Admission Of A New Partner Accounts

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Admission Of A New Partner Accounts

  1. 1. Admission of a new Partner (Higher Only) Mr Arthur
  2. 2. Aims of the Lesson <ul><li>Intro to Admission of a new partner </li></ul><ul><li>Goodwill </li></ul><ul><li>Steps in admitting a new partner </li></ul>
  3. 3. Admission of new Partner <ul><li>Partnerships may admit a new partner for the following reasons: </li></ul><ul><ul><li>Raise more capital </li></ul></ul><ul><ul><li>Death of a partner </li></ul></ul><ul><ul><li>Increase specialism is partnership </li></ul></ul>
  4. 4. Goodwill <ul><li>Goodwill is an intangible asset which may arise from the reputation of the business </li></ul><ul><ul><li>Value from: </li></ul></ul><ul><ul><ul><li>Company reputation </li></ul></ul></ul><ul><ul><ul><li>Customer loyalty </li></ul></ul></ul><ul><ul><ul><li>Trade marks etc </li></ul></ul></ul><ul><li>When a new partner joins you may need to calculate the value of goodwill, share it among existing partner’s Capital accounts </li></ul><ul><li>Goodwill may equal several years average operating profits </li></ul>
  5. 5. Steps in Admitting New Partner <ul><li>Revalue Assets and prepare a table showing changes </li></ul><ul><li>Add profit or loss from revaluation of assets to partners Capital Accounts </li></ul><ul><li>Calculate existing partner’s share of Goodwill </li></ul><ul><li>Prepare Capital accounts of all partners </li></ul><ul><li>Write off Goodwill against all partners </li></ul><ul><li>Calculate new profit sharing ratio </li></ul>

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