PARTNERSHIP DISSOLUTION:

ADMISSION OF NEW PARTNER

Partnership Dissolution is defined in
Article 1825 of the Civil Code of the
Philippines as the change in the relation of the
partners caused by any partner ceasing to be
associated in the carrying out of the business.
Dissolution also refers to the termination of
the life of an existing partnership. There are two
conditions if a partnership is dissolved:
1. Formation of a new partnership
2. Liquidation
Dissolution, however, does not always result
to liquidation.
Liquidation is always preceded by dissolution.
Causes of Dissolution
1. Admission of a new partner
2. Removal of an old partner caused by
a. Voluntary withdrawal
b. Retirement
c. Death
d. Incapacity
e. Bankruptcy of a partner
 3. Termination upon mutual consent of all
the partners
4. Termination of the business upon
completion of partnership purpose/
objective
5. Incorporation of a partnership.
Admission of a New Partner
Types of Admission of a New Partner
- By Purchase
Purchase of interest from one or more of
the original (old) partners. (no effect in total
assets)
Personal transaction between selling
partners and new partners (transfer of
capital)
- By Investment
Investment or asset contributions to the
partnership

Admission By Purchase
- Must be with the consent of ALL the
partners
- Old partnership is dissolved
- A new partnership contract is prepared
- Considered to be a personal transaction
between the selling partner/s and the buying
partner-admission by purchase
- The only journal entry required is the
recording of the transfer of capital from the
selling partner/s to the buying partner:
- The purchase price of the interest sold to the
new partner may be:
1. Equal to the book value of the interest sold
2. Less than the book value of the interest sold
(personal loss to selling partner/s)
3. More than the book value of the interest sold
(personal gain to selling partner/s)
4. Asset revaluation
Sample Problem
Cristy and Lolit are partners with capital
balances of P125,000 and P37,500 respectively.
They share profit and loss in the ratio of 3:2.
Marites will be admitted as a new partner.
Case A - Marites is to purchase25% interest
from Cristy paying P 31,250.
(New partner purchases from one of the
partners at book value.)
 The partnership will only record the transfer of the
25% interest from Cristy to Marites. The payment of
P31,250 cash by Marites to Cristy is not recorded in
the company books because it is a personal
transaction.
After the admission of Marites, the total
capital of the partnership will still be P162,500
as shown below:

Case B - Marites is to purchase 25% interest

from the partnership paying P40,625. (New
partner purchases at book value from more
than one partner.)

The partnership will only record the transfer of

the 25% interest from Cristy and Lolit to Marites. The
payment of P40,625 cash made by Marites to Cristy
and Lolit is not recorded in the company books
because it is a personal transaction. The amount paid
is equal to the book value of the acquired interest,
therefore no gain or loss is recorded in the books.
Case C - Marites is to purchase 25% interest
from the partnership paying P37,500. (New
partner purchases at less than the book value
from the partners)

The P37,500 paid by Marites to Cristy and

Lolitl should not be shown in the partnership books
because the said amount was paid personally to the
partners. The entry reflected in the books would be
the transfer of the 25% capital of the old partners,
P31,250 and P9,375, respectively, to the new partner.
The P3,125 difference will be a personal loss of
Cristy and Lolit, the old partners.
Case D - Marites is to purchase 25%interest
from the partnership paying P42,500. (New
partner purchases at more than book value
from the partners)

The P42,500 paid by Marites to Cristy and Lolit

should not be shown in the partnership books because
the said amount was paid personally to the partners.
The entry reflected in the books would be the transfer
of the25% capital of the old partners, P31,250 and
P9,375, respectively, to the new partner. The P1,875
difference will be a personal loss of Marites, the new
partner.
Keep in mind that from the foregoing cases, the
transfer of capital from the old partners to the new is
recorded at book value notwithstanding the amount
given up. The payment, whether at more or less than
the book value arerecorded as if they are at book
value. Furthermore, the total partnership capital of
P162,500 will remain the same after the transfer,
hence, total assets and total capital of the partnership
is not affected.
Admission of a Partner by Purchase with
Asset Revaluation
Customarily, revaluation of assets of the
old partnership is being done before the
admission of the new partner. The result of the
revaluation of assets is carried to the capital
accounts of the old partners. The adjusted
capital of the old partners becomes the basis for
the interest transferred to the new partner.
Illustrative Problem A:
 Maliwanag, the new partner, is to purchase
1/5 interest from the partners paying P70,000.
Prior to the admission of Maliwanag, the assets
of the partnership will be revalued. The amount
to be paid by Maliwanag, P70,000, will be
applied as the basis for the revaluation.
Entry for the Revaluation of Asset

Entry for the transfer of capital

Illustrative Problem B:
 If instead, Maliwanag is to purchase 1/5
interest from the partners paying P50,000, the
admission will recorded this way.
Entry for the Revaluation of Asset

Entry for the transfer of capital

Supposing that a new profit and loss has

not been agreed upon by the partnership, it
would be assumed that Maliwanag would have
1/5 (or 20%) share and the 4/5 (or 80%) would
be divided upon by the old partners based on
the old profit and loss ratio.

