Admission of Partner

1. Computation of Sacrificing Ratio

2. Treatment of Goodwill
3. Treatment of Accumulated Profits & Losses
4. Revaluation A/c
5. Partners Capital A/c (Without adjustment)
6. Partners Capital A/c (With adjustment)
7. Revised Balance Sheet

Computation of Ratio
1. Situation
WHEN OLD RATIO AND NEW PARTNER SHARE IS GIVEN ONLY
(Nothing is specified as to the ratio in which the new partner acquires his share from the old
partner)

Example:
A and B are partners sharing profits in the ratio of 3:2. They admitted C as a new partner for
1/5 share in future profits of the firms. Calculate NR & SR.

Sol:
Let the Profit = 1
1 4
Remaining Share after C’s Share = 1 - 5 = 5

New Share of Partners

3 4 12
A= × =
5 5 25

2 4 8
B=5×5 = 25

1 5 5
C==5×5 = 25

NR = 12:8:5

3 12 3
Share Sacrificed by A’s = = 5 - 25 = 25

2 8 2
Share Sacrificed by B’s = = – =
5 25 25

Sacrifice Ratio = 3:2

Note: In this type of situation always assume that SR is equal to OR

2. Situation
WHEN OLD PROFIT SHARING RATIO, SHARE OF NEW PARTNER AND NEW RATIO BETWEEN
OLD PARTNERS ARE GIVEN
Example:
A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They admitted C
as a new partner for ¼ share. The new profit sharing ratio between A and B will be 2:1.
Sol:
Let the Profit = 1
1 3
Remaining Share after C’s Share = 1 - 4 = 4
New Share of Partners
2 3 6
A= × =
3 4 12

1 3 3
B= × =
3 4 12

1 3 3
C==4×3 = 12

NR = 6:3:3 = 2:1:1

3 2 2
Share Sacrificed by A’s = = 5 - 4 = − 20

2 1 3
Share Sacrificed by B’s = = 5 – 4 = − 20

Sacrifice Ratio = 2:3

3. Situation
WHEN OLD PROFIT SHARING RATIO, SHARE OF NEW PARTNER AND SACRIFICING RATIO IS
GIVEN

Example:
X and Y are partners sharing profits and losses in the ratio of 3:2. They admit Z as a new
partner for 1/5 share in the future profits of the firm which he gets equally from X and Y.

Sol.
Share Sacrificed by X and Y in favour of Z = 1/5 ×1/2 = 1/10

New share of = OR - SR
X’s = 3/5 – 1/10 = 5/10

Y’s = 2/5 – 1/10 = 3/10

Z’s = 1/5 ×2/2 = 2/10

NR = 5:3:2
4. Situation
WHEN OLD PROFIT SHARING RATIO, SHARE OF NEW PARTNER AND SACRIFICING RATIO IS
GIVEN IN FRACTION

FROM
EXAMPLE:
A & B are partners sharing profits & losses in the ratio of 3:2. They admitted C as a new
partner for 3/10 share which he acquired 2/10 from A and 1/10 from B.

Sol.
Old Ratio = 3:2
SR = 2:1

A’s New Share = OS – SS

3/5 – 2/10 = 4/10

B’s New Share = 2/5 – 1/10 = 3/10

C’s Share = 3/10

NR = 4:3:3

OF
Example:
A & B are partners sharing profits & losses in the ratio of 3:2. They admitted C as a new
partner. A surrender ¼ of his share and B surrender 1/3 of his share in favour of C.

Sol:

Share surrender by A in favour of C = 3/5 × 1/4 = 3/20

Share surrender by A in favour of C = 2/5 × 1/3 = 2/15

New Share of

A = OS – SS
3/5 – 3/20 = 9/20 × 3/3 = 27/60

B = 2/5 – 2/15 = 4/15 ×4/4 = 16/60

C = 3/20 + 2/15 = 17/60

NR = 27:16:17

5. Situation
WHEN OLD RATIO AND NEW RATIO IS GIVEN (In this situation old partner (s) may gain)

Example:
X and Y are partners in a firm sharing profits and losses in the ratio of 4:3. They admitted Z
as a new partner. The profit sharing ratio of X, Y and Z will be 2:3:1.
6. Situation
WHEN ONE OF THE OLD PARTNER RETAINED HIS ORIGINAL SHARE

Example:
P, Q and R are partners sharing profits in the ratio of 2:2:1. S is admitted as a new partner
for 1/6th share. R will retain his share. Calculate new profit sharing ratio.

