Admission of New Partner
By Asok Nadhani
22.1 Introduction of New Partner
When a new partner is
admitted in the firm, it is
desirable to revalue the assets and liability to make an updated Balance Sheet
on the date of admission. He contributes capital to the firm and acquires
the right to share in the assets and profit and loss of the firm. Consequently,
all or some of the existing partners have to sacrifice a part of their share of
profit or assets in favour of the incoming partner. Such existing are
compensated by the incoming partner in the form of goodwill, which is credited
to their capital account in accordance with their sacrificing ratio. Consequently,
the profit sharing ratio of the
partners is changed. All
subsequent profits or losses will be automatically shared by the incoming partner
along with old partners, as per the new profit sharing ratio.
22.2 Revaluation or Profit
and Loss Adjustment Accounts
i)
When a
new partner is admitted into the partnership, assets are valued and liabilities
are reassessed. A Revaluation Account or Profit and Loss Account is opened for
the purpose.
ii)
Revaluation
account is debited with all reduction in the value of assets and increase in
liabilities, and credited with increase in the value of assets and decrease in
the value of liabilities.
iii)
The
difference in two sides of the account will show Profit or Loss Appropriation
Account, which is transferred to the Capital Accounts of old partners in the
old profit sharing ratio.
22.2.1 Journal entries on
Revaluation
|
1.
|
Increase the value of Assets.
|
|
Assets A/c
|
Dr.
|
|
|
|
|
To Revaluation
A/c.
|
|
|
2.
|
Reduction the value of Assets.
|
|
Revaluation A/c
|
Dr.
|
|
|
|
|
To Assets A/c.
|
|
|
3.
|
Increase the value of Liabilities.
|
|
Revaluation A/c
|
Dr.
|
|
|
|
|
To Liabilities
A/c.
|
|
|
4.
|
Reduction the value of Liabilities.
|
|
Liabilities A/c
|
Dr.
|
|
|
|
|
To Revaluation
A/c.
|
|
|
5.
|
With the Profit in the old profit sharing
ratio.
|
Revaluation A/c
|
Dr.
|
|
|
|
|
|
To Partners
Capital Account A/c.
|
|
|
6.
|
With the Loss in the old Profit sharing
ratio.
|
Partners Capital Account A/c.
|
Dr.
|
|
|
|
|
|
To Revaluation
A/c.
|
|
|
7.
|
For recording unrecorded Assets.
|
|
Assets A/c
|
Dr.
|
|
|
|
|
To Revaluation
A/c.
|
|
|
8.
|
For recording unrecorded Liabilities.
|
|
Revaluation A/c
|
Dr.
|
|
|
|
|
To Liabilities
A/c.
|
|
|
9.
|
For Revaluation Expenses.
|
|
Revaluation A/c
|
Dr.
|
|
|
|
|
To Cash A/c.
|
|
|
Note:
i)
As a
result of the entries no. 5 and 6, the Capital Account Balances of the old
partners will change and the Assets and Liabilities will have to be adjusted
to their proper values.
ii)
The
partners may agree that Revalued figures will not be shown in the Balance
Sheet and Assets and liabilities would appear the Balance Sheet at their old
values.
iii)
In
such case additional entries are passed as follows:
|
||||
|
10.
|
With the amount of revaluation Profit in
the New Profit Sharing Ratio (including newly admitted partner)
|
|
Partners Capital A/c.
|
Dr.
|
|
|
|
To Revaluation
A/c.
|
|
|
|
11.
|
With the amount of revaluation Loss in the
New Profit Sharing Ratio (including newly admitted partner).
|
|
Revaluation A/c.
|
Dr.
|
|
|
|
To Partners
Capital A/c.
|
|
|
22.3 Calculation of New
Profit Sharing Ratio and Sacrificing Ratio
On admission of a new
partner, profit sharing ratio of partners will change. New ratio will depend
upon the share given to new partner and also on the ratio in which old partners
are sacrificing or contributing towards the share of new partner.
i)
Share of New Partner: Share is given
to new partner according to agreement .He may acquire his share of future
profit either from one partner or from all the partners.
ii)
Profit Sharing Ratio of Old Partners:
Remaining shares
= 1 – New Partner’s Share
Old Partner’s
New Share = Remaining Shares x Old profit sharing ratio
Or Old Sharing
Ratio – Sacrificing Ratio
iii)
Sacrificing Ratio = Old Profit Sharing Ratio – New
Profit Sharing Ratio.
