Page 51 - MAZOO EBOOK 1_Neat
P. 51
Changes in partnership - admission of a new partner, retirement, death and change in profit
sharing ratio
Withdrawing or Adding a New Partner
A partnership is based on a contractual agreement among individuals and ends when a partner
withdraws from the firm or a new partner is added. The business, however, may continue with a
new partnership agreement. A partner may withdraw by selling his or her interest or equity in
cash or other assets. If all the partners agree, a new partner may join the firm either by buying
the interest of a present partner, by contributing additional assets equal to the equity he or she
is acquiring, or by investing either more or less than the equity he or she will receive.
Example - Assume that M. Saar wants to sell his interest to B. Knight. The balance sheet before
this ale is as follows:
Knight has agreed to pay Saar $60,000 for his equity in the business. Loretto and Abdullah agree
to accept Knight as a partner. The general journal entry to record the transfer is as follows:
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