Partnership Accounts , Admission,
Meaning
An existing partnership firm may take up expansion/diversification of the business. In that case it may need managerial help or additional capital. An option before the partnership firm is to admit partner/partners, when a partner is admitted to the existing partnership firm, it is called admission of a partner.
According to the Partnership Act 1932, a person can be admitted intopartnership only with the consent of all the existing partners unless otherwise agreed upon.
On the admission of a new partner, the following adjustments become necessary:
(i) Adjustment in profit sharing ratio;
(ii) Adjustment of Goodwill;
(iii) Adjustment for revaluation of assets and reassessment of liabilities;
(iv) Distribution of accumulated profits and reserves; and
(v) Adjustment of partners’ capitals.
Sacrificing Ratio
At the time of admission of a partner, existing partners have to surrender some of their share in favour of the new partner. The ratio in which they agree to sacrifice their share of profits in favour of incoming partner is called sacrificing ratio. Some amount is paid to the existing partners for their sacrifice. The amount of compensation is paid by the new partner to the existing partner for acquiring the share of profit which they have surrendered in the favour of the new partner.
Sacrificing Ratio is calculated as follows:
Sacrificing Ratio = Existing Ratio – New Ratio
Illustration 1
Deepak and Vivek are partners sharing profit in the ratio of 3 : 2. They admit
Ashu as a new partner for 1/5 share in profit. Calculate the new profit
sharing ratio and sacrificing ratio.
Solution:
Calculation of new profit sharing ratio:
Let total Profit = 1
New partner’s share = 1/5
Remaining share = 1 – 1/5 = 4/5
Deepak’s new share = 3/5 of 4/5 i.e. 12/25
Vivek’s new share = 2/5 of 4/5 i.e. 8/25
Ashu’s Share = 1/5
The new profit sharing ratio of Deepak, Vivek and Ashu is :
= 12/25 : 8/25 : 1/5 = 12 : 8 : 5/25 = 12 : 8 : 5
So Deepak Sacrificed = 3/5 – 12/25 = 15 – 12/25 = 3/25
Vivek Sacrificed = 2/5 – 8/25 = 10 – 8/25 = 2/25
Sacrificing Ratio = 3 : 2
Sacrificing ratio of the existing partners is same as their existing ratio
Meaning
An existing partnership firm may take up expansion/diversification of the business. In that case it may need managerial help or additional capital. An option before the partnership firm is to admit partner/partners, when a partner is admitted to the existing partnership firm, it is called admission of a partner.
According to the Partnership Act 1932, a person can be admitted intopartnership only with the consent of all the existing partners unless otherwise agreed upon.
On the admission of a new partner, the following adjustments become necessary:
(i) Adjustment in profit sharing ratio;
(ii) Adjustment of Goodwill;
(iii) Adjustment for revaluation of assets and reassessment of liabilities;
(iv) Distribution of accumulated profits and reserves; and
(v) Adjustment of partners’ capitals.
Sacrificing Ratio
At the time of admission of a partner, existing partners have to surrender some of their share in favour of the new partner. The ratio in which they agree to sacrifice their share of profits in favour of incoming partner is called sacrificing ratio. Some amount is paid to the existing partners for their sacrifice. The amount of compensation is paid by the new partner to the existing partner for acquiring the share of profit which they have surrendered in the favour of the new partner.
Sacrificing Ratio is calculated as follows:
Sacrificing Ratio = Existing Ratio – New Ratio
Illustration 1
Deepak and Vivek are partners sharing profit in the ratio of 3 : 2. They admit
Ashu as a new partner for 1/5 share in profit. Calculate the new profit
sharing ratio and sacrificing ratio.
Solution:
Calculation of new profit sharing ratio:
Let total Profit = 1
New partner’s share = 1/5
Remaining share = 1 – 1/5 = 4/5
Deepak’s new share = 3/5 of 4/5 i.e. 12/25
Vivek’s new share = 2/5 of 4/5 i.e. 8/25
Ashu’s Share = 1/5
The new profit sharing ratio of Deepak, Vivek and Ashu is :
= 12/25 : 8/25 : 1/5 = 12 : 8 : 5/25 = 12 : 8 : 5
So Deepak Sacrificed = 3/5 – 12/25 = 15 – 12/25 = 3/25
Vivek Sacrificed = 2/5 – 8/25 = 10 – 8/25 = 2/25
Sacrificing Ratio = 3 : 2
Sacrificing ratio of the existing partners is same as their existing ratio
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