Dear students,
Before you get started with chapter 5, Admission of a Partner, do a quick revision of all the important formulas. Also be thorough with the format of the different accounts. Then, when you start working out the problems, you will do it with confidence and also do it easily. Here are the Important Formulas and Formats in Admission of a Partner that you must remember.
Journal Entries on Admission of a Partner
When new partner brings in cash:
Date | Particulars | L.F. | Debit | Credit |
---|---|---|---|---|
Cash or Bank A/c Dr. | xxx | |||
Assets A/c Dr. | xxx | |||
To Partner’s capital A/c | xxx | |||
(being capital brought in by new partner) |
Distribution of accumulated profits and reserves
Date | Particulars | L.F. | Debit | Credit |
---|---|---|---|---|
Profit and loss appropriation a/c Dr. | xxx | |||
General reserve a/c Dr. | xxx | |||
Reserve fund a/c Dr. | xxx | |||
Workmen compensation fund a/c Dr. | xxx | |||
Investment fluctuation fund a/c Dr. | xxx | |||
To old partners’ capital / current a/c | xxx | |||
(accumulated profit and reserves transferred to old partners capital account in old ratio) |
Distribution of accumulated losses
Date | Particulars | L.F. | Debit | Credit |
---|---|---|---|---|
Old partner’s capital / current a/c Dr. | xxx | |||
To Profit and loss a/c | xxx | |||
(accumulated loss transferred to old partners in old ratio) |
Revaluation of assets and liabilities
Particulars | L.F. | Debit | Credit | |
---|---|---|---|---|
1 | Concerned asset a/c Dr. | xxx | ||
To Revaluation a/c | xxx | |||
(increase in the value of assets) | ||||
2 | Revaluation a/c Dr. | xxx | ||
To Concerned asset a/c | xxx | |||
(decrease in the value of assets) | ||||
3 | Revaluation a/c Dr. | xxx | ||
To Concerned liability a/c | xxx | |||
(increase in the value of liabilities) | ||||
4 | Concerned liability a/c Dr. | xxx | ||
To Revaluation a/c | xxx | |||
(decrease in the value of liabilities) | ||||
5 | Concerned asset a/c Dr. | xxx | ||
To Revaluation a/c | xxx | |||
(recording an unrecorded asset) | ||||
6 | Revaluation a/c Dr. | xxx | ||
To Concerned liability a/c | xxx | |||
(recording an unrecorded liability) | ||||
7 | Revaluation a/c Dr. | xxx | ||
To Old partners’ capital a/c | xxx | |||
(profit on revaluation transferred to old partners capital a/cs in old ratio) | ||||
8 | Old partners’ capital a/c Dr. | xxx | ||
To Revaluation A/c | xxx | |||
(loss on revaluation transferred to old partners capital a/cs in old ratio) |
Format of Revaluation a\c
Revaluation a/c | |||
---|---|---|---|
Particulars | Amt | Particulars | Amt |
To Concerned asset a/c | xxx | By Concerned asset A/c | xxx |
(net decrease) | (net increase) | ||
To Concerned liability a/c | xxx | By Concerned liability A/c | xxx |
(net increase) | (net decrease) | ||
To Old partners’ capital a/c | xxx | By Old partners’ capital A/c | xxx |
(profit on revaluation shared in old ratio) | loss on revaluation shared in old ratio) | ||
Total | xxx | Total | xxx |
Sacrificing ratio
Share sacrificed = Old share – New share
Sacrificing ratio = Ratio of share sacrificed by the old partners
Calculation of sacrificing ratio and new profit sharing ratio
When new profit sharing ratio is given:
Share sacrificed = Old share – New share
When new profit sharing ratio is not given:
a. When share sacrificed is given
New share of old partner = Old share – Share sacrificed
Share of new partner = Sum of shares sacrificed by old partners
b. When proportion of share sacrificed is given
(i) on old partners’ share is given
Share sacrificed by old partner = Old share x Proportion of share sacrificed
New share of old partner = Old share – Share sacrificed
Share of new partner = Sum of shares sacrificed by old partners
(ii) on new partner’s share is given
New share of old partner = Old share – Share sacrificed
Share sacrificed = New partner’s share × Proportion of share sacrificed
(c) When share sacrificed and proportion of share sacrificed is not given
Share sacrificed = New partner’s share x Old share
New share of old partner = Old share – Share sacrificed
Adjustment for goodwill
For the goodwill brought in cash credited to old partners’ capital account
Date | Particulars | LF | Debit | Credit |
---|---|---|---|---|
Cash / Bank A/c Dr. | xxx | |||
To Old partners’ capital / current A/c | xxx | |||
(goodwill brought in cash credited to old partners’ capital in sacrificing ratio) |
For the goodwill brought in kind (in the form of assets) credited to old partners’ capital account.
Date | Particulars | LF | Debit | Credit |
---|---|---|---|---|
Respective Asset A/c Dr. | xxx | |||
To Old partners’ capital / current A/c | xxx | |||
(goodwill brought in kind credited to old partners’ capital in sacrificing ratio) |
For withdrawal of cash received for goodwill by the old partners
Date | Particulars | LF | Debit | Credit |
---|---|---|---|---|
Old partners’ capital / current a/c Dr. | xxx | |||
To Cash / Bank a/c | xxx | |||
(withdrawal of cash received for goodwill by the old partners) |
When the new partner does not bring goodwill in cash or in kind
Date | Particulars | LF | Debit | Credit |
---|---|---|---|---|
New partners’ capital A/c Dr. | xxx | |||
To Old partners’ capital / current A/c | xxx | |||
(adjustment entry when new partner does not bring goodwill) |
When the new partner brings only a part of the goodwill in cash or in kind
Date | Particulars | LF | Debit | Credit |
---|---|---|---|---|
New partners’ capital A/c Dr. | xxx | |||
To Old partners’ capital / current A/c | xxx | |||
(adjustment entry when new partner does not bring goodwill) |
Existing goodwill written off
Date | Particulars | LF | Debit | Credit |
---|---|---|---|---|
Cash / Bank a/c Dr. | xxx | |||
New partners’ capital a/c Dr. | xxx | |||
To Old partners’ capital / current a/c | ||||
(only a part of the goodwill is brought in cash or in kind) |
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