Rs.48,000 and Rs.32,000 respectively. They
share profit and loss in their capital ratio. They admit C as a new partner. Prepare necessary
journal entries to record C’s admission under each of the following separate cases and present
balance sheet after admission in case (3) and (4) only.
(1) C invests Rs.40,000 cash receiving 1/3 interest.
(2) C invests Rs.64,000 cash and office equipment worth Rs.40,000 receiving 1/2 interest in
the firm (Record Bonus).
(3) C buys 1/3 interest of A & 1/2 interest of B, paying A Rs.28,800 & B Rs.19,200 directly.
(4) C invests Rs.16,000 cash for 1/3 interest. (Record Goodwill).

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Chapter # 12
Question # 5: 2007 Regular – UOK
The following is the balance sheet of Mumtaz and Alam Partnership:-
BALANCE SHEET
ASSETS EQUITIES
Cash 150,000 Mumtaz’s Capital 300,000
Other assets 350,000 Alam’s Capital 200,000
500,000 500,000
Mumtaz & Alam share profit & loss in the ratio of 3:2. They agree to admit Chohan as a partner.
REQUIRED
Give the necessary journal entries in each of the following cases separately:
(1) Chohan invests Rs.310,000 for 1/3 interest in the firm.
(2) Chohan invests Rs.190,000 for 1/3 interest in the firm. The total capital of the firm after
admission will be Rs.720,000.

Question # 6: 2008 Regular – UOK

Following is the balance sheet on November 30, 2008 of the partnership firm of Talha & Tayyab
who share profit & loss in the ratio of their capitals:
ASSETS EQUITIES
Cash 50,000 Capital Talha 25,000
Other assets 75,000 Capital Tayyab 100,000
125,000 125,000
On this date they agree to admit Abdul Hadi as a partner.
REQUIRED
Give the required entries on the firm’s books to record the admission of Abdul Hadi & also
prepare balance sheet after admission under each of the following assumptions separately:
(a) Abdul Hadi purchase 1/4th on each old partner’s capital.
(b) The new partner invests Rs.75,000 for a 1/3rd interest, in the total capital of the firm of
Rs.210,000.
(c) The new partner invests Rs.100,000 for a 1/4th interest in the firm. Record bonus.

Question # 7: 2010 Private – UOK

Shahab and Usman are equal partners with capital of Rs.100,000 each. Jamal is admitted for
1/3rd interest.
REQUIRED
Make entries in General Journal in each of the following independent cases:
(a) Jamal invests cash Rs.160,000 in a total capital of Rs.360,000.
(b) Jamal invests cash Rs.180,000 in a total capital of Rs.420,000.
(c) Jamal invests cash Rs.60,000 in a total capital of Rs.270,000.
(d) Jamal purchases 1/3rd interest of each of the old partners after recording goodwill of
Rs.100,000.

Question # 8: 2011 Private – UOK

Nuvaira and Khuba are partners with capital of Rs.26,000 and Rs.22,000 respectively. They
admit Erma as partner with 1/4th share in the profit of the firm. Erma brings in Rs.26,000 as his
share of capital.
REQUIRED
Give journal entry to record goodwill on Erma’s admission.

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Question # 9: 2004 Private – UOK
Asghar and Zaheer are partners with capital balances of Rs.99,000 and Rs.54,000 respectively.
They share profits and losses in the ratio of 3:2.
REQUIRED
Prepare the journal entries to record the admission of Razi to the partnership under each of the
following independent cases:
(a) Razi paid to Zaheer Rs.30,000 for a one-half of Zaheer’s interest on admission.
(b) Razi invested sufficient cash in the firm to acquire a one fourth interest in the capital of
new partnership.
(c) Razi invested Rs.67,000 for a 1/5th interest in the capital. Goodwill not to be recorded.
(d) Razi invested Rs.39,000 for a one-fourth interest. (Use goodwill method).

