2. ADMISSIONOFPARTNER
Meaning:
The procedure of admitting a new partner
into the existing partnership firm as per the
terms & conditions of partnership deed is called
as‘admissionof partner.’
AMIT SUMIT VINIT
EXISTING/ OLDPARTNER NEWPARTNER
WELCOMES
2
3. New Profit Sharing Ratio
New Profit Sharing Ratio is calculated as follows :
Assume the total profit of the firm Re.1/-
Step 1
Find out balance of 1 .
Balance of 1 (Remaining Share) = 1 - Incoming Partner Share
Step 2
Calculation of New Profit Sharing Ratio.
New Ratio = Old Ratio X Balance of 1.
3
4. For Example :
Om & Jay are partner their profit sharing ratio
is 1 : 1 (Equal).
They decided to admit Jagdish in the firm for
1/4 th share in the future
profits. Calculate New Profit Sharing Ratio of
Om, Jay & Jagdish.
4
5. Solution :
STEP 1
Balance of 1 = 1 - Share of Jagdish (New Partner)
= 1 - 1/4
Balance of 1 = 3/4
2.New Ratio of all partners = Old Ratio x Balance of 1
Om’s New Raio = 1/2 x 3/4 = 3/8
Jay’s New Ratio = 1/2 x 3/4 = 3/8
Jagdish New Raio = 2/2 x 1/4 = 2/8
Hence New Profit Sharing Ratio of Om Jay Jagdish is 3 : 3 : 2. 5
6. SACRIFICE RATIO.
Meaning :
The proportion in which old partners make
a sacrifice while admitting new partner in the firm
is called sacrifice ratio.
Formula : Sacrifice Ratio = Old Ratio - New Ratio
For example :
Sudhir & Budhir are partners sharing profit & losses in the
proportion 2/3 & 1/3 respectively. They decided to admit
Randhir in to partnership and agreed to share future profitin
the ratio of 3 : 1 : 1. 6
7. Solution :
The Sacrifice Ratio of Sudhir & Budhir as under :
Sacrifice Ratio = Old Ratio - New Ratio
Sudhir’s Sacrifice Ratio = 2/3 - 3/5 = 10/15 - 9/15 = 1/15
Budhir’s Sacrifice Ratio = 1/3 - 1/5 = 5/15 - 3/15 = 2/15
Sacrifice Ratio of Sudhir & Budhir is 1 : 2
7
8. GOODWILL
Meaning :
Goodwill is the reputation or good name of the
business expressed in terms of money.
Goodwill is the reputation of the business enterprise
which is acquired through successful operation of the business
and customer’s satisfaction.
8
10. Methods of valuation of Goodwill.
1. Average Profit Method. 2.Super Profit
Method.
AVERAGE PROFIT METHOD :
Under this method goodwill is calculated on the basis of number of
years
purchase of average profit of the firm.
For Example :
Year Profit
2001 Profit 1
2002 Profit 2
2003 Profit 3
2004 Profit 4
2005 Profit 5
10
11. Formula :
STEP 1 :
Average Profit =Profit 1 + Profit 2 + Profit 3 + Profit 4 + Profit 5
Total No. Of years
STEP 2 :=
Goodwill = Average profit X No. Of years Purchase
11
12. 2.SUPER PROFIT METHOD :
Under this method goodwill is to be valued of certain
number of years purchase of super profit of the firm.
Super Profit is calculated as under –
Given : a. Profit of previous few years
b. Capital Employed by firm
c. Normal Rate of Return ( N.R.R.)
d. No. Of years purchase
Important Note :If Average Profit is less than Normal
Profit then goodwill is Zero(0).
12
13. STEP 1 :
Average Profit = Total Profits of given years - Loss (if Given)
Total No.Of years
STEP 2 :
Capital Employed by firm X N.R.R.
100
Average Profit - Normal Profit
Normal Profit =
STEP 3 :
Super Profit =
STEP 4 :
Goodwill = Super Profit X No. Of years purchase 13