Case-1
Old Partners: A, B and C;
Old profit sharing Ratio 5:3:2; New partner D is admitted for ¼ share. He gets
his share from old partners in old profits sharing ratio.
In this case new profit
sharing ratio will be calculated as under:
D gets ¼ th share in total
profit. Therefore combined share of A, B & C after D’s admission will be
(1-1/4) = ¾.
This ¾ share will be
allocated among A, B and C in the ratio of 5:3:2. Thus new ratio will be:
A = ¾ X 5/10 = 15/40;
B = ¾ X 3/10 = 9/40;
C = ¾ X 2/10 = 6/40;
D = ¼ or 10/40
i.e A: B:C:D = 15:9:6:10
Sacrificing ratio of A, B
and C is-
A = 5/10 – 15/40 = 5/40
B = 3/10 – 9/40 =3/40
C = 2/10 – 6/40 = 2/40
5:3:2 i.e. old ratio.
Case -2
Old Partners A, B and C;
Old profit sharing ratio 5:3:2; New Partner D is admitted for ¼ share, which he
gets equally from all the old partners.
In this case new profit
sharing ratio will be calculated as under:
D gets ¼ share in profits
in equal proportion from all partners. Therefore, contribution by each partner
will be ¼ x 1/3 = 1/12
The new ratio will be
calculated by deducting 1/12 from old share of each partner.
A = 5/10 – 1/12 = 25/60;
B = 3/10 – 1/12 = 13/60;
C = 2/10 – 1/12 = 7/60;
D = ¼
Therefore new ratio of A,
B, C and D = (25/60):(13/60):(7/60):(1/4) = (25/60):(13/60):(7/60):(15/60) = 25:13:7:15
Sacrificing ratio of A, B
and C is-
A = 5/10 – 25/60 =
5/60
B = 3/10 – 13/60 = 5/60
C = 2/10 – 7/60 = 5/60
i.e. 5:5:5 or 1:1:1
Case-3
Old Partners A, B and C;
Old profit sharing ratio 5:3:2; New Partner D is admitted for ¼ share, Only A
and B contribute towards the share of D.
In the above case C’s share
will not be altered, because he is not contributing anything towards the share
given to D. Contributions by A and B will be as under:
A = ¼ x 5/8 = 5/32;
B = ¼ X 3/8 = 3/32
Thus new ratio will be:
A = 5/10 – 5/32 = 55/160;
B = 3/10 – 3/32 = 33/160;
C = 2/10 or 32/160;
D = ¼ or 40/160
i.e. 55:33:32:40
Ratio of sacrifice by A and
B in this case will be
A = 5/10 – 55/160 =
25/160
B = 3/10 – 33/160 = 15/160
i.e. 25:15 or 5:3
If ratio in which old
partners are contributing towards the share of new partner is not mentioned it
will be assumed that they are contributing in old ratio.
Example 1 (New
profit sharing ratio)
X and Y are in partnership sharing profits and losses
at the ratio of 5:3. They admitted Z as 1/4th partner. For
computation of new profit sharing ratio
(i)
Firstly,
deduct the share offered to new partner from 1.
1 – ¼ = 3/4
(ii)
Divide
the balance of share between X and Y at the ratio of 5:3.
X = ¾ x 5/8 = 15/32.
Y = ¾ x 3/8 = 9/32.
