Admission Of A Partner Class 12 Accounts PDF

Admission of a partner CLASS 12 ACCOUNTANCY  NOTES ADMISSION OF A PARTNER The existing agreement comes to an end & a new agreements among all the partners [including the new partner] comes into effect. No...

Admission of a partner CLASS 12 ACCOUNTANCY  NOTES ADMISSION OF A PARTNER The existing agreement comes to an end & a new agreements among all the partners [including the new partner] comes into effect. Note - Section 31 of Indian partnership Act, 1932* new partner shall not be included in the firm without the permission/consent of all the existing partner, or according to the partnership deed. The share of profit of new partner is equal to the sacrifice of profit by an existing, partners of the firm. The new partner compensate the partner who sacrifices his share of profit. The amt he pays against this sacrifice is called goodwill or premium of goodwill Adjustments made on the admission of a partner Change in profit sharing ratio The new partner acquires his share from old partner New profit sharing ratio It is the ratio in which all the partners [including new partner] share of the future profits and losses. CLASS 12 ACCOUNTS  NOTES ADMISSION OF A PARTNER The new partner acquires his share in any of the following alternatives from old partners : i) In their old profit sharing ratio. ii) In a particular ratio or the surrender ratio; or... iii) In a particular fraction from some of the partners. Case 1) When a new partners acquires his share from existing partners in old & P.S.R. In this situation The share of new partner is given. It is assumed that the new partner has acquired his share from old partners in old P.S.R. Therefore, unless otherwise agreed. The P.S.R among existing partners remains unchanged. How to determine new P.S R Ex: A : B 5:3 "C' admitted for 1/4th the share in profit The total profit/share = 1 'c' share = 1/4th remaining = 1 - 1/4 = 3/4 CLASS 12 ACCOUNTS  NOTES ADMISSION OF A PARTNER A's new share = 5/8 [old] x 3/4 = 15/32 B's new share = 3/8 x 3/4 = 9/32 New P.S.R. = A : B : C = 15/32 : 9/32 : 1/4 = 15 : 9 : 8 Case 2) When the new partner acquires his share in a particular ratio If the new partner takes a specified part of share from one partner and a part of share from other partner, then the old P.S.R will change to the extent of share sacrified at the time of admission. = how to determine new. P.S.R.. Ex: 1) A : B 5: 3 'c' admitted for 1/5th share which he takes 1/10th from A and 1/10th from B. C's share = 1/10 + 1/10 = 1/5 A's new share = 5/8 - 1/10 = 25-4/40 = 21/40 B's new share = 3/8 - 1/10 = 15-4/40 = 11/40 New P.S.R = A : B : C = 21/40 : 11/40 : 1/5 = 21 : 11 : 8 FOLLOW US ON INSTAGRAM @gaurav_jainofficial CLASS 12 ACCOUNTS  NOTES ADMISSION OF A PARTNER 2) A : B 5:4 C admitted for 1/10th share acquires in equal proportion from both partners = A surrenders = 1/10 x 1/2 = 1/20 = B surrenders = 1/10 x 1/2 = 1/20 A's new share = 5/9 - 1/20 = 100 - 9/180 = 91/180 B's new share = 4/9 - 1/20 = 80 - 9/180 = 71/180 New P.S.R = A : B : C = 91/180 : 71/180 : 1/10 Ans = 91 : 71 : 8 Case 3) when a new partner acquire his share by surrender of a particular fraction of the share of old partners New partner share = Share surrender by partner 1 + Share surrender by partner 2 Ex : A : B 3:2 C admitted = A's surrender = 1/5th of his share = B's surrender = 2/5th of his share JOIN OUR TELEGRAM CHANNEL ( GAURAV JAIN OFFICIAL ) FREE NOTES/PDF PRACTICE PAPER DAILY UPDATE CLASS 12 ACCOUNTS SAARE NOTES EK SAATH DOWNLOAD OUR MOBILE APPLICATION NOW www.thegauravjain.com  NOTES ADMISSION OF A PARTNER A's surrender = 3/5 x 1/5 = 3/25 A's new share = 3/5 - 3/25 = 15 - 3/25 = 12/25 B's surrender = 2/5 x 2/5 = 4/25 B's new share = 2/5 - 4/25 = 10 - 4/25 = 6/25 C's share = A's surr + B's surr in favour of 'C' 3/25 + 4/25 = 7/25 New P.S.R = A : B : C = 12 : 6 : 7 Sacrificing ratio [S.R] It is the ratio in which the new partner is given share by the existing partners. Determination of sacrificing ratio is to determine the amt of compensation which the partner should pay to the old partners for the share of profit sacrificed by them. Different situation of determining S.R. Situation 1 when the share of new Partner is given without giving the details of sacrifices made by old partners. It is assumed the old partner will sacrifice in old P.S.R. CLASS 12 ACCOUNTS  NOTES ADMISSION OF A PARTNER Situation 2 when both old ratio of existing partner & new ratio of all partner is given Old ratio (-} New ratio = Sacrificing ratio Situation 3 when the new partner acquires the share by surrender of a particular fraction of share from old partners