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Admission of a Partner — Part 1: Ratios and Goodwill

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Lesson

Reconstitution: Admission of a Partner

Part 1 — ratios and goodwill when a new partner joins. Every firm, person and figure in this chapter is imagined.

In this lesson you will

Calculate the new profit-sharing ratio, the sacrificing ratio and any gain by an old partner on admission
Account for goodwill under Accounting Standard 26: premium in cash, retained, withdrawn, in kind, paid privately or not brought (current accounts under fixed capitals)
Write off goodwill already in the books and calculate hidden goodwill

Part 1 at a glance

Concept

Where the new partner's share comes from

In every case: sacrifice = old share − new share.
Terms of admission	Sacrifice of an old partner	New share of an old partner
Share taken in the old ratio	Old share × newcomer's share	Old share × (1 − newcomer's share)
Each surrenders a fraction of his own share	Old share × that fraction	Old share − sacrifice
Each gives a fraction of the firm	That fraction	Old share − that fraction
New ratio stated	Old share − new share (may be negative: a gain)	Read from the stated ratio