(iii)
New
profit sharing ratio is
|
|
X
|
:
|
Y
|
:
|
Z
|
|
|
15/32
|
:
|
9/32
|
:
|
1/4
|
|
Or
|
15/32
|
:
|
9/32
|
:
|
8/32
|
|
i.e.
|
15
|
:
|
9
|
:
|
8
|
Example
2:
A and B are equal
partners. They admit C and D as partners with 1/5 and 1/6 share respectively. The
new profit sharing ratio of all the partners is computed below:
[C.A.
Solution:
Let total profit
or losses of the firm be 1
Shares of new
partners, C and D is 1/5 and 1/6 respectively.
Balance remaining
= 1 – (1/5 + 1/6) = 1 – 11/30 = 19/30 to be shared equally by A and B
New profit
sharing ratio of A & B = (19/30) /2:(19/30) /2 = 19/60:19:60
New profit
sharing ratio will be A: B: C: D = 19/60:19/60:1/5:1/6 = 19/60:19/60:12/60:10/60
i.e.19: 19: 12: 10 .
Sacrificing Ratio
Sacrificing Ratio means forgoing a fraction
of share in favour of a new partner by the old ones.
It is determined at the time of admission of
a partner as
Sacrificing Ratio = Old Profit Sharing Ratio
– New Profit sharing ratio
Example
X and Y are in partnership sharing profits in the ratio
of 3:5. They admit Z and the new profit sharing ratio is X :Y:Z = 2:3:5 calculate the Sacrificing Ratio.
Solution:
Sacrifice by X = 3/8 – 2/10 = 7/40
Sacrifice by Y = 5/8 – 3/10 = 13/40
\Sacrifice Ratio = 7:13 .
22.3 Goodwill
i)
The goodwill should be recorded in the books only
when some consideration in money has been paid for it. In case of admission of
a partner, if the incoming partner brings any premium over and above his
capital contribution at the time of his admission, such premium should be
distributed to other existing partners. When a new partner is admitted to a
firm, the old partners generally sacrifice in favour of the new partner in
terms of lower profit sharing ratio in the future. Therefore, the goodwill premium
brought in by the new partner shall be given to the existing partners on the
basis of profit sacrificing ratio. The profit sacrificing ratio is computed by
deducting the new profit sharing ratio from the old profit sharing ratio.
ii)
As per
AS-10, any self generated goodwill can not be raised in the books. Only purchased
goodwill should be shown in the books of accounts.
iii)
There
may be 3 situations:
- When the New Partner
pays premium for Goodwill.
- When no Goodwill
premium is brought by incoming partner.
- When Goodwill is
paid privately.
(1) The
new partner pays the premium for goodwill:-
a)
Goodwill Premium is retained in the business
(i) Bank A/c
Dr
To Premium for
Goodwill A/c
(ii) Premium for Goodwill
A/c
Dr
To Old Partners Capital A/c (Sacrificing
Ratio)
b)
Goodwill premium is withdrawn by old partners:
(iii) Old Partners Capital
A/c
Dr
To Bank A/c
(2) No Goodwill premium is brought by incoming partner
a)
Goodwill raised:
(i) Goodwill
A/c
Dr
To Old Partners’ Capital A/c
(Old Profit Sharing Ratio)
Note: Above Entry is passed after considering the
amount of goodwill already appears in the firms Balance Sheet.
b)
Goodwill written off:
If no goodwill is to appear in the books
(ii) All Partners Capital A/c
Dr
To Goodwill A/c
Note: In this case all the partners’ capital account (including the new
partner) will be debited in the new profit sharing ratio.)
(3) Goodwill is paid privately:
In this case, no adjustment is required.
Example:
A,
B & C are equal partners. They decided to take D who brought in Rs.48,000
as goodwill. The new profit sharing ratio is 3:3:2:2.
Old Ratio – New Ratio = Sacrificing
Ratio.
