AccountancyAdmission of a partner, with a fully solved example
A new partner buys two things: a share in the firm's assets, for which he brings capital, and a share in its future profits, for which he pays goodwill.
What changes when a partner is admitted
A person can be admitted only with the consent of all existing partners, unless the deed says otherwise. The new partner gets the right to share in the assets and in the future profits. In the accounts this needs:
- The new profit sharing ratio and the sacrificing ratio.
- Treatment of goodwill.
- Revaluation of assets and reassessment of liabilities.
- Distribution of reserves and accumulated profits.
- Adjustment of capitals, if agreed.
New ratio and sacrificing ratio
Case 1: only the new partner's share is given. The old partners share the remainder in their old ratio, and their sacrificing ratio equals their old ratio. If Z gets 1/5, the remaining 4/5 is shared by X and Y in 3 : 2: X gets 4/5 × 3/5 = 12/25, Y gets 4/5 × 2/5 = 8/25, Z gets 5/25. New ratio 12 : 8 : 5.
Case 2: the new partner takes his share in a stated proportion from the old partners. Deduct what each gives up from his old share.
Case 3: the new ratio is given. Sacrifice = Old share − New share for each old partner.
Treatment of goodwill
The new partner's share of goodwill is called premium for goodwill. It belongs to the old partners in their sacrificing ratio.
| Situation | Entries |
|---|---|
| Premium paid privately to the old partners | No entry in the firm's books |
| Premium brought in cash and kept in the firm | Bank A/c Dr. To Premium for Goodwill A/c; then Premium for Goodwill A/c Dr. To sacrificing partners' Capital A/cs |
| Premium brought in and withdrawn by old partners | As above, then old partners' Capital A/cs Dr. To Bank A/c |
| New partner cannot bring the premium | New partner's Current A/c Dr. To sacrificing partners' Capital A/cs |
| Goodwill already in the books | First write it off: old partners' Capital A/cs Dr. (old ratio) To Goodwill A/c |
Solved example
Xavier and Yash share profits 3 : 2. Their balance sheet on 31 March 2026:
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Creditors | 60,000 | Machinery | 1,50,000 |
| General reserve | 30,000 | Stock | 80,000 |
| Capital: Xavier | 2,00,000 | Debtors | 1,00,000 |
| Capital: Yash | 1,50,000 | Cash at bank | 1,10,000 |
| 4,40,000 | 4,40,000 |
On 1 April 2026 they admit Zoya for a 1/5 share on these terms:
- Zoya brings ₹2,00,000 as capital and her share of goodwill in cash. Goodwill of the firm is valued at ₹2,00,000.
- Machinery is to be depreciated by ₹10,000.
- Stock is to be appreciated by ₹4,000.
- A provision for doubtful debts of ₹2,000 is to be created.
Working
- New ratio 12 : 8 : 5; sacrificing ratio 3 : 2.
- Zoya's share of goodwill = ₹2,00,000 × 1/5 = ₹40,000, shared by Xavier and Yash as ₹24,000 and ₹16,000.
- General reserve ₹30,000 in the old ratio: ₹18,000 and ₹12,000.
