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C H A P T E R

Admission of a Partner

MEANING OF KEY TERMS USED IN THIS CHAPTER

1. Admission of a Partner Admission of a Partner means new partner being admitted in
the firm.
2. New Profit-sharing Ratio New Profit-sharing Ratio is the ratio in which all the partners,
including the new or incoming partner, share future profits and
losses of the firm.
3. Sacrificing Ratio Sacrificing Ratio is the ratio in which the old or existing partners
forego, i.e., sacrifice their share in profits in favour of the new partner.
4. Goodwill Goodwill is an intangible asset resulting from the efforts made
in past by the existing (old) partners of the firm which results in
continuous profits.
5. Revaluation of Assets Revaluation of Assets means change in the value of assets, i.e.,
present value being different from the book value of the assets.
6. Reassessment of Liabilities Reassessment of Liabilities means reassessing the liabilities and
determining the change, i.e., whether the liability is more or less
than that shown in the books of account.
7. Revaluation Account or It is a nominal account to which increase in the value of assets and
Profit and Loss Adjustment decrease in the amount of liabilities is credited. Decrease in the
Account value of assets and increase in the amount of liabilities is debited. It
is closed by transferring the profit or loss to the Capital Accounts
of the old or existing partners in their old profit-sharing ratio.
8. Reserve Reserve means Accumulated or undistributed profits. It is created
out of profits for general or specific purpose.
9. Workmen Compensation It is a reserve created out of profit for payment of compensation
Reserve to workers.
10. Investments Fluctuation It is a reserve created to meet the fall in the value of investment.
Reserve

CHAPTER SUMMARY

• When the existing partners of a firm allow a new person to become a partner in the firm, it is called
admission of a partner.
• Adjustments: The matters that require adjustment at the time of admission of a new partner are:
(i) Adjustment for change in the Profit-sharing Ratio.
(ii) Adjustment for Goodwill.
(iii) Adjustment of Gain (Profit)/Loss arising from the Revaluation of Assets and Reassessment of Liabilities.
(iv) Adjustment of Deferred Revenue Expenditure.
(v) Adjustment of Reserves, Accumulated Profits and Losses.
(vi) Adjustment of Capital (if so agreed).