A = 1/3 – 3/10 = 1/30
B = 1/3 – 3/10 = 1/30
C = 1/3 – 2/10 = 4/30
So, Goodwill should be
shared in the ratio 1:1:4. Rs.48,000 brought by D would be distributed by A, B,
C.
|
Date
|
Particulars
|
|
Rs.
|
Rs.
|
|
|
Cash A/c
|
Dr.
|
48,000
|
|
|
|
To A’s Capital
A/c (48,000 x 1/6)
|
|
|
8,000
|
|
|
To B’s capital
A/c (48,000 x 1/6)
|
|
|
8,000
|
|
|
To C’s Capital
A/c(48,000 x 2/6)
|
|
|
32,000
|
Illustration 1 (Revaluation of Assets and Liabilities,
goodwill calculation)
X and Y are partners in a firm, sharing profits and
losses in the ratio of 5:3. The Balance Sheet of X and Y as on 01.01.2010 was
as follows:
|
Liabilities
|
|
Amount
(Rs.)
|
Assets
|
|
Amount
(Rs.)
|
|
Sundry Creditors
|
|
12,000
|
Building
|
|
26,000
|
|
Bills Payable
|
|
8,000
|
Furniture
|
|
2,000
|
|
Bank Overdraft
|
|
10,000
|
Stock-in-trade
|
|
20,000
|
|
Capital Accounts:
|
|
|
Debtors
|
40,000
|
|
|
X
|
40,000
|
|
Less: Provision
|
300
|
39,700
|
|
Y
|
30,000
|
70,000
|
Investment
|
|
4,500
|
|
|
|
|
Cash
|
|
7,800
|
|
|
|
1,00,000
|
|
|
1,00,000
|
Z was admitted to the firm on the above date on the
following terms:
(i)
He is
admitted for 1/5th share in the future profits and to introduce a
capital of Rs.30,000.
(ii)
The new
profit sharing ratio of X, Y and Z will be 5:3:1 respectively.
(iii)
‘Z’ is
unable to bring in cash for his share of goodwill, partners therefore, decided to raise goodwill account in the books
of the firm. They further decide to calculate goodwill on the basis of Z’s
share in the profits and the capital contribution made by him to the firm.
(iv)
Furniture
is to be written down by Rs.800 and stock to be depreciated by 10%. A provision
is required for debtors @ 5% for bad debts. A provision would also be made for
outstanding wages for Rs.1,500. The value of building having appreciated is
brought up to Rs.30,000. The value of investments is increased by Rs.500.
(v)
It is
found that the creditors included a sum of Rs.1,500, which is not to be paid
off.
Prepare the following:
1.
Revaluation
Account.
2.
Partners’
Capital Account.
Solution:
Working Note:
Calculation of Goodwill:
Z’s contribution of Rs.30,000 consists of only 1/5th
of capital.
Therefore, total capital of firm is, Rs.30,000 x 5 =
Rs.1,50,000.
Combined capital of X, Y and Z amounts (Rs.40,000 +
30,000 + 30,000) = Rs.1,00,000.
Thus, the hidden goodwill is, (Rs.1,50,000 –
Rs.1,00,000) = Rs.50,000
The new partner is not bringing goodwill in cash. So
the goodwill account will be credited in the old partners in old profit sharing
ratio (5:3) as below.
|
Goodwill A/c
|
Dr.
|
50,000
|
|
|
To X’s Capital A/c (50,000 x 5/8)
|
|
|
31,250
|
|
To Y’s Capital A/c (50,000 x 3/8)
|
|
|
18.750
|
Revaluation Account
|
Dr.
|
|
|
Cr.
|
|
Particulars
|
Amount
(Rs.)
|
Particulars
|
Amount
(Rs.)
