Students can go through AP Inter 2nd Year Accountancy Notes 6th Lesson Admission of a Partner will help students in revising the entire concepts quickly.
AP Inter 2nd Year Accountancy Notes 6th Lesson Admission of a Partner
→ When a partner is admitted to the existing partnership firm, it is called admission of a partner. On the admission of a partner, the following adjustments are necessary.
a) Adjustment of profit sharing ratio : When the new partner is admitted, he acquires his share from existing partners. So, the profit sharing ratio of the firm is decided. When the existing partners surrender some of their share to new partner and the ratio in which they surrender their profits is called sacrificing ratio.
b) Revaluation of assets and liabilities : On the admission of a partner, the assets and liabilities are revalued to show the true position of the firm.
c) Adjustment for reserves and accumulated profits : Any accumulated reserve or profit appearing in the balance sheet is credited / debited (in case of existing loss) to old partners in their old profit sharing ratio.
d) An established firm develops wide business connections and this helps the firm to earn more profits. The monetary value of such advantage is called goodwill.
e) There are three important methods of valuation of Goodwill.
- Average profit method
- Super profit method
- Capitalisation method
f) Sometimes, the partners may decide to calculate the capitals which are to be maintained in the new firm either on the basis of new partners capital and his profit sharing ratio or on the basis of existing partners capitals.