Admission of a Partner in a Partnership Firm
When a
new partner is admitted into partnership it is called admission of a partner.
The new partner has to bring capital in cash or kind. The new partner also has
to bring the goodwill for the business. If the goodwill is not brought in the
business by the new partner it is decided by the old partners to raise the
goodwill or value the goodwill or fix the goodwill. In such case the goodwill
is shown in the balance sheet at its full value.
The
accounting treatment for the admission purpose are as below :
|
Transaction |
Entry |
|
1. When
General Reserve or accumulated profits are transferred to partners |
General Reserve A/c…………. Dr. Profit & Losss A/c……………. Dr. To Old Partners’
Capital A/c |
|
2. When
new partner brings capital in cash |
Cash A/c………………………..Dr. To New Partners’
Capital A/c. |
|
3.
When new partner brings his share of
goodwill in cash |
a)
Cash A/c……………...... Dr. To
Goodwill A/c. b)
Goodwill A/c……………Dr. To Old Partners’s Capital A/c. (distribute in sacrifice ratio) |
|
4. When
amount of goodwill is withdrawn by old partners. |
Old Partners’ Capital A/c……….Dr. To Cash A/c. |
|
5. When
new partner is unable to bring the goodwill in cash |
Goodwill A/c……………………Dr. To Old Partners’s Capital A/c. (old ratio) here the goodwill a/c will show balance and will appear in balance sheet. |
|
6. When
goodwill is withdrawn |
All Partners’ Capital A/c………...Dr. To Goodwill A/c
(new ratio) |
|
7.
When any
asset is appreciated |
Asset A/c…………………………Dr.
To Revaluation A/c. |
|
8. When
any asset is depreciated |
Revaluation A/c………………….Dr. To Asset A/c |
|
9.
When any
liability is increased |
Revaluation A/c……………….... Dr.
To Liability A/c. |
|
10. When any liability is decreased |
Liability A/c…………………..… Dr. To Revaluation
A/c. |
|
11. When there is
profit on revaluation |
Revaluation A/c…………………. Dr.
To Old Partners’ Capital A/c. |
|
12. When there is loss on revaluation |
Old Partners’ Capital A/c…………Dr. To Revaluation
A/c. |
|
13. When there is excess of capital on capital adjustment |
Partners’ Capital A/c………………Dr.
To Cash / Current / Loan A/c. |
|
14. When
there is shortage of capital on capital adjustment |
Cash / Current
A/c………………...Dr. To Partner’s
Capital A/c. |