Ex : A : B 5:3 C's admitted = A surrenders = 1/20th share B surrenders = 1/24th share A's surrenders = 5/8 x 1/4 = 1/32 A's new share = 5/8 x 1/32 = 20 - 1/32 = 19/32 B's surrenders = 3/8 x 1/8 = 1/64 B's new share = 3/8 - 1/64 = 24 - 1/64 = 23/64 C's new share = 1/32 x 1/64 = 3/64 New P.S.R = A : B : C = 19/32 : 23/64 : 3/64 ANS = 38 : 23 : 3 SACRIFICING RATIO - 2:1 CLASS 12 ACCOUNTS  NOTES ADMISSION OF A PARTNER 2.Treatment of goodwill - [AS-26] i) Goodwill is a way for compensating the existing partners for the sacrifice they make in favor of a new partner. Accounting treatment goodwill (Premium for goodwill) paid privately - no entry is recorded ii) Goodwill/Premium for goodwill brought in cash by the new partner and retained in business :- Transferred to capital accounts of sacrificing partner in sacrificing ratio. Entries a) Premium for goodwill brought in by Cash/Bank A/C...... Dr cash by new partners To Premium for goodwill A/c (with share of goodwill) b) For capital brought in by cash by Cash Bank A/c.........Dr new partner To New partners cap A/c (with capital brough in by cash) compound entry of above two Cash/Bank A/c...... Dr [a and b] To new par. cap A/c To Premium for goodwill A/c c) For transfer of premium of goodwill Premium for goodwill A/c......Dr sacrificing partners in sacrificing ratio To sacrificing part. cap /curr. A/c FOLLOW US ON INSTAGRAM @gaurav_jainofficial CLASS 12 ACCOUNTS  NOTES ADMISSION OF A PARTNER NOTE : Before passing any of the above entry if any amount of goodwill offer appears in B/sheet it should be immideately written off.. Entry Old part. cap/curr A/c..... Dr To goodwill (in old. P.S.R) iii) when Premium for goodwill brought in Kind / sometimes the new partner brought his share of capital and goodwill in the form of assets. In this situation Entries Assets A/c...Dr To New Part capital A/c To Premium for goodwill A/c Premium for goodwill A/c..... Dr. To Sacrificing part. cap A/c [in sacrificing ratio] JOIN OUR TELEGRAM CHANNEL ( GAURAV JAIN OFFICIAL ) FREE NOTES/PDF PRACTICE PAPER DAILY UPDATE CLASS 12 ACCOUNTS SAARE NOTES EK SAATH DOWNLOAD OUR MOBILE APPLICATION NOW www.thegauravjain.com  NOTES ADMISSION OF A PARTNER iv) Goodwill is brought by new partners and is withdrawn by old partner's fully /partly : Entries Cash / Bank A/c.......Dr A/c [amt.brought by new part.] To Premium for goodwill A/c Premium for goodwill A/c......Dr To Sacrificing part. A/c Sacrificing part. cap A/c.....Dr To cash/Bank A/c [Amt withdrawn fully/partly] v) when only a part of goodwill is brought by new partners in cash : Entries cash / Bank A/c.......Dr To Premium for goodwill A/c [with amt brought by new part for goodwill] Premium for goodwill A/c......Dr New partner cap / current A/c...... Dr [unpaid amount of goodwill] To Sacrificing part cap A/c's CLASS 12 ACCOUNTS  NOTES ADMISSION OF A PARTNER vi) when new partner doesn't able to bring any amount for goodwill Entry New partner cap A/c....... Dr [amount of goodwill] To sacrificing part. cap A/c Hidden goodwill or inferred goodwill Sometimes, the amt of goodwill is not given but is required to be calculated on the basis of an inferred method of P.S.R or capitalisation. Determination of goodwill Amt bring by new partner for specified ratio Amt bring by new partner x reserve of his ratio xxxx (-) Less net worth - xxxx = value of goodwill = xxxx Net worth = sundry Assets - outsiders liabilities or capital of all partner + [including new partner] + accumulated profit + res - accumulated loss CLASS 12 ACCOUNTS  NOTES ADMISSION OF A PARTNER Ex : A : B capital = 1,60.000 : 1,20,000 'C' admitted for 1/4th share he brings 1,60,000 as his share of capital Calculate amount of goodwill ? Calculation of hidden goodwill C's capital for 1/4th share = 1,60,000 a)Total capital of new firm = 1,60,000 x 4 capital account to C's cap = 6,40,000 b) [A+B+C] capital = 1,60,000 + 1,20.000 + 1,60,000 = 4,40,000 Goodwill = a - b = 6,40,000 - 4,40,000 Goodwill = 2,00,000 C's share of goodwill = 2,00,000 x 1/4 = 50,000 FOLLOW US ON INSTAGRAM @gaurav_jainofficial CLASS 12 ACCOUNTS  NOTES ADMISSION OF A PARTNER 3. Revaluation of assets and reassessment of liabilities The assets are revalued and liabilities. are reassessed at the time of reconstitution and the profert or loss arising. from it is credited or debited to partners cap A/C. in old P.S.R for this "Revaluation A/C" or "P&L Adjustment. A/C" is opened. Revaluation A/c PARTICULARS AMT PARTICULARS AMT To assets (dec. in assets) - By asset ( inc. in assets) - To liability [inc. in liability] - By liability [dec in liability] - To unrecorded liability - By un recoded assets - To