Question # 10: 2012 Regular – UOK

The capital balances of Fahad and Fawad were Rs.190,000 and Rs.180,000 respectively as on
March 31, 2012. On this date they decided to admit Hamadan as a new partner.
REQUIRED
Show the necessary entries in the General Journal of the firm to record admission of Hamadan
under each of the following assumptions separately:
(i) Hamadan invests furniture Rs.45,000 and sufficient amount cash for a one – third
interest in the business.
(ii) Hamadan invests cash Rs.200,000 and is to receive a one – half interest. Fahad and
Fawad decided to retain their present capital balances.
(iii) Hamadan invests cash Rs.150,000 and is to receive a one – fourth interest. Total
capital of the firm after his admission is to be Rs.600,000.
(iv) Hamadan purchased a one – third interest of Fahad for Rs.55,000 and a one – fourth
interest of Fawad for Rs.50,000 cash.

Question # 11: 2012 Private – UOK

Following balance sheet relate to the business of Mr. Shahani, Moin and Rasheed as on
November 30, 2010:
AB & C Partnership
Balance Sheet
As on November 30, 2010
Assets Equities
Cash 100,000 Accounts payable 68,000
Accounts receivable 70,000 Owner’s Equities:
Allowance for bad debts (2,000) 68,000 Shahani Capital 80,000
Office supplies 15,000 Moin Capital 120,000
Furniture 150,000 Rasheed Capital 100,000 300,000
Accumulated depreciation (25,000) 125,000
Stock 60,000
Total assets 368,000 Total equities 368,000
They share profit and loss in the ratio of their capitals. On this date they decided to admit Mr.
Sanaullah as a new partner under the following cases separately:
(a) If Sanaullah invests sufficient amount of cash to acquire 1/4th interest in the business.
(b) If Sanaullah invests Rs.80,000 for 1/5th interest in the business. Old partners do not
agree to reduce their capitals.
(c) If Sanaullah invests furniture Rs.50,000 and cash Rs.120,000 in the business and old
partners agree to give him a 1/5th interest in the business. The total capital of the firm
after his admission Rs.470,000.
(d) If Sanaullah invests Rs.150,000 for 1/4th interest. The total capital of the firm after his
admission Rs.500,000.

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REQUIRED
(i) Prepare journal entries to record the admission of Mr. Sanaullah.
(ii) Prepare balance sheet of ABC & D Partnership just after the admission of Mr.
Sanaullah in case (a).

Question # 12: 2006 Regular – UOK

Arif and Mubeen are partners sharing profit and loss in the ratio of 1:3 respectively. The
following is the balance sheet of their on January 1, 2006.
ASSETS EQUITIES
Cash 60,000 A/c. payable 40,000
A/c. receivable 50,000 Accrued exp. 10,000
Merchandise inv. 70,000 Arif Capital 100,000
Supplies 30,000 Mubeen Capital 200,000
Equipment 40,000
Land 100,000
350,000 350,000
On January 1, 2006, the partners agree to admit Jawaid as a partner on the terms summarized
below:
Jawaid invests sufficient cash to acquire 1/3rd (one third) interest in the partnership after
revaluation of following assets and liabilities:
(1) Accounts receivable is estimated to realize Rs.40,000.
(2) Inventory is to be realized at its present replacement value of Rs.50,000.
(3) Land is revalued of Rs.180,000.
(4) Equipment is to be restated at a value of Rs.30,000.
(5) Accrued expenses are Rs.6,000.
REQUIRED
(a) Give entries in General Journal of the partnership to give effects to the above valuations
and to record Jawaid’s admission.
(b) Prepare a classified Balance Sheet of the newly formed partnership (Show
computation).

Question # 13: 2010 Regular – UOK

The following are balance sheet data of Lalani & Mohsin Partnership on June 30, 2010:
Cash 30,000 Lalani, Capital 120,000
Inventory 70,000 Mohsin, Capital 180,000
Land 200,000
300,000 300,000
On July 1, Sikander is admitted as a partner after revaluing inventory & land at Rs.50,000 and
Rs.300,000 respectively, recognizing goodwill of Rs.50,000 and recording accrued taxes
Rs.10,000. Sikander is to purchase 25% of Mohsin’s ownership interest for Rs.65,000 & to be
contribute sufficient cash for acquiring 1/3 interest of the entire partnership equity.
Lalani and Mohsin share profit/loss equally.
REQUIRED
Prepare:
(a) General journal entries.
(b) Balance sheet after admission.

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