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

Five adjustments on admission: new ratio & sacrificing ratio, goodwill, revaluation of assets/liabilities, distribution of reserves & accumulated profits/losses, and capital adjustment.

Adjustments required on admission of a partner (TN HSC Class-12 Accountancy — Admission of a Partner):

1. New profit-sharing ratio and sacrificing ratio — Calculate the ratio in which the old partners and the new partner will share future profits, and the ratio in which the old partners sacrifice their share.

2. Treatment of goodwill — Since the new partner acquires a share of future profits, he compensates the old (sacrificing) partners for goodwill, adjusted as per the method agreed.

3. Revaluation of assets and liabilities — Assets and liabilities are revalued at current values through a Revaluation Account; the profit or loss goes to the old partners in the old ratio.

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