When a partner is admitted to the existing partnership firm, it is called admission of a partner.
An existing partnership firm may take up expansion/diversification of the business. In that case it may need managerial help or additional capital. In such cases, one option for the partnership firm is to admit new partner/partners. When a partner is admitted to the existing partnership firm, it is called admission of a partner. On the admission of a new partner, the partnership firm is reconstituted with a new agreement.
Let's look at an example:
Rekha and Nitesh are partners sharing profit in the ratio of 5:3. On April 1, 2014 they admitted Nitu as a new partner with 1/4th share in the profit of the firm. In this case, with the admission of Nitu as partner, the firm stands reconstituted.
On the admission of a new partner, the following adjustments become necessary:
(i) Adjustment in profit sharing ratio;
(ii) Adjustment of Goodwill;
(iii) Adjustment for revaluation of assets and reassessment of liabilities;
(iv) Distribution of accumulated profits and reserves; and
(v) Adjustment of partners’ capitals