Admission of a New partner
Without permission of other partners, a new partner can not enter in any firm but with the acceptance of all partner, a new partner can come in partnership firm. It is the duty of existing partners to sacrifice their shares for giving to new partner. It is the duty of new partner to give his own capital and share of goodwill to partnership firm.
Accounting treatment at the time of Admission of new partner :
1. Calculating New and sacrificing ratio
It is necessary to calculate new and sacrifice ratio at the time of admission of a new partner because all the journal entries like profit sharing of new firm and goodwill division is on base of calculated new and sacrifice ratio respectively .
2. Calculate the profit or loss on the revaluation of assets and liabilities
It is necessary to calculate profit or loss on the revaluation of assets and liabilities at the time of admission . This profit or loss must be divide between old partner in old ratio. Because this is the result of the hard work of old partner only .
3. Calculate the share of Goodwill which will have to take from new partner
There are many method of calculating and accounting treatment of goodwill . But these days, goodwill name has been changed with premium . and It has been brought in business by new partner. This premium is divided by old partner in their sacrifice ratio . It means their share will transfer to their capital account .
4. Capital Adjustment
Sometime, all partners can decide to maintain their new capital in new profit sharing ratio . If any partner’s share will less than accepted portion then , that partner will give fresh capital in cash form or any partner who has given more capital from accepted capital , that partner can withdraw this excess in cash form .
Without permission of other partners, a new partner can not enter in any firm but with the acceptance of all partner, a new partner can come in partnership firm. It is the duty of existing partners to sacrifice their shares for giving to new partner. It is the duty of new partner to give his own capital and share of goodwill to partnership firm.
Accounting treatment at the time of Admission of new partner :
1. Calculating New and sacrificing ratio
It is necessary to calculate new and sacrifice ratio at the time of admission of a new partner because all the journal entries like profit sharing of new firm and goodwill division is on base of calculated new and sacrifice ratio respectively .
2. Calculate the profit or loss on the revaluation of assets and liabilities
It is necessary to calculate profit or loss on the revaluation of assets and liabilities at the time of admission . This profit or loss must be divide between old partner in old ratio. Because this is the result of the hard work of old partner only .
3. Calculate the share of Goodwill which will have to take from new partner
There are many method of calculating and accounting treatment of goodwill . But these days, goodwill name has been changed with premium . and It has been brought in business by new partner. This premium is divided by old partner in their sacrifice ratio . It means their share will transfer to their capital account .
4. Capital Adjustment
Sometime, all partners can decide to maintain their new capital in new profit sharing ratio . If any partner’s share will less than accepted portion then , that partner will give fresh capital in cash form or any partner who has given more capital from accepted capital , that partner can withdraw this excess in cash form .
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