Admission of a new partner Class 12 ISC and CBSE
Admission of a new partner?
Rachit and Rohit are running a partnership firm dealing in toys. They are one of the most successful businessmen in the locality. They now decide to start manufacturing toys that are electronically operated to diversify their business. For this, they need more capital and also technical expertise.
Mohit; their friend is an electronic engineer and has capital also. They have persuaded (Raajee Karna) him to join their partnership firm. In case, he joins the partnership firm, this will be a case of admission of a partner. As a result, he may need to bring in capital and a share of goodwill.
Thus we can say that, the process of admitting a new person into an existing partnership firm is known as admission of a new partner.
Reasons/ Need for Admission Of A Partner
* Need for more capital for extension of firms Business.
* Need for technical expertise.
* Need for increased Management capacity of firms Business.
* To increase the goodwill and reputation of the business by taking a reputed person into the partnership.
* To fulfill the minimum requirements of the partnership.
According to Section 31 of the Indian Partnership Act, 1932, a person can be admitted as a new partner:
(i)If it is so agreed in the Partnership Deed, or
(ii)In the absence of the above, if all the partners agree to the admission.
Rights Of New Partner:
After admission, the new partner gets the following two rights:
1. Right to share the profits of the partnership firm and Right to participate in the business activity
2. Right to share in the assets of the partnership firm.
At the same time, he becomes liable for any liability of the business incurred after admission and any loss incurred by the firm.
Adjustment required at the time of admission of a new Partner:
1. Calculate the new profit sharing ratio and sacrificing ratio; The ratio in which all partners, including new partner will share future profits and losses of the firm is known as new profit sharing ratio.
Sacrificing ratio is the ratio in which old or existing partners forego their share of profit in favour of the new partner.
2. Accounting treatment of goodwill;
3. Revaluation of assets and reassessment of liabilities;
4. Accounting treatment of undistributed profits and reserves;
5. Accounting treatment of Workmen Compensation Reserves;
6. Accounting treatment of Investment fluctuation Reserves;
7. Adjustment of Deferred revenue Expenditure
8. Prepare Revaluation Account,
9. Prepare Partners’ Capital Accounts and balance sheet of the reconstituted firm.
10. Adjustment of Capital on the basis of new profit-sharing Ratio.
11. Calculation of New partner’s capital on the basis of old partner’s adjusted capital