CHAPTER  TWO

ADMISSION  OF A PARTNER

 

Inclusion of a new person as partner in an existing firm is called as admission of a partner. It is for getting additional capital, managerial skill or for getting some other benefits. When a person is admitted as a partner, the old firm comes to an end and a new firm between all partners including new partner comes in to existence. On admission a new partner receives two rights:
1. Share in the assets of the firm
2. Share in the profit and loss of the firm.

New partner must bring capital in cash or kind to get the above rights. The right acquired by the new partner will reduce the share of old partners. Therefore the old partners (those who sacrifice) should be compensated. The compensation given by the new partner for getting the above mentioned rights is technically known as Goodwill or Premium.

ADJUSTMENTS:

Following are the important adjustments required at the time of admission:
1.    Capital of new partner.
2.    Calculation of new profit sharing ratio.
3.    Revaluation of assets and liabilities.
4.    Adjustment of undistributed profits and losses.
5.    Calculation of sacrificing ratio.
6.    Treatment of goodwill and Joint life policy.
7.    Adjustments of capitals

 
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