Page 135 - VIRANSH COACHING CLASSES

2) Admission of a Partner
When the new partner is admitted in the business he brings capital and his share of goodwill.
Old partners have to sacrifice their share of profit for new partner. So the partnership agreement
changes.

3) Retirement of a Partner
If the partner is retiring from partnership firm his share of profit, upto the date of retirement
capital, his share in other reserves of the firm will be paid to him. Old partners will gain the
profit and there will be change in the profit sharing ratio.

4) Death of a Partner
Partner is going out of business due to death his legal heir will get the partner’s share in the
business. Share of Profit of continuing partners will change and old partnership agreement
comes to an end.

3.2
Admission of a Partner :
According to section 31 (1) of the Partnership Act 1932, A person can be admitted as a new
partner only with the consent of all existing partners unless otherwise agreed upon. New Partner will
bring his share of goodwill and capital and enjoy the right to share the future profits.

This chapter covers the accounting treatment of admission of a partner in the existing partner-
ship firm.

3.2.1
Need :
Generally, the new Partner is admitted in the firm to expand the capital base as well as to use
the skills of that person to improve the overall performance of the partnership firm.

3.2.2
Capital brought by new partner :
The purpose of admitting new partner is to increase the capital of the partnership firm. The new
partner can bring capital in Cash or kind. The new partner will bring the capital as per the terms in
Partnership Deed. The accounting treatment for the capital brought in by the new partner is:

3.2.3
Transaction Journal Entry
When new partner brings cash towards his Cash/Bank A/c ............................................. Dr.
Capital To New Partner’s capital A/
When new partner brings certain assets towards Assets A/c..................................................... Dr.
his capital To New Partner’s capital A/c

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