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Admission of partner
1. ACCOUNTANCY PROJECT
NAME- HARDIK LODHA
CLASS-XII E
ROLL NUMBER-15
SUBJECT-ACCOUNTANCY
TOPIC-ADMISSION OF PARTNER
SUBMITTED TO- MRS VANDANA MAM
2.
3.
4. ADMISSION OF A PARTNER-
MEANING
• Inclusion of a new person as a partner to an existing firm is called admission of a
partner.
Partnership is an agreement between two or more persons (called partners) for
sharing the profits of a business carried on by all or any of them acting for all. Any
change in the existing agreement amounts to reconstitution of the partnership firm.
This results in an end of the existing agreement and a new agreement comes into
being with a changed relationship among the members of the partnership firm
and/or their composition. However, the firm continues. The partners often resort to
reconstitution of the firm in various ways such as admission of a new partner,
change in profit sharing ratio, retirement of a partner, death or insolvency of a
partner.
5. STEPS IN ADMITTING NEW PARTNER
• Revalue assets and prepare a table showing changes.
• Add profit or loss from revaluation of assets to partners Capital Accounts
• Calculate existing partner’s share of Goodwill
• Prepare Capital accounts of all partners
• Write off Goodwill accounts against all partners
• Calculate new profit sharing ratio
6. GOODWILL
Goodwill is an intangible asset that is associated with the purchase of one company
by another. Specifically, goodwill is the portion of the purchase price that is higher
than the sum of the net fair value of all of the assets purchased in the acquisition
and the liabilities assumed in the process. The value of a company’s brand name,
solid customer base, good customer relations, good employee relations,
and proprietary technology represent some reasons why goodwill exists.
Goodwill = P-(A-L), where: P = Purchase price of the target company, A = Fair
market value of assets, L = Fair market value of liabilities.
7. REVALUATION ACCOUNT
• Revaluation account is a nominal account, which is prepared for the distribution and
transfer of profits and losses arising due to the increase and decrease of the book
value of assets and liabilities during change in profit sharing ratio, admission of a
partner, retirement of a partner and death of a partner.
• Companies use revaluation reserve lines on the balance sheet to account for value
fluctuations in long-term assets.
• Revaluation reserves are most often used when an asset’s market value greatly
fluctuates or is volatile due to currency relationships.
• Revaluation reserves have an offsetting expense that is debited (increased) or
credited (decreased) depending on the change from revaluation.
8. QUESTION-
A, B AND C ARE THE PARTNERS SHARING PROFITS IN THE RATIO OF
3:2:1. THEIR BALANCE SHEET AS ON 31ST MARCH, 2020 IS AS UNDER:
LIABILITIES AMOUNT ASSETS AMOUNT
CREDITORS 38000 BANK
BANK LOAN 5000 DEBTORS 40000
LESS:PROVISION
2000
38000
RESERVE FUND 15000 STOCK 45000
CAPITALS PATENT 5000
A 70000 FIXED ASSETS 110000
B 50000 GOODWILL 12000
C 41000 161000
TOTAL 219000 TOTAL 219000
9. ADJUSTMENTS-
• ON 1-4-2020, D is admitted as a partner with one-fourth share profits which he gets 1/8 from A and
1/8 from B. Other terms agreed are:
• D will contribute Rs 48000 as his capital and Rs 16000 as his share of goodwill
• Reserve for bad debts be reduced by Rs 500
• A claim for damages of Rs 2500 be accepted
• A creditor for Rs 2000 is not expected to claim his money
• Patent are valueless and fixed assets are valued at 10% more
• A is to pay off the bank loan
• PREPARE REVALUATION ACCOUNT, PARTNER’S CAPITAL ACCOUNTS AND NEW BALANCE SHEET
10. REVALUATION ACCOUNT
PARTICULARS AMOUNT PARTICULARS AMOUNT
TO CLAIM FOR
DAMAGES
2500 BY PROVISION FOR
DOUBTFUL DEBT
500
TO PATENTS 5000 BY CREDITORS 2000
TO FIXED ASSETS 10000 BY LOSS A7500
B5000
C2500 15000
TOTAL 17500 TOTAL 17500
11. PARTNER’S CAPITAL ACCOUNT
PARTICULARS A B C D PARTICULARS A B C D
TO LOSS ON
REVALUATION
7500 5000 2500 - BY BALANCE B/D 70000 50000 41000 -
TO GOODWILL 6000 4000 2000 - BY BANK - - - 48000
TO BALANCE
C/D
77000 54000 39000 48000 BY BANK LOAN 5000 - - -
BY RESERVES 7500 5000 2500 -
BY PFG 8000 8000 - -
TOTAL 90500 63000 43500 48000 TOTAL 90500 63000 43500 48000
12. BALANCE SHEET
LIABILITIES AMOUNT ASSETS AMOUNT
CREDITORS 36000 BANK 73000
CAPITALS A 77000 DEBTORS 4000
PROVISION (-) 1500
38500
B 54000 STOCK 45000
C 39000 FIXED ASSETS 100000
D 48000 254000
CLAIM FOR
DAMAGES
2500
TOTAL 256500 TOTAL 256500