Chapter 5: Admission of a Partner

When a partner is admitted to the existing partnership firm, it is called admission of a partner.

Details

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


Curriculum

  • Exercise Q3 - 6 to 13
    24 m 14 s
  • Pg 205 Q4 (1 and 2)
    22 m 16 s
  • Pg 205 Q4 (3 to 6)
    33 m 9 s
  • Pg 205 Q4 (7 to 10)
    29 m 42 s
  • Pg 205 Q4 (11, 12, 13)
    21 m 57 s
  • Pg 208 Q8
    14 m
  • P1 Ch5 Class 6 Sum 9 Admission of a Partner
  • Pg 209/211 - Q10, Q11
    34 m 9 s
  • Pg 211 Q13
    14 m 38 s
  • Pg 211/212 - Q 14/Q15
    24 m 29 s
  • Pg 211 - Q16
    17 m 23 s
  • pg 213 Q17
    14 m 49 s
  • Pg 214 Q18, 19
    32 m 34 s
  • 1. How is a new partner admitted in a firm ?
    1 m
  • 2. For what purpose a new partner is admitted in a firm ?
    1 m
  • 3. State necessary accounting adjustments at the time of the admission or a new partner.
    1 m
  • 4. State rights of a new partner.
    1 m
  • 5. Why are assets and liabilities revalued at the time of admission of a new partner?
    1 m
  • 6. Why a new partner is required to give his share in goodwill?
    1 m
  • 7. What is sacrificing ratio? How it is calculated?
    1 m
  • 8. Explain with reasons the accounting treatment of reserves and accumulated profit and loss appearing in the books of the firm at the time of the admission of a new partner.
    1 m
  • 9. When is revaluation account debited/credited?
    1 m
  • 10. State provision for the goodwill as per accounting standard-26.
    1 m
  • Practice Quiz
    20 questions
  • 1. Write the names of methods for accounting effects related to goodwill at the time of admission of a new partner.
    1 m
  • 2. When is memorandum of Revaluation Account prepared?
    1 m
  • 3. In which ratio profit or loss amount is distributed (which arrived in the first phase) of memorandum of Revaluation Account ?
    1 m
  • 4. In which ratio profit or loss amount is distributed (which arrived in the second phase) of memorandum of Revaluation Account ?
    1 m
  • 5. At which value goodwill is shown in the new balance sheet, at the time of admission of a new partner?
    1 m
  • 6. How can partners of a partnership firm enter a new partner in a business ?
    1 m
  • 7. To which account profit or loss of Revaluation Account is to be recorded ?
    1 m
  • 8. To which account bad debts reserve amount is to be transferred when a new partner is admitted ?
    1 m
  • 9. In which ratio is the amount credited in partners account when goodwill account is to be created?
    1 m
  • 10. When new partner brings his share of goodwill in cash, in which ratio is it to be distributed among old partners?
    1 m
  • 11. What type of an account is revaluation account?
    1 m
  • 12. At the time of revaluation if the debts value decreases or increases then ion which side of revaluation account would it be recorded?
    1 m
  • 13. In which ratio, future profit or loss is to be distributed among all partners after admission of a new partner?
    1 m
  • 14. In which ratio accumulated reserves and funds are to be distributed among partners?
    1 m
  • 15. Which account is to be opened to record changes in the values of assets and liabilities at the time of admission of a new partner ?
    1 m
  • 16. At the time of admission of a new partner if sacrifice ratio or new profit-loss ratio is not given then what is the sacrifice ratio for old partners ?
    1 m
  • 17. Partners A and B admitted C as a new partner. At that time revaluation of goodwill is less than the book value of goodwill. Pan journal entry for the same.
    1 m
  • 18. Admission of a partner in a firm is one type of _______ for partners.
    1 m
  • 19. Which two ratios are to be calculated at the time of admission of a partner?
    1 m
  • 20. What is premium for goodwill?
    1 m
  • 21. What is the accounting effect for the goodwill premium paid privately by the new partner?
    1 m
  • Chapter 5 Practice Material
    1.2 MB
  • One Line Answer and Theory
    1.1 MB
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