|
|
To Furniture
|
800
|
By Building
(30,000 – 26,000)
|
4,000
|
|
To Stock (10% on
Rs.20,000)
|
2,000
|
By Sundry
Creditors
|
1,500
|
|
To Provision for
doubtful debts
|
|
By Investment
|
500
|
|
Rs.(2,000 – 300)
|
1,700
|
|
|
|
To Outstanding
Wages
|
1,500
|
|
|
|
|
6,000
|
|
6,000
|
Partners’ Capital Accounts
|
Dr.
|
|
|
|
|
|
|
Cr.
|
|
Particulars
|
X
(Rs.)
|
Y
(Rs.)
|
Z
(Rs.)
|
Particulars
|
X
(Rs.)
|
Y
(Rs.)
|
Z
(Rs.)
|
|
To Balance c/d
|
71,250
|
48,750
|
30,000
|
By Balance b/d
|
40,000
|
30,000
|
-
|
|
|
|
|
|
By Cash A/c
|
-
|
-
|
30,000
|
|
|
|
|
|
By Goodwill A/c
|
31,250
|
18,750
|
-
|
|
|
|
|
|
(Working Note)
|
|
|
|
|
|
71,250
|
48,750
|
30,000
|
|
71,250
|
48,750
|
30,000
|
22.3.1 Proportionate Capital
and Inference of goodwill
i)
‘Proportionate Capital’ means Capital
Account balances of partners in accordance with the Profit Sharing Ratio,
Proportionate Capital is maintained generally under ‘Fixed Capital Method’
ii)
In
case of admission of a partner, partners may decide to make their capitals
proportionate to the profit sharing ratio. In this case, if base capital is
given, other partners either introduce or withdraw capital to make their
capitals proportionate to the base capital.
iii)
The
following procedure will be adopted:
- First calculate
total capital of the firm on the basis of capital brought by new partner.
- Then divide
total capital in new profit sharing ratio.
Example
X and Y are in partnership, sharing profit or loss in
the ratio of 3:2. Their capital balances are Rs.95,000 and Rs.40,000
respectively. They admitted Z for 1/6th share and he pays Rs.30,000
as capital. Find the capital of the partners if Z’s capital is taken as base
capital.
Solution:
Calculation of New profit
sharing ratio:
1-1/6 = the remaining 5/6th will be allocated between X and Y
X = 3/5 x 5/6 = 15/30
Y = 2/5 x 5/6 = 10/30
Z = 1/6th or 5/30
New ratio of X, Y and Z will be = 15/30:10/30:5/30
=3:2:1
Total Capital will be, taking Z’s capital as base =
(30,000 x 6) = Rs.1,80,000. Now partners decide to make their capital as per
their profit sharing ratio.
X’s Capital will be = (1,80,000 x 3/6) = Rs.90,000
Y’s Capital will be = (1,80,000 x 2/6) = Rs.60,000
Therefore, X should withdraw the excess capital balance
= (95,000 -90,000) = Rs.5,000
Y should introduce the deficit balance = (60,000 –
40,000) = Rs.20,000
If the newly admitted partner brings capital
more than what is required as per profit sharing ratio, then it is to be
presumed that he has contributed the excess for goodwill.
Example
X and Y are in partnership who contributed
proportionate capital of Rs.50,000 and Rs.70,000. Now they want to admit Z
giving him 1/4th share for which Z agrees to bring Rs.40, 000.
Total capital is Rs.1,20,000, So Z should contribute (Rs.1,20,000
x ¼) = Rs.30,000
But he agrees to pay Rs.40,000. So for 1/4th
share he is paying (40,000 – 30,000) = Rs.10,000 extra for goodwill. Thus total value of
goodwill is Rs.10,000 x 4 i.e. Rs.40,000.
