CBSE Class 12 Accountancy – Chapter 3: Admission of a Partner
NCERT/CBSE-aligned study resource
1. Meaning of Admission
A new partner can be admitted with the consent of all existing partners. The incoming partner acquires a right to share future profits and usually contributes capital and goodwill.
2. New Profit-Sharing Ratio
Existing partners sacrifice part of their old shares in favour of the incoming partner. The new ratio must therefore be calculated carefully before recording adjustments.
3. Sacrificing Ratio
Sacrificing ratio = Old ratio − New ratio for the existing partners. Goodwill brought by the new partner is credited to the sacrificing partners in this ratio when the relevant method is used.
4. Goodwill on Admission
Goodwill represents the value of the firm’s reputation and expected future earning capacity. Methods of adjustment include premium brought in cash, adjustment through capital/current accounts and raising or writing off goodwill depending on the prescribed treatment.
5. Revaluation Account
Assets and liabilities are reassessed on admission. Increase in asset value is credited to Revaluation Account; decrease is debited. Increase in liability is debited and decrease is credited. The resulting profit/loss is transferred to old partners in the old ratio.
| Change | Revaluation effect |
|---|---|
| Asset increases | Credit |
| Asset decreases | Debit |
| Liability increases | Debit |
| Liability decreases | Credit |
6. Reserves and Accumulated Profits
Items belonging to the period before admission are generally distributed among old partners in the old ratio.
7. Adjustment of Capitals
After determining the new ratio and required capital, partners’ capitals may be adjusted. A partner may bring additional cash or withdraw excess capital depending on the agreed capital structure.
8. Worked Illustration
A and B share 3:2. C is admitted for 1/5 share, acquired equally from A and B. C’s share from each existing partner is 1/10. A’s new share is 3/5−1/10=1/2; B’s new share is 2/5−1/10=3/10; C’s share is 1/5. New ratio = 5:3:2.
Exam Focus
- Calculate the new ratio before goodwill.
- Separate old-partner adjustments from incoming-partner adjustments.
- Remember that revaluation profit belongs to old partners.
Chapter-Specific MCQs
- A new partner can be admitted with consent of: (A) all existing partners (B) one partner (C) creditors only (D) customers. Answer: A.
- Revaluation profit on admission is generally transferred to: (A) old partners in old ratio (B) new partner only (C) all partners in new ratio (D) bank. Answer: A.
- If C gets 1/5 equally from A and B, each sacrifices: (A) 1/5 (B) 1/10 (C) 1/20 (D) 2/5. Answer: B.
Competency Questions
- Prepare the new ratio when the incoming partner acquires shares from existing partners in specified proportions.
- Record the effect of revaluation on assets and liabilities.
- Explain why goodwill brought by an incoming partner compensates sacrificing partners.