Q.What are the adjustments required at the time of admission of a partner ?

Admission of a partner reconstitutes the firm, requiring five adjustments: new/sacrificing ratio, goodwill, revaluation of assets and liabilities, distribution of accumulated profits and losses, and capital adjustment.

When a new partner is admitted, the existing agreement ends and the firm is reconstituted. The following adjustments are required:

1. New profit-sharing ratio and sacrificing ratio — the ratio in which all partners (including the new one) will share future profits is determined, and the sacrificing ratio (Old ratio − New ratio) of the old partners is found.
2. Treatment of goodwill — the incoming partner compensates the old partners for his share of goodwill, credited to them in their sacrificing ratio.
3. Revaluation of assets and liabilities — assets and liabilities are revalued through a Revaluation Account so that the profit or loss on revaluation belongs only to the old partners. …