Illustration 2 (Valuation of
Goodwill when the new partner contribute excess amount)
X and Y are in partnership sharing profits and losses
equally. The Balance Sheet of X an Y as on 31.12.2009 was as follows:
|
Liabilities
|
Amount
(Rs.)
|
Assets
|
Amount
(Rs.)
|
|
Capital A/cs
|
|
Sundry Fixed Assets
|
50,000
|
|
X
|
50,000
|
Stock
|
40,000
|
|
Y
|
40,000
|
Bank
|
10,000
|
|
Sundry Creditors
|
10,000
|
|
|
|
|
1,00,000
|
|
1,00,000
|
On 01.01.2010 they agreed to take Z as 1/5th
partner to increase the capital base to Rs.1, 20,000. Z agrees to pay Rs.45,000.
Show the necessary journal entries and
partners’ capital accounts.
Solution:
Working Note:
1. Calculation of Goodwill
Old Profit Sharing Ratio = 1:1
New profit Sharing Ratio will be as follows-
Remaining share (1-1/5)=4/5th
will be allocated between X and Y.
X = 1/2 x 4/5 = 4/10
Y = 1/2 x 4/5 = 4/10
Z = 1/5 or 2/10
Therefore, new profit sharing ratio of X , Y
and Z is 4:4:2 or 2:2:1
Z’s share of capital Rs.1,20,000 x 1/5 = Rs.24,000
Goodwill = Rs.(45,000 – 24,000) = Rs.21,000
for 1/5th share
So, Total value of Goodwill = Rs.21,000 x 5
= Rs.1,05,000.
2. Calculation of Capital of
partners
Total base capital of the firm is
Rs.1,20,000, the capital of the partners will be shared in the new profit
sharing ratio.
X’s Capital will be = (1,20,000 x 2/5) = Rs.48,000
Y’s Capital will be = (1,20,000 x 2/5) = Rs.48,000
Therefore, X should withdraw the excess
capital balance = (50,000 -48,000) = Rs.2,000
Y should introduce the deficit balance = (48,000
– 40,000) = Rs.8,000
Journal Entries In the Books
of X, Y and Z
|
Particulars
|
|
Dr.
(Rs.)
|
Cr.
(Rs.)
|
|
Bank A/c
To Z’s Capital A/c
(Cash brought in by Z for 1/5th share)
|
Dr.
|
45,000
|
45,000
|
|
Goodwill A/c [Wn.1]
To X’s Capital A/c.
To Y’s Capital A/c.
(Inferred value of goodwill raised in the books in
old profit sharing ratio.)
|
Dr.
|
1,05,000
|
52,500
52,500
|
|
X’s Capital A/c
Y’s Capital A/c
Z’s Capital A/c
To Goodwill A/c.
(Value of goodwill Written off in the new profit
sharing ratio)
|
Dr.
Dr.
Dr.
|
42,000
42,000
21,000
|
1,05,000
|
|
X’s Capital A/c [52,500 – 42,000]
Y’s Capital A/c[52,500 – 42,000]
To Bank A/c.
(Amount of goodwill due to X and y withdrawn)
|
Dr.
Dr.
|
10,500
10,500
|
21,000
|
|
X’s Capital A/c [Wn.2]
|
Dr.
|
2,000
|
|
|
To Bank A/c
|
|
|
2,000
|
|
(Excess capital withdrawn by X.)
|
|
|
|
|
Bank A/c [Wn.2]
|
Dr.
|
8,000
|
|
|
To Y’s Capital A/c
|
|
|
8,000
|
|
(Capital introduced by Y.)
|
|
|
|
Partners’ Capital Accounts
|
Dr.
|
|
|
|
|
|
|
Cr.
|
|
Particulars
|
X
Rs.
|
Y
Rs.
|
Z
Rs.
|
Particulars
|
X
Rs.
|
Y
Rs.
|
Z
Rs.
