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Class 12 Reconstitution of a Partnership Firm – Admission of a Partner: cheat sheet
CBSE Accountancy. Admitting a partner: new and sacrificing ratios, goodwill by average, super profit and capitalisation, premium and hidden goodwill, revaluation, reserves and capitals.
Key ideas
- The old partners give up part of their shares to the new partner: each one’s sacrifice is old share − new share.
- If the new partner takes the share from the old partners in their old ratio, the sacrificing ratio is the old ratio.
- Goodwill is the value of a firm’s reputation, which lets it earn more than normal profits.
- Premium for goodwill brought in cash is the new partner’s share of the firm’s goodwill and is credited to the old partners in the sacrificing ratio.
- Hidden goodwill is found when no premium is brought: the capital the new partner’s amount implies for the whole firm, less the capitals actually there.
- Revaluation profit or loss, reserves and accumulated profits belong to the old partners and are shared in the old ratio.
- For capitals in the new ratio, the new partner’s capital fixes the total; old partners bring in or withdraw the difference.
Remember
| New share (1/n taken in the old ratio) | old share × (1 − 1/n) |
| Goodwill, average profit | average profit × years’ purchase |
| Weighted average (weights 1, 2, 3) | (P₁ × 1 + P₂ × 2 + P₃ × 3) ÷ 6 |
| Super profit | average profit − capital employed × normal rate ÷ 100 |
| Goodwill, super profit | super profit × years’ purchase, or super profit × 100 ÷ normal rate |
| Capitalising the average profit | average profit × 100 ÷ normal rate − capital employed |
| Premium for goodwill | firm’s goodwill × new partner’s share |
| Hidden goodwill | new partner’s capital × n − (old capitals + new partner’s capital), for a 1/n share |
Watch out
- Sharing the premium in the old ratio when the sacrifice is in a different ratio.
- Giving the new partner a share of the revaluation profit or the reserves.
- Multiplying the average profit, not the super profit, by the years’ purchase in the super profit method.
Worked example
Ananya and Vikram share profits 2 : 3, and their balance sheet shows a general reserve of ₹35,000. Zoya is admitted for a 1/5 share (taken in the old ratio), bringing ₹70,000 as capital and the share of goodwill in cash. Goodwill is valued at ₹50,000. Pass the journal entries.
Working: premium ₹50,000 × 1/5; premium shared in the sacrificing ratio and the reserve in the old ratio, 2 : 3
Answer: (i) Bank A/c Dr. ₹80,000 To Zoya’s Capital A/c ₹70,000 To Premium for Goodwill A/c ₹10,000 (ii) Premium for Goodwill A/c Dr. ₹10,000 To Ananya’s Capital A/c ₹4,000 To Vikram’s Capital A/c ₹6,000 (iii) General Reserve A/c Dr. ₹35,000 To Ananya’s Capital A/c ₹14,000 To Vikram’s Capital A/c ₹21,000
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