Sol:
Let the profit = 1
RS after R’s & S’s share = 1 – (1/5+1/6) = 19/30

P’s new share = 19/30 × 1/2 = 19/60

Q’s New Share = 19/30 ×1/2 = 19/60

R’s New Share = 1/5 × 12/12 = 12/60

S’s Share = 1/6 × 10/10 = 10/60

NR = 19:19:12:10
GOODWILL

1. GOODWILL GIVEN INTO BALANCE SHEET

Write off the goodwill in old ratio among old partners

l.f. Dr. Cr.

Old Partners Capital/Current A/c ------------------------------- Dr.
To Goodwill A/c
(Being goodwill write off in OR)

2. GOODWILL GIVEN IN ADJUSTMENT

CASE 1:

WHEN GOODWILL PAID PRIVATELY AND NEW PARTNER CAPITAL BRINGS IN CASH

A) Cash/Bank A/c Dr.

To New Partner Capital A/c

B) No Entry (for goodwill)

 CASE 2:

WHEN NEW PARTNER BRINGS HIS SHARE OF GOODWILL IN CASH (retained into the firm)
AND CAPITAL ALSO BRINGS IN CASH

a) Cash/Bank A/c ---------------------- Dr. xxxxx

To New Partner’s Capital A/c xx
To Premium for Goodwill A/c xxx
(Being Goodwill and New Partner brings capital in cash)

b) Premium for Goodwill A/c ------------------------- Dr. xxx

To Sacrificing Partner Capital/Current A/c (SR)
(Being premium for goodwill credited to old partner in SR)

Example:
X and Y are partners in a firm sharing profits and losses in the ratio of 5:3. Z is admitted for
1/5th share of profits. He is to bring in Rs. 20,000 as capital and Rs. 4,000 as his share of
goodwill retained into business. Pass necessary journal entries.

Sol.
a) Cash A/c ----------------------Dr. 24,000
To Z’s Capital A/c 20,000
To Premium for Goodwill A/c 4,000

b) Premium for goodwill A/c ----------------- 4,000

To X’s Capital A/c 2,500
To Y’s Capital A/c 1,500
(Being premium for goodwill credited to old partner in 5:3 Ratio)

CASE 3:

WHEN NEW PARTNER BRINGS HIS SHARE OF GOODWILL IN CASH (not to be retained into
the firm) AND CAPITAL ALSO BRINGS IN CASH

a) Cash/Bank A/c ---------------------- Dr. xxxxx

To New Partner’s Capital A/c xx
To Premium for Goodwill A/c xxx
(Being Goodwill and New Partner brings capital in cash)

b) Premium for Goodwill A/c ------------------------- Dr. xxx

To Sacrificing Partner Capital/Current A/c (SR)
(Being premium for goodwill credited to old partner in SR)

c) Sacrificing Partner Capital A/c Dr.

To Cash A/c
(Being Goodwill withdrawn by sacrificing partner in SR)
 1. Example:
X and Y are partners in a firm sharing profits and losses in the ratio of 5:3. Z is admitted for
1/5th share of profits. He is to bring in Rs. 20,000 as capital and Rs. 4,000 as his share of
goodwill. Goodwill full amount is withdrawn by SP. Pass necessary journal entries.

Sol.
d) Cash A/c ----------------------Dr. 24,000
To Z’s Capital A/c 20,000
To Premium for Goodwill A/c 4,000

e) Premium for goodwill A/c ----------------- 4,000

To X’s Capital A/c 2,500
To Y’s Capital A/c 1,500
(Being premium for goodwill credited to old partner in 5:3 Ratio)

f) X’s Capital A/c 2500

Y’s Capital A/c 1500
To Cash A/c 4000
(Being Goodwill withdrawn by SP in 5:3)

2. Example:
X and Y are partners in a firm sharing profits and losses in the ratio of 5:3. Z is admitted for
1/5th share of profits. He is to bring in Rs. 20,000 as capital and Rs. 4,000 as his share of
goodwill. Goodwill 50% amount is withdrawn by SP. Pass necessary journal entries.

