2. Admission By purchase
Admission by purchase is a personal transaction between
the selling partner and the incoming partner. The interest
of a partner refers to his capital or equity in the
partnership.
In this mode of admission, the concern of the partnership
is to record the interest bought by the incoming partner
regardless of the acquisition price paid to the selling
partner.
3.
4. Case IV- R purchases ½ interest from both P and Q for ₱27,000.
Since the total capitalization of PQ Partnership is ₱50,000 and R is
offering ₱27,000 for a one-half interest from both P and Q, in effect, R
is buying the whole firm for ₱54,000 ( 27,000 ÷ ½ or 27,000 x 2/1).
The difference of ₱4,000 may be due to goodwill or the assets of the
partnership may be undervalued at the time of R’s admission.
Whether the differences is due to goodwill or undervaluation of the
assets, a debit is made to Goodwill or Asset account and the capital
accounts of the partners are credited.
5.
6.
7.
8. Admission by Investment
Just like admission by purchase, in this mode of
admission there is already an existing partnership. A
person may be admitted as a new partner by
investing or contributing cash or other assets to the
partnership by investing or contributing cash or other
assets to the partnership. The contributed capital of
the new partner will increase the assets of the firm ,
unlike in admission by purchase.
9. Admission by investment is a transaction between the firm
and the incoming partner, while admission by purchase of
interest is a personal transaction between the new partner
and the selling partner.
To analyze admission by investment, the total agreed capital
and the total contributed capital have to be considered .
TOTAL AGREED CAPITAL( TAC). This is the amount of
new partnership capital as agreed upon by the partners.
TOTAL CONTRIBUTED CAPITAL(TCC). This is the
amount of the total contributions of both old and new partners.
10. Journal Entry in the books of the partnership:
Cash ₱ 25,000
U, Capital ₱25,000
To record the admission of U.
11. The total contributed capital (TCC) is ₱75,000 after the
admission of U and the total agreed capital (TAC) is also
₱75,000 (₱25,000 – 1/3). Therefore, there is neither goodwill
nor bonus in this case.
Note: There is goodwill if total agreed capital(TAC) exceeds
total contributed capital (TCC). There is bonus if a portion of
the capital of one partner is transferred to the other partner or
partners. The reason of giving bonus to any partner is his
good reputation or earning capacity. A new partner who is
believed to be an asset to the firm may be given a bonus
coming from from the old partners.
12. The following cases will be illustrated
1. No goodwill, No bonus
2. No goodwill, Bonus to old partners
3. Goodwill to new partner
4. Goodwill to old partners
5. Goodwill and bonus to old partners
6. No goodwill, Bonus to new partner
13. I. No Goodwill , No Bonus
Assume that Rica and Camille who share profits and losses in the ratio of
60%,40% have capital contributions of ₱100,000 and ₱80,000,
respectively . They admit Danica who is contribute ₱60,000 for a ¼ interest
in the firm.
14. Since Danica invested P60,000 which is equal to one-fourth interest, the
total contributed capital is P240,000 (P60,000 – ¼ ). There's no cause total
agreed capital is equal to total contributed capital. Only would be needed
to be recorded in the books of the partnership goodwill be- one entry as
follows:
15. II. - No Goodwill, Bonus to Old Partners
If Danica invested P100,000 for a ¼ interest in a new firm with a total
capitalization of P280,000, there's a bonus to old partners because his
actual investment is P100,000 but his capital credit will only be P70,000
which is ¼ of P280,000.
16. III. Goodwill to New Partner
Assume the same data as in case 2 above, except that Danica is to
contribute P50,000 for a ¼ interest in the firm. They agreed that the new
capital is P240,000.
17. The Journal Entries to record the admission of Danica appear as follows:
18. IV. Goodwill to Old Partners
Niña and Ivy are partners sharing profits and losses equally. They agreed
to admit Rochelle who is to contribute P100,000 for a 1/5 interest in the
new firm with a total capitalization of P500,000. Their capital contributions
before Rochelle was admitted were: Niña, P200,000; Ivy, P150,000.
19. Goodwill pertains to old partners since Rochelle contributed P100,000 for
a interest in the new firm with a total capital of P500,000 (1/5 of P500,000
= P100,000). Therefore, the difference between TAC and TCC is P50,000
which is goodwill to be shared equally by the old partners
20. V. Goodwill and Bonus to Old Partners
Assume the same data as in Case IV: and Rochelle is admitted to the
partnership by her investment of P150,000 for a ¼
interest in the firm. The agreed new capital is P550,000
21. There is bonus to old partners since Rochelle contributed P150,000 and
the capital credited to her is P137,500 or ¼ of P550,000. Therefore, the
P12,500 difference between her capital contribution and the capital
credited to her should be shared by the old partners according to the
profit/loss ratio.
There is goodwill since TAC exceeds TCC by P50,000 and this goodwill
should again be shared by the old partners.
Journal Entries to be recorded in the books of the partnership:
22. VI. No Goodwill ,Bonus to New Partner
Rochelle invested P100,000 for a 1/3 interest in the firm. The agreed
capital of the new firm is P450,000.
23. There is no goodwill because TAC equals TCC but there is bonus to
Rochelle since her actual contribution is P100,000 but the capital credit
given to her is P150,000.
24. Case VII
Partners may agree that after the admission of the incoming partner, their
capital contributions must be made equal to their profit and loss ratio. In
this case, the amount invested by the new partner shall be made as the
basis in determining the total agreed new capital of the firm. To compute
the TAC, divide the new partner's actual investment by his profit and loss
ratio.
25. Illustration:
Rose and Cielo are partners of RC Trading. They share profits and losses
in the ratio of 3:2, respectively. They agreed to admit Carlo who invested
P125,000 for a one-fourth interest in the partnership. They further agreed
that after the admission of Carlo, their capital contributions must be made
equal to the new p and I ratio, so that Rose and Cielo may invest or
withdraw some funds in order to abide by their agreement.
26. To get the new profit and loss ratio of Rose and Cielo, subtract the p and 1
ratio of Carlo from 100%; hence, 100%-25% = 75%. Then, multiply the old
p and I ratio of Rose and Cielo each by 75%, as shown below:
