Q.On the admission of a new partner increase in the value of assets is debited to:
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Let’s start with something you already know from daily life. Suppose you and a friend run a small tiffin service together. After a year, a third friend wants to join. You both agree to let her in. But the business has grown — you have a reputation, some regular customers, and maybe a little cash saved. She can’t just walk in and claim equal share of everything you built before she arrived. That wouldn’t be fair to you and your original partner.
So you sit down and decide: what is the business worth today? How much should the new partner bring in as her share of that past effort? And once she comes in, how do we rewrite the partnership deed so everyone’s rights are clear from Day 1?
That’s the heart of Admission of a Partner — and the adjustments that follow.
What does “Admission Partner Adjustments” mean?
When a new partner is admitted into an existing partnership, the old partnership is dissolved in the eyes of accounting, and a new one begins. The new partner brings in capital (cash or assets) and also buys a share of the goodwill — the value of the business’s reputation and past efforts. But that’s not all. Several things need to be revalued or adjusted so that the new partner doesn’t unfairly gain or lose from past decisions.
These adjustments are:
- Revaluation of Assets and Liabilities – because the balance sheet values may be outdated.
- Treatment of Goodwill – the new partner compensates old partners for their past efforts.
- Adjustment of Reserves and Accumulated Profits/Losses – these belong to old partners only.
- Adjustment of Capital Accounts – to bring all partners’ capitals in proportion to the new profit-sharing ratio.
Each of these has a clear accounting treatment. Let’s go through them one by one.
1. Revaluation of Assets and Liabilities
Why? The balance sheet shows assets at book value (historical cost minus depreciation). But the new partner should not benefit from an undervalued asset (like land that has appreciated) nor suffer from an overvalued one. Similarly, liabilities may be understated or overstated.
Accounting treatment:
We open a Revaluation Account (also called Profit & Loss Adjustment Account).
- Increase in asset value → debit Asset, credit Revaluation A/c
- Decrease in asset value → credit Asset, debit Revaluation A/c
- Increase in liability → credit Liability, debit Revaluation A/c
- Decrease in liability → debit Liability, credit Revaluation A/c
The net profit or loss on revaluation is transferred to the old partners’ capital accounts in their old profit-sharing ratio.
The new partner does not share in revaluation profit/loss — it belongs entirely to the old partners.
Example format (Revaluation Account):
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Building (decrease) | 10,000 | By Land (increase) | 20,000 |
| To Provision for Doubtful Debts (increase) | 5,000 | By Creditors (decrease) | 8,000 |
| To Profit transferred to: | |||
| A’s Capital A/c (3/5) | 7,800 | ||
| B’s Capital A/c (2/5) | 5,200 | ||
| Total | 28,000 | Total | 28,000 |
2. Treatment of Goodwill
Why? The new partner is buying a share of the business’s earning power built by old partners. She must compensate them for this.
Accounting treatment (as per NCERT):
The new partner brings her share of goodwill in cash. That cash is then withdrawn by the old partners (or left in the business). The journal entry:
-
When new partner brings goodwill in cash:
Cash/Bank A/c Dr.
To Goodwill A/c (or Premium for Goodwill A/c)
-
Then, distribute that amount to old partners in their sacrificing ratio:
Goodwill A/c Dr.
To Old Partners’ Capital A/cs (individually)
The sacrificing ratio is the ratio in which old partners give up their share in favour of the new partner. It is not the same as the old ratio unless the new partner’s share is taken equally from all.
Sacrificing Ratio = Old Ratio – New Ratio
If the new partner does not bring cash for goodwill, we adjust through capital accounts (debit the new partner, credit the old partners).
3. Adjustment of Reserves and Accumulated Profits/Losses
Why? Any accumulated profits (like General Reserve, Profit & Loss A/c credit balance) belong to the old partners. The new partner should not get a share of past profits.
Accounting treatment:
Transfer the entire reserve/accumulated profit to old partners’ capital accounts in their old profit-sharing ratio.
Journal entry:
General Reserve A/c Dr.
To Old Partners’ Capital A/cs
Similarly, accumulated losses (debit balance of P&L A/c) are debited to old partners’ capital accounts.
4. Adjustment of Capital Accounts
Why? After all adjustments, the partners’ capitals may not be in the new profit-sharing ratio. The partnership deed may require capitals to be proportionate to profit shares.
Accounting treatment: …
When an asset's value goes up on revaluation, the asset itself is worth more, so the Asset Account is debited and the Revaluation Account is credited (a gain). The debit th …
An increase in an asset's value is recorded by debiting the Asset A/c (and crediting Revaluation A/c) — option (b).
Concept
In the revaluation of assets at admission, the entry for an increase in the value of an asset is 'Asset A/c Dr. To Revaluation A/c'. The asset account is debited because the asset now stands at a higher value; the gain is credited to the Revaluat …
- BSEH Haryana Senior Secondary Class 12 (Commerce) 2025Set ANNUAL1 markQ.What are Accumulated Profits?
›Reveal solutionSolution
Accumulated profits are undistributed past profits/reserves, shared among old partners at reconstitution.
Accumulated profits are the profits of earlier years that the firm did not distribute but retained as reserves - such as the General Reserve, Reserve Fund or the credit balance of the Profit & Loss Account. On admission, retirement or death (reconstitution), these belong to the old partners and are transferred to their capital accounts in the old profit-sharing ratio be …
- BSEH Haryana Senior Secondary Class 12 (Commerce) 2025Set ANNUAL1 markMCQQ.On the basis of given Statements: Assertion (A) & Reason (R), choose the correct option: Assertion (A): Admission of a partner does not mean the dissolution of the firm but the dissolution of the old partnership. Reason (R): Admission of a partner means reconstitution of the partnership so that the old partnership ceases to exist and a new partnership comes into existence but the firm continuous.(a) Both Assertion (A) and Reason (R) are true, but Reason (R) is not correct explanation of Assertion (A).(b) Both Assertion (A) and Reason (R) are true and Reason (R) is correct explanation of Assertion (A).(c) Both Assertion (A) and Reason (R) are false.(d) Assertion (A) is false, but Reason (R) is true.
›Reveal solutionSolution
Both true and the reason explains the assertion.
Assertion: Admission of a partner means dissolution of the old partnership, not of the firm - TRUE.
Reason: Admission reconstitutes the partnership, so the old partnership ceases and a new one comes into existence while the firm continues - TRUE and it correctly explains why only the old partners …
- BSEH Haryana Senior Secondary Class 12 (Commerce) 2023Set ANNUAL1 markMCQQ.A new partner may be admitted into a partnership:(a) with the consent of any one partner(b) with the consent of majority of partners(c) with the consent of all old partners(d) none of the above
›Reveal solutionSolution
A new partner is admitted with the consent of all the old partners.
Section 31 of the Indian Partnership Act provides that, subject to a contract to the contrary, no new partner can be introduced into a firm without the consent of all the existing partners. Admission is a reconstitution of the firm …
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