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Admission of a Partner — Part 1: Ratios and Goodwill

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Lesson

Admission of a Partner

Part 1 — the new profit-sharing ratio, the sacrificing ratio and goodwill on admission. All firms and figures in this chapter are imagined.

In this lesson you will

Calculate the new profit-sharing ratio and the sacrificing ratio in every type of admission
Account for goodwill under Accounting Standard 26: premium in cash or kind, partly or not brought, old goodwill written off
Calculate hidden goodwill from capital contributions and pass the entry

Part 1 at a glance

Concept

Where does the new partner's share come from?

Sacrifice = old share − new share in every case.
How the new partner gets his share	Sacrifice of each old partner	New share of each old partner
From all old partners in the old ratio	Old share × new partner's share	Old share × (1 − new partner's share)
Each surrenders a fraction of his own share	Old share × fraction surrendered	Old share − sacrifice
Each gives a fraction of the firm	The fraction given	Old share − fraction given
From one partner only	Whole new share from him; others nil	Only his share falls
New ratio given	Old share − new share	Read from the new ratio