Admission by Investment
The admission of a new partner constitutes
the entry of a new partner with a corresponding
increase in total assets and increase in total
capital of the partnership. There is increase in
assets from the investment of cash or non-cash
assets made by the new partner. Terms such as
invests and contributes are used to indicate the
admission of a new partner by Investment.
For illustration, let use the following
information

Case A- Maginoo, the new partner will invest

P75,000 for 20% interest in equity and in profit
in
The new partnership capital of P375,000. (NO
BONUS, NO ASSET REVALUATION)
Upon the admission of Maginoo, as per
agreement, the new partnership capital would be
P375,000,which is equal to the actual contributions of
the old partners and new partners

The entry to record the admission of the new

partner
Case B- Maginoo, the new partner will invest
P75,000 for 25% interest in equity and in profit
in the new partnership capital of P375,000.
(BONUS TO NEW PARTNER)
After the admission of Maginoo, the total
contributed capital balance would be P375,000 as
agreed upon,with the total new partnership having the
same amount. This would result to Maginoo, the new
partner being credited by P93,750 which is 25% of
the new partnership capitalization of P375,000. This
would mean that from his contribution of P75,000,
additional capital would be transferred to him
(amounting to P18,750) from the old partners to be
able to have a capital of P93,750. This occurrence is
called BONUS where old partners transfer equity to
the new partner, or vice versa.
The entry to record the admission and bonus
to new partner

The transfer of capital from the old

partners amounting to P18,750 will be divided
based on their old profit and loss ratio, as
follows:

Case C- Maginoo, the new partner will invest

P75,000 for 17% interest in equity and in profit
in the new partnership capital of P375,000.
(BONUS TO OLD PARTNERS)
After the investment of Maginoo, the total
contributed capital balance of the partnership would
be P375,000 , the same as it has been agreed upon.
This would result with Maginoo, the new partner
being credited by P63,750 which is 17% of the new
partnership capital instead of his actual contribution
of P75,000.The difference amounting P11,250 would
be transferred to the capital of the old partners and
will be divided based on the old profit and loss ratio.
This transfer of equity is called BONUS TO OLD
PARTNERS.
The entry to record the admission and bonus
to old partner
 The transfer of capital from the new partners
amounting to P11,250 will be distributed based on the
old partner’s capital, as follows:

Case D- Maginoo, the new partner will invest

P75,000 for 15% interest in equity and in profit
in the new partnership capital of P500,000.
(REVALUATION OF ASSET- Old
partners’ capital are affected)
After the admission of Maginoo, the total
contributed capital balance of the partnership would
be P375,000 while the agreed capital would be
P500,000, prompting a Revaluation of Assets
amounting to P125,000. This would result
withMaginoo, being credited by P75,000 which is
20% of the new partnership capital P400,000 which is
the same as his original/actual contribution. The old
partners should have a capital credit ofP425,000 (80%
of the new partnership capital of P500,000) after
admission thus the revaluation will be effected on the
old partners’ capital and will be divided based on the
old profit and loss ratio.
The entry to record the admission and
revaluation of asset
 The revaluation of asset will be effected on
the old partners’ capital based on the old profit
and loss ratio, as follows:

Case E- Maginoo, the new partner will invest

P75,000 for 20% interest in equity and in profit
in the new partnership capital of P350,000.
(Negative REVALUATION OF ASSET- Old
partners are affected)
After the admission of Maginoo, the total
contributed capital balance of the partnership will be
P375,000 while the agreed capital will be P350,000,
prompting a Revaluation of Assets amounting to
P20,000. This would result with Maginoo being
credited by P75,000 which is 20%of the new
partnership capital P350,000 (that is the same NHNas
his original/actual contribution). The old partners
should have a capital credit of P280,000 (80% of the
new partnership capital of P350,000) instead of his
actual capital contribution of P300,000, thus the
revaluation of P20,000 will be effected on the
theircapital accounts and will be divided based on the
old profit and loss ratio.
The entry to record the admission and
revaluation of assets

The revaluation of asset will be effected on the

old partners’ capital based on the old profit and loss
ratio, as follows:

Case F- Maginoo, the new partner will invest

P75,000 for 15% interest in equity and in profit
in the new partnership capital of P400,000.
(BONUS AND REVALUATION OF ASSET
to old partners)
The entry to record the admission
 The bonus and revaluation of asset will be
effected on the old partners’ capital based on the old
profit and loss ratio, as follows: