Introduction -:
New partner are admitted for the benefit of
the partnership firm. New partner is Admitted either for increasing the partnership capital or for
strengthening the management of firm.
When a
new partner joins a firm, it is desirable to bring all appreciation or
reduction in the value of assets into accounts as on the date of admission.
Revaluation Account -:
When a new partner is
admitted into the partnership firm, assets are revalued and liabilities are
reassessed. Revaluation A/c is opened for the purpose. The entries to be passed
are -:
1.
Revaluation A/c Dr.
To Assets A/c ( Decrease in
assets)
To
Liabilities A/c ( Increase in
liabilities)
2.
Assets A/c
Dr. ( Increase in assets)
Liabilities A/c Dr.
( Decrease in liabilities)
To
Revaluation A/c
3.
Revaluation A/c Dr (with the
profit in old
To Capital
A/c of old partners A/c profit
sharing ratio)
4.
Capital A/c of
old partners A/c Dr. (with the loss in old
To Revaluation A/c profit
sharing ratio)
As a result of above entries
the capital a/c balance of old partners will change & assets and
liabilities will have to adjusted to their proper value. They will now appear
in the balance sheet at revised figures.
Alternatively, The partners
may agree the revalued figures will not be shown in the balance sheet and
assets and liabilities would appear in the balance sheet at their old values. In
this case Memorandum Revaluation a/c is opened.
1.
Any increase in
assets and decrease in liabilities is credited to memorandum treading a/c. The
journal entry will be -:
Assets A/c Dr. ( Increase in assets)
To Liabilities A/c Dr. ( Decrease in liabilities)
To Memorandum
Revaluation A/c
2.
Any decrease in
assets and increase in liabilities is credited to memorandum treading a/c. The
journal entry will be -:
Memorandum Revaluation A/c
Dr.
To Assets
A/c ( Decrease in assets)
To
Liabilities A/c ( Increase in
liabilities)
3.
If debit side of
memorandum revaluation a/c is more than credit side, there is loss. This loss
transferred to old partners capital a/c in the old profit sharing ratio -:
Old Pratner’s capital a/c Dr.
To Memorandum Revaluation
a/c
4.
If credit side of
memorandum revaluation a/c is more than debit side, there is profit. This
profit transferred to old partners capital a/c in the old profit sharing ratio
-:
Memorandum Revaluation A/c
Dr.
To Old Pratner’s capital A/c
After complete above
procedure, reverse entries are made for increase in value of assets &
decrease in value of liabilities and decrease in value of assets and increase
in value of liabilities in the later half of the memorandum revaluation a/c.
·
In case of Profit
-:
Memorandum Revaluation A/c Dr.
To All Partners A/c (New p&l sharing
ratio)
·
In case of Loss
-:
All Partners A/c Dr. (New p&l sharing ratio)
To Memorandum Revaluation
A/c Dr.
Note-: In
Memorandum Revaluation a/c the book value of assets & liabilities do not change.
Reserves in the balance
sheet -:
Whenever
a new partner is admitted any reserve etc. lying in the balance sheet should be
transferred to the capital a/c of the old partners in the old profit sharing
ratio.
Computation of new
profit sharing ratio -:
When a new partner is admitted and there is no agreement to the
contrary, it is supposed that old partners will continue to have inter se at
the old profit sharing ratio -:
Example -: G and P are in the partnership sharing profit &
loss at the ratio of 3:2. They admitted
Q as 1/5 partner for computation of new profit sharing ratio -:
i} Firstly, Deduct the share offered to new
partner from 1.
1- 1/5 = 4/5
ii} Divide the balance of
share between G & P in the ratio
3:2.
G =
4/5 x 3/5 = 12/25
P
= 4/5 x 2/5 = 8/25
Iii} New Profit Sharing ratio
-:
G : P : Q
12/25 8/25 1/5
Take L.C.M. 12/25
: 8/25 :
5/25
i.e. = 12 :
8 : 5 Ans.
Example -: G and P are in the partnership sharing profit &
loss at the ratio of 3:2. They admitted
Q as new partner. Calculate the new profit sharing ratio if -:
1.
Q purchases 1/10
share from A.
2.
G and P agree to
sacrifice 1/10th share to Q in the ratio of 2:3.
3.
Simply gets 1/10th
share of profit.
Sol -:
1.
New profit
sharing ratio -:
G = 3/5 – 1/10 = 5/10
P = 2/5 – 1/10 = 4/10
Q = 1/10
2.
G’s sacrifice
= 1/10 X 2/5 = 2/50
P’s sacrifice = 1/10 X 3/5 = 3/50
New profit sharing ratio -:
G=
3/5 - 2/50 = 28/50
P = 2/5 – 3/50 = 17/50
Q = 1/10 i.e. 5/10
i.e. = 28 :
17 : 5
3. Balance of share to be divide between G and P -:
1-
1/10 = 9/10
Distribution
G = 9/10 X 3/5 = 27/50
P = 9/10 X 2/5
= 18/50
Q = 1/10 i.e. 5/50
i.e. 27 : 18 : 5 Ans.
