• Admission leads to Reconstitution of Firm as the existing agreement comes to an end and a new agreement comes into effect. A new partner may be admitted for increasing the capital, augmenting managerial skills, etc.
  • Rights of new partner are right to share assets of the firm and to share future profits. On admission of a partner the adjustments are required for profit sharing ratio, goodwill, revaluation of assets and liabilities, reserves, accumulated profits/losses and capital.
  • On the admission of a new partner, he acquires his share of profit from the old partners. This reduces the old partner's share of profits, hence the calculation of new profit sharing ratio become necessary.
  • An incoming partner may acquire his share from the old partners in the old profit sharing ratio, in a particular ratio or in a surrendered ratio.
  • If new partner brings premium for goodwill, such premium should be distributed among the existing partners. If new partner is unable to bring premium for goodwill, his share of goodwill is adjusted through Partners’ Current Accounts or Capital Accounts.
  • There are different cases when premium (goodwill) is paid privately, when premium is brought in cash by the new partner, when the new partner is unable to bring his share or when premium partly brought in cash by the new partner.
  • Sometimes, the value of the goodwill of the firm is not specifically given. In that case, its value has to be inferred on the basis of capitals of the partners.
  • Revaluation (nominal account) is the valuation of assets and liabilities at the time of admission of a partner.
  • New partner does not suffer because of reduction in the value of assets, nor should he be benefitted by increase in the value of assets Net effect of revaluation of assets and liabilities is either profit or loss, which is transferred to old partner’s capital account in old ratio.
  • Reserve funds and accumulated profits/losses should be transferred to the old partners’ capital accounts in their old ratio.
  • Accounting treatment of Reserves and Accumulated Profits/Losses when old partners do not want to distribute them.
  • The capitals of old partners may be adjusted by taking new partner’s capital as base, the new partner may be required to contribute the proportionate capital considering old partners’ capitals as base or capital of the new firm is given in the question and capital of all the partners is to be according to profit sharing ratio.

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