|
|
To Goodwill A/c
|
42,000
|
42,000
|
21,000
|
By Balance b/d
|
50,000
|
40,000
|
-
|
|
To Bank A/c
|
10,500
|
10,500
|
-
|
By Bank A/c
|
-
|
-
|
45,000
|
|
To Bank A/c
(capital withdrawn)
|
2,000
|
-
|
-
|
By Goodwill A/c
|
52,500
|
52,500
|
|
|
|
|
|
|
By Bank A/c
(capital introduced)
|
-
|
8,000
|
-
|
|
To Balance c/d
[Wn.2]
|
48,000
|
48,000
|
24,000
|
|
|
|
|
|
|
1,02,500
|
1,00,500
|
45,000
|
|
1,02,500
|
1,00,500
|
45,000
|
Illustration 3:
A and B are partners sharing profit and losses in the
ratio of 2:3. They admit C as a new partner and the new profit sharing ratio is
1:2:2. C brings 75% of his due for goodwill. For this purpose goodwill is
valued at 3 years’ purchase of last 5 years’ average profits.
Net profit for last 5 years’
|
Year
|
Rs.
|
|
2004
|
43,000
|
|
2005
|
32,000
|
|
2006
|
28,000
|
|
2007
|
35,000
|
|
2008
|
45,000
|
Calculate the value of goodwill and show how the
transaction for goodwill be recorded in the books of the firm without opening a
Goodwill Account.
Solution:
Working
Notes:
1.
Calculation of Goodwill on the admission of C:
Net profit for the last 5 years = (43,000 + 32,000
+ 28,000 + 35,000 + 45,000 )= Rs.1,83,000
Therefore, value of Goodwill on the basis of 3 years’
purchase of the average profit of the lat 5 years = 1,83,000 x 3/5 = Rs.1,09,800.
Based on the new profit sharing ratio 1:2:2, C is required
to bring in 2/5th of Rs.1,09,800 = Rs.43,920.
Out of this he actually brings 75% of the required
amount in cash.
i.e. 75% x Rs.43,920 = Rs.32,940
Balance 25% of Rs.43,920 = Rs.10,980 is to be debited to C’s Capital
account.
2. Calculation of sacrificing
ratio
Old Profit Sharing Ratio = 2:3
New profit Sharing Ratio = 1:2:2
Sacrificing ratio= Old Profit Sharing Ratio – New
Profit sharing ratio
A = 2/5 - 1/5 = 1/5
B = 3/5 - 2/5 = 1/5
A:B =1:1
Journal Entries in the Books
of the firm
|
Particulars
|
|
Dr.
(Rs.)
|
Cr.
(Rs.)
|
|
Bank A/c
To Premium for Goodwill A/c [Wn.1]
(Premium for goodwill brought in by C for 2/5th
share)
|
Dr.
|
32,940
|
32,940
|
|
Premium for Goodwill A/c [Wn.1]
C’s Capital A/c
To X’s Capital A/c
To Y’s Capital A/c
(Balance Rs.10,980 is to be debited to C’s Capital
account and the premium amount has been credited to A & B in the
sacrificing ratio.)
|
Dr.
Dr.
|
32,940
10,980
|
21,960
21,960
|
22.4 Reserves in Balance
Sheet
i)
Whenever
a new partner is admitted, any reserve etc. lying in the Balance Sheet should
be transferred to the Capital Accounts of the partners in the old profit
sharing ratio.
ii)
The
journal entry will be:
|
General reserve A/c
To Old Partners’ Capital A/c
|
Dr.
|
Example: A, B & C are partners in a firm sharing
profit & losses in the ratio of 3:2:1. There is a General Reserve in the
firm of Rs.30,000. They have decided to admit a new partner D.
So at the time of admission of new partner the general
reserve will be transferred to the Capital Account of the old partners in their
old profit sharing ratio.
|
General Reserve A/c
|
Dr.
|
30,000
|
|
|
To A’s Capital A/c (30,000 x 3/6)
|
|
|
15,000
|
|
To B’s Capital A/c
|
|
|
10,000
|
|
To C’s Capital A/c
|
|
|
5,000
|
|
(General reserve credited to old partners in the old
ratio.)
|
|
|
|
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