admission of a partner

CHAPTER 4
Accounting for Partnership Firms :
Admission of a partner
Meaning:
When a new partner is admitted in a running business due to the requirement of more capital or
may be to take advantage of the experience and competence of the newly admitted partner or any
other reason, it is called admission of a partner in partnership firm.
According to section 31(1) of Indian partnership Act,1932, “A new partner can be admitted only
with the consent of all the existing partners.”
At the time of admission of a new partner, following adjustments are required:
1. Calculation of new profit sharing ratio and sacrificing ratio.
2. Accounting treatment of Goodwill.
3. Accounting treatment of accumulated profit.
4. Accounting treatment of revaluation of assets and reassessment of liabilities.
5. Adjustment of capital in new profit sharing ratio.
1. Calculation of new profit sharing ratio.
Following types of problems may arise for the calculation of new profit sharing ratio.
Case (i) When old ratio is given and share of new partner is given.
Illustration 1. (When new partner acquires his share from all partners in their old ratio)
A and B are partners in a firm sharing profits and losses in the ratio 1:2.They admitted C into
the partnership and
decided to give him 1/3rd share of the future profits. Find the new ratio of the partners. (CBSE
2003)
Solution
(i) Calculation of Sacrifice Share:
A’s sacrifice = 1/3 of 1/3 = 1/9
B’s sacrifice = 2/3 of 1/3 = 2/9
Sacrificing Ration = 1/9 : 2/9 = 1:2
which is equal to old ratio
(ii) Calculation of New Profit sharing Ratio:
New share=Old share­ Sacrifice share
A’s new share =1/3­1/9=3­1/9=2/9
B’s new share =2/3­2/9=6­2/9=4/9
C’s new share =1/9+ 2/9 = 3/9
New ratio among A,B and C: 2/9:4/9:3/9=2:4:3 respectively
Note: Unless agreed otherwise, it is presumed that the new partner acquires his share in profits

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,from the old partners in their old profit sharing ratio.
Alternative Method :
Old Ratio = A:B
1:2
Let the profit of the firm = 1
C's share (New Partner) = 1/3
Remaining Profit = 1­1/3 = 2/3
Now this profit 2/3 will be divided
between the old partners in their old ratio i.e., 1:2
A's new Profit = 1/3 of 2/3 = 1/3 x2/3 = 2/9
B's new Profit = 2/3 of 2/3 = 2/3x2/3 = 4/9
C's profit = 1/3 or 1/3 x 3/3 = 3/9
Hence the new ratio = 2:4:3
Note­ In this case only New Partner's share is given then
Sacrificing Ratio = Old Ratio
= 1:2
There is no need to calculate it
Case (ii) When new partner acquires his/her share from all partners in agreed share.
Illustration 2. (When new partner acquires his share from all partners in agreed share)
L and M are partners in a firm sharing profits and losses in the ratio of 7: 3. They admitted N for
3/7th share,which he takes 2/7th from L and 1/7 from M. Calculate the new profit sharing ratio.(CBSE
1999 Compt., 2001, 2003)
Solution.
(i) As sacrifice share of old partners are given in the question itself, hence there is no need to
calculate it.
(ii) Calculation of New profit sharing ratio:
New share=old share­sacrifice share
L’s new share =7/10­2/7=49­20/70=29/70
M’s new share =3/10­1/7=21­10/70=11/70
N’s new share =2/7+1/7=3/7(given)
New ratio among L,M and N =29/70:11/70:3/7 = 29:11:30/70 =29:11:30
Case (iii) When new partner acquires his/her share from all partners in certain ratio.
Illustration 3.
X and Y are partners in a firm sharing profit and losses in the ratio of 3:2.Z is admitted as partner
in the firm for 1/6th share in profits. Z acquires his share from X and Y in the ratio of 2:1. Calculate
new profit sharing ratio of partners.
(CBSE 2003)
Solution.
(i) Calculation of Sacrifice share:
Given sacrificing Ratio = X:Y = 2:1,

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, therefore :
X’s sacrifice = 2/3of 1/6=2/18
Y’s sacrifice =1/3of 1/6 =1/18
(ii) Calculation of New Profit Sharing Ratio:
New share = Old share­Sacrifice share
X’s new share =3/5­2/8=54­10/90=44/90
Y’s new share =2/5­1/18=36­5/90=31/90
Z’s new share =2/18+1/18=3/18or 1/6 (Given)
New ratio among X,Y and Z = 44/90:31/90:1/6=44:31:15/90=44:31:15
Case (iv) When new partner acquires his share from all partners as a fraction of their share.
Illustration 4. (When new partner acquires his share from all partners as a fraction of their
share)
A and B are partners in a firm sharing profit and losses in the ratio of 5:3. A surrenders 1/5th of his
share, whereas B surrenders 1/3 of his share in favour of C, a new partner. Calculate the new profit
sharing ratio
.(CBSE 2003, AI 2004)
Solution.
(i) Calculation of sacrifice share
A sacrifices 1/5th of his share i.e., 1/5of 5/8 = 5/40 or 1/8
B sacrifices 1/3th of his share i.e.,1/3of3/8= 3/24 or 1/8
(ii) Calculation of New profit shaing Ratio :
New share =Old share – sacrifice share
A’s new share =5/8­1/8=4/8
B’s new share = 3/8 ­1/8 = 2/8
C’s new share = 1/8 + 1/8 = 2/8
New ratio among A, B and C = 4/8:2/8:2/8 = 4:2:2/8 = 2:1:1
Case (v) When new partner does not acquire his/her share from all partners
Illustration 5. (when new partner does not acquire his share from all partners)
A, B and C are partners sharing profits in the ratio of 3:2:1. They admit D for 1/6 share. C would
retain his old share. Calculate new ratio of all partners.
(CBSE 2002 Compt.)
Solution.
(i) Calculation of sacrifice share : (Only A and B will sacrifice in ratio of 3:2)
A’s sacrifice = 3/5 of 1/6 = 3/30 or 1/10
B’s sacrifice = 2/5 of 1/6 = 2/30 or 1/15
C’s sacrifice = 0
(ii) Calculation of new profit sharing ratio :
New share = Old share – Sacrifice share
A’s new share = 3/6 – 1/10 = 30­6/60 = 24/60
B’s new share = 2/6 – 1/15 = 30­6/90 = 24/90
C’s new share = 1/6 – 0 = 1/6
D’s new share = 1/10 + 1/15 = 3+2/30 = 5/30 = 1/6
New ratio among A, B, C and D

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