| Date | Particulars | ₹ | Date | Particulars | ₹ |
|---|---|---|---|---|---|
| To Machinery A/c | 10,000 | By Stock A/c | 4,000 | ||
| To Provision for doubtful debts A/c | 2,000 | By Loss: Xavier's Capital A/c (3/5) | 4,800 | ||
| By Loss: Yash's Capital A/c (2/5) | 3,200 | ||||
| 12,000 | 12,000 |
| Date | Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|---|
| Apr 1 | Bank A/c Dr. | 2,40,000 | |
| To Zoya's Capital A/c | 2,00,000 | ||
| To Premium for Goodwill A/c | 40,000 | ||
| (Capital and premium for goodwill brought in by Zoya) | |||
| Apr 1 | Premium for Goodwill A/c Dr. | 40,000 | |
| To Xavier's Capital A/c | 24,000 | ||
| To Yash's Capital A/c | 16,000 | ||
| (Premium credited to old partners in sacrificing ratio 3 : 2) | |||
| Apr 1 | General Reserve A/c Dr. | 30,000 | |
| To Xavier's Capital A/c | 18,000 | ||
| To Yash's Capital A/c | 12,000 | ||
| (General reserve distributed in old ratio) | |||
| Apr 1 | Xavier's Capital A/c Dr. | 4,800 | |
| Yash's Capital A/c Dr. | 3,200 | ||
| To Revaluation A/c | 8,000 | ||
| (Loss on revaluation transferred in old ratio) | |||
| Total | 3,18,000 | 3,18,000 | |
| Partners' Capital Accounts | Xavier | Yash | Zoya |
|---|---|---|---|
| Opening balance | 2,00,000 | 1,50,000 | 0 |
| Cash brought in | 0 | 0 | 2,00,000 |
| Premium for goodwill | 24,000 | 16,000 | 0 |
| General reserve | 18,000 | 12,000 | 0 |
| Less: Revaluation loss | (4,800) | (3,200) | 0 |
| Closing balance | 2,37,200 | 1,74,800 | 2,00,000 |
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Creditors | 60,000 | Machinery 1,50,000 − 10,000 | 1,40,000 |
| Capital: Xavier | 2,37,200 | Stock 80,000 + 4,000 | 84,000 |
| Capital: Yash | 1,74,800 | Debtors 1,00,000 − provision 2,000 | 98,000 |
| Capital: Zoya | 2,00,000 | Cash at bank 1,10,000 + 2,40,000 | 3,50,000 |
| 6,72,000 | 6,72,000 |
Hidden goodwill
Sometimes the value of goodwill is not stated but can be inferred from the capital the new partner brings. If Zoya brings ₹2,00,000 for a 1/5 share, the whole firm is worth ₹2,00,000 × 5 = ₹10,00,000. If the combined capital of all three partners after adjustments (but before goodwill) is ₹5,72,000, hidden goodwill is ₹10,00,000 − ₹5,72,000 = ₹4,28,000 and Zoya's share of it is ₹85,600.
Adjustment of capitals
Partners may agree that capitals should be in the new profit sharing ratio. If the new partner's capital is the base: total capital of the firm = new partner's capital ÷ his share. Here ₹2,00,000 ÷ 1/5 = ₹10,00,000, so Xavier should have 12/25 = ₹4,80,000 and Yash 8/25 = ₹3,20,000. Each old partner brings in cash for a shortfall or withdraws a surplus (or the difference goes to current accounts).
Common mistakes
- Sharing the premium for goodwill in the old ratio when the sacrificing ratio is different.
- Sharing reserves or revaluation profit in the new ratio. They always go in the old ratio, to old partners only.
- Forgetting to add the new partner's cash to the bank balance.
- Leaving the general reserve in the new balance sheet when the question asks for its distribution.
The reverse situation is on the retirement and death of a partner page.
Questions students ask
In which ratio is premium for goodwill shared by old partners?
In their sacrificing ratio. When only the new partner's share is given, the sacrificing ratio is the same as the old ratio.
Why are assets revalued on admission?
So that any gain or loss in value up to the date of admission goes to the old partners, who owned the firm while it arose, and the new partner starts with correct values.
What is hidden goodwill?
Goodwill that is not stated but can be worked out: the total value of the firm implied by the new partner's capital and share, less the actual combined capital of all partners.
More Class 12 topics
For study, and independent. These pages explain accountancy as it is generally taught in Class 11, Class 12 and B.Com courses in India, in our own words with our own examples, reviewed in November 2026. This site is not connected with NCERT, CBSE, ICAI or any board or university. Syllabuses change: follow your own board's or university's current syllabus and textbook. Nothing here is professional accounting, tax or legal advice.