gursale sir admission of partner ppt xii bk chapter 3

BOOK KEEPING & ACCOUNTANCY

3. RECONSTITUTION OF PARTNERSHIP

(ADMISSION OF PARTNER)

Udyogshri Prabhakar Laxman Patil Junior College of

Science, Commerce & Arts. Kharepatan,Tal.- Kankavli, Dist.- Sindhudurg.

ADMISSION OF PARTNER Meaning :

The procedure of admitting a new partner into the existing partnership firm as per the terms & conditions of partnership deed is called as ‘admission of partner.’

AMIT SUMIT VINIT

EXISTING / OLD PARTNER NEW PARTNER

WELCOMES

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New Profit Sharing Ratio

New Profit Sharing Ratio is calculated as follows :

Assume the total profit of the firm Re.1/-

Step 1

Find out balance of 1 .

Balance of 1 (Remaining Share) = 1 - Incoming Partner Share

Step 2

Calculation of New Profit Sharing Ratio.

New Ratio = Old Ratio X Balance of 1.

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For Example :

Om & Jay are partner their profit sharing ratio

is 1 : 1 (Equal).

They decided to admit Jagdish in the firm for

1/4 th share in the future

profits. Calculate New Profit Sharing Ratio of

Om, Jay & Jagdish.

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Solution : STEP 1

Balance of 1 = 1 - Share of Jagdish (New Partner)

= 1 - 1/4

Balance of 1 = 3/4

2.New Ratio of all partners = Old Ratio x Balance of 1

Om’s New Raio = 1/2 x 3/4 = 3/8

Jay’s New Ratio = 1/2 x 3/4 = 3/8

Jagdish New Raio = 2/2 x 1/4 = 2/8

Hence New Profit Sharing Ratio of Om Jay Jagdish is 3 : 3 : 2.

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SACRIFICE RATIO.

Meaning :

The proportion in which old partners make

a sacrifice while admitting new partner in the firm

is called sacrifice ratio.

Formula : Sacrifice Ratio = Old Ratio - New Ratio

For example :

Sudhir & Budhir are partners sharing profit & losses in the

proportion 2/3 & 1/3 respectively. They decided to admit

Randhir in to partnership and agreed to share future profit in

the ratio of 3 : 1 : 1.

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Solution :

The Sacrifice Ratio of Sudhir & Budhir as under :

Sacrifice Ratio = Old Ratio - New Ratio

Sudhir’s Sacrifice Ratio = 2/3 - 3/5 = 10/15 - 9/15 = 1/15

Budhir’s Sacrifice Ratio = 1/3 - 1/5 = 5/15 - 3/15 = 2/15

Sacrifice Ratio of Sudhir & Budhir is 1 : 2

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GOODWILL

Meaning :

Goodwill is the reputation or good name of the

business expressed in terms of money.

Goodwill is the reputation of the business enterprise

which is acquired through successful operation of the business

and customer’s satisfaction.

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Methods of valuation of Goodwill.

1. Average Profit Method. 2. Super Profit

Method.

AVERAGE PROFIT METHOD :

Under this method goodwill is calculated on the basis of number of

years

purchase of average profit of the firm.

For Example :

Year Profit

2001 Profit 1

2002 Profit 2

2003 Profit 3

2004 Profit 4

2005 Profit 5

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Formula :

STEP 1 :

Average Profit = Profit 1 + Profit 2 + Profit 3 + Profit 4 + Profit 5

Total No. Of years

STEP 2 :=

Goodwill = Average profit X No. Of years Purchase

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2.SUPER PROFIT METHOD :

Under this method goodwill is to be valued of certain

number of years purchase of super profit of the firm.

Super Profit is calculated as under –

Given : a. Profit of previous few years

b. Capital Employed by firm

c. Normal Rate of Return ( N.R.R.)

d. No. Of years purchase

Important Note : If Average Profit is less than Normal

Profit then goodwill is Zero(0).

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STEP 1 :

Average Profit = Total Profits of given years - Loss (if Given)

Total No.Of years

STEP 2 :

Normal Profit = Capital Employed by firm X N.R.R.

100

STEP 3 :

Super Profit = Average Profit - Normal Profit

STEP 4 :

Goodwill = Super Profit X No. Of years purchase

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DATE PARTICULARS Dr. Cr.

A] Capital Brought by new partner

1 Cash A/c Dr. xxxx

To New Partner’s Capital A/c xxxx

(Being cash brought by incoming partner

towards his capital)

2 New Partner brings asset towards his capital

Asset A/c Dr. xxxx


(Being asset brought by new partner


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Treatment of Goodwill

Extra Premium Method

Valuation Method

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B] Treatment of Goodwill

I Extra Premium Method

a. Goodwill bring in cash & retained in the business.

Cash A/c Dr. xxxx

To Goodwill A/c xxxx

(Being goodwill brought by new partner in cash.)

2 Goodwill A/c Dr. xxxx

To Old Partner’s Capital A/c(Sacrifice Ratio) xxxx

(Being goodwill retained in the business)

Extra Premium Method A

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1 Cash A/c Dr. xxxx




2 New Partner brings asset towards his capital

Asset A/c Dr. xxxx




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1 Cash A/c Dr. xxxx




2 New Partner brings asset towards his

capital

Asset A/c Dr. xxxx




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1 Cash A/c Dr. xxxx




2 New Partner brings asset towards his

capital

Asset A/c Dr. xxxx




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gursale sir admission of partner ppt xii bk chapter 3

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