par cap A/c's* By partner cap. A/c's* [(-)gain on revaluation] - [(-)loss on revolution] - *only one will appear at a time. Assets and liability should be individually named. After preparation of Revaluation A/C. The balance sheet should contain only revised value of assets & liabilities JOIN OUR TELEGRAM CHANNEL ( GAURAV JAIN OFFICIAL ) FREE NOTES/PDF PRACTICE PAPER DAILY UPDATE CLASS 12 ACCOUNTS SAARE NOTES EK SAATH DOWNLOAD OUR MOBILE APPLICATION NOW www.thegauravjain.com  NOTES ADMISSION OF A PARTNER ii) appear in books at the old values. [Memorandum revaluation A/c] Sometimes partner decide not to alter the value of assets and liabilities at the time of reconstitution of firm at that time memorandum revaluation A/c is created. Memo revaluation A/C is divided into 2 parts Part 1 is similar as revaluation A/c. The Profit or loss from Part 1 will distributed to old partners. in old P.S.R. Part 2 all the entry of Part 1 is reversed. Cr what Dr. and Dr. what cr. in part (1) The balance will transferred to all part [including new partner] Cap A/c NOTE: The value of assets & liabilities except cash and to capital A/c does not change and the old value will continue to appear in B/sheet 4.Reserves and Accumulated (undistributed) profits/losses if any reserve or Accumulated profits/losses exist in the books of firm (at the time then) they are to transferred to partners capital /current in old P.S.R.". The reason for this is that the partners should not be placed at an advantage or advantage, at the time of reconstitution. CLASS 12 ACCOUNTS  NOTES ADMISSION OF A PARTNER Journal entry 1) for transfer of Reserve & Accumulated profits Reserve/P&L A/C...... Dr Workmen comp. Res. A/C......Dr [excess of res. over liability] Investment fluctuation Res. A/C...... Dr.[excess of reserve over the diff. b/w book value market value] To par. cap/current A/c [ in old ratio] 2) for transfer of Accumulated losses All partners cap/current A/c...... Dr [ in old ratio] To P&L A/c To deferred revenue expenditure A/C[like advertisement cap.] Sometimes partner decide to continue their P&L A/C and reserve A/c balance ie. they want that the A/c will continue to appear in B/sheet. At that time the net effect is determined [gain X sacrifice of partners] and an adjustment entry is passed. Employees provident fund payable appearing in B/sheet [liabilities side], are not distributed among old partners, as they are not reserves but, they are the statutory liabilities payable by the firm. Provident fund does not distributed among at the time of reconstitution of firm CLASS 12 ACCOUNTS  NOTES ADMISSION OF A PARTNER 5) Adjustment of capital It may be decided that the amt which the new partner contribute towards capital was according to 1) Adjustments of old partners capital On the basis of incoming partners capital for this, we take following steps :- (a) calculate total cap. of the new firm on the basis of new partners capital, Total capital = capital of new partner x reverse of his share (b) Determine the new cap of each partner = Total capital of firm x Share of each partner (c) After all adjustments put the capital which had came from (b) ex: capital came Rs 1,00,000 each The amt which is brought by new partner as capital is credited his capital account (not the amt which the brought as goodwill) A B A B To goodwill - - By Reserve fund - - - - By Revaluation To Cash (Bal Figure) By Cash (Bal Figure) * To Bal b/d* 1,00,000 1,00,000 *Any of one at a time FOLLOW US ON INSTAGRAM @gaurav_jainofficial CLASS 12 ACCOUNTS  NOTES ADMISSION OF A PARTNER (d) If their is surplus ie. Present capital > capital from 'c' The cash is with drawn by partner If their is deficit ie. present capital < capital from 'C' The cash is brought in by partner. ii) Calculating the capital of the incoming partner on the basis of capital of old partners : In this case, the amount of capital which the new partner has to bring is determined on the basis of the total cap [after all adjustment] of other partners and the total of their share of profit. Steps a)Determine the total adjusted capital of the old partners [after all adjustments ] b)Determine the total capital of new firm Total adjustment capital of new firm x Reciprocal of total share of old partners c)Determine the capital of the new partner Total capital [as per b)] x Share of incoming partner JOIN OUR TELEGRAM CHANNEL ( GAURAV JAIN OFFICIAL ) FREE NOTES/PDF PRACTICE PAPER DAILY UPDATE CLASS 12 ACCOUNTS  NE SHOT THE GAURAV JAIN BEGINNER ADVANCED ADMISSION OF A PARRNER CLASS 12 WHATSAPP CHANNEL FOR NOTES AND IMPORTANT QUESTIONS 7690041256 YE LE BAALAK... MAUJ KAR THE GAURAV JAIN 7690041256