Sol.
g) Cash A/c ----------------------Dr. 24,000
To Z’s Capital A/c 20,000
To Premium for Goodwill A/c 4,000

h) Premium for goodwill A/c ----------------- 4,000

To X’s Capital A/c 2,500
To Y’s Capital A/c 1,500
(Being premium for goodwill credited to old partner in 5:3 Ratio)

i) X’s Capital A/c 1250

Y’s Capital A/c 750
To Cash A/c 2000
(Being Goodwill withdrawn by SP in 5:3)

CASE 4:

WHEN NEW PARTNER DOES NOT BRING GOODWILL IN CASH AND CAPITAL BRINGS IN
CASH

j) Cash/Bank A/c ---------------------- Dr. xxxxx

To New Partner’s Capital A/c xxxx
(Being New Partner brings capital in cash)
 k) New Partner Current A/c ------------------------- Dr. xxx
To Sacrificing Partner Capital/Current A/c (SR)
(Being premium for goodwill credited to old partner in SR)

Example:
A and B were Partners sharing profits in the ratio of 3:2. They agreed to admit C into partnership
from 1st April 2020. The New Profit-sharing ratio will be 3:3:2. C brings Rs. 2,00,000 as his capital,
but is unable to bring his share of goodwill in cash. The goodwill of the firm is valued at Rs. 1,60,000.
Record Journal entries.

Sol:
OR – NR

A = 3/5 – 3/8 = 9/40

B = 2/5 – 3/8 = 1/40

SR = 9:1

1. Bank A/c -----------------------Dr. 2,00,000

To C’s Capital A/c 2,00,000

C’s Goodwill = Firm goodwill × his share

= 160000 × 2/8
= 40,000

2. C’s Current A/c ---------------- Dr. 40000

To A’s Capital A/c 36000
To B’s Capital A/c 4000

CASE 5:

WHEN NEW PARTNER BRINGS ONLY PART OF HIS SHARE OF GOODWILL AND CAPITAL
BRINGS IN CASH

l) Cash/Bank A/c ---------------------- Dr. xxxxx

To New Partner’s Capital A/c xx
To Premium for Goodwill 6000
(Being New Partner brings capital in cash)

m) Premium for Goodwill A/c -----------------------Dr. 6000

New Partner Current A/c ------------------------- Dr. 4000
To Sacrificing Partner Capital/Current A/c (SR)
(Being premium for goodwill credited to old partner in SR)
Example:
A and B were Partners sharing profits in the ratio of 5:3. They agreed to admit C into partnership for
1/10 share which he acquires from A & B in the ratio of 3:2. C brings Rs.1,00,000 as his capital and
Rs. 40,000 as goodwill out of his share of goodwill Rs. 70,000. Pass Journal entries.
Sol.
a) Cash/Bank A/c ---------------------- Dr. 140000
To New Partner’s Capital A/c 100000
To Premium for Goodwill 40000
(Being New Partner brings capital in cash)

b) Premium for Goodwill A/c -----------------------Dr. 40000

C’s Current A/c ---------------------------------------------- Dr. 30000
To A’s Capital A/c 42000
To B’s Capital A/c 28000
(Being premium for goodwill credited to old partner in SR)

CASE 6:

WHEN EXISTING PARTNER (old partner) ALSO GAIN ON ADMISSION OF NEW PARTNER

In this type of situation, the OR and NR both are given.

1. Compute Ratio (if gaining partner will come from the old partner then follow second
step)
2. Compute Firm Goodwill (X) = New Partner Goodwill × Reciprocal of his share

3. A = Firm goodwill * share gained

B = Firm goodwill * share sacrifice

Goodwill bring 10000

Cash (10000) Not in Cash Partially in Cash (6000)
Cash A/c --------------- Dr. 10000 - Cash A/c --------------- Dr. 6000
To Premium for Goodwill A/c 10000 To Premium for Goodwill A/c 6000

Premium for Goodwill A/c -------Dr. 10000 C’s Current A/c- ------Dr.10000 Premium for Goodwill A/c Dr. 6000
A’s Capital A/c ---------------------- Dr. A’s Capital A/c ------ Dr. C’s Current A/c- ------Dr. 4000
To B’s Capital A/c To B’s Capital A/c A’s Capital A/c ------ Dr.
To B’s Capital A/c