Lecture Notes: General Entries at the Time of Admission of a Partner (Part 2)

Introduction

• Importance of understanding basics from Part 1 for smooth progress in Part 2.
• Focus on general entries required during the admission of a new partner to a business.
• Entries critical regardless of the reason for the partner’s admission.

Key Concepts

New Partner's Contributions

• Capital Contribution: Bank Account Debit to New Partner’s Capital Account
  • E.g., Bank A/C Dr. to C's/Z's Capital A/C
• Goodwill Contribution: Bank Account Debit to Premium for Goodwill
  • E.g., Bank A/C Dr. to Premium for Goodwill A/C

Distribution of Goodwill among Existing Partners

• Entry for Distributing Goodwill: Premium for Goodwill A/C Dr. to Old Partners’ Capital A/C
  • Goodwill brought by the new partner is shared among old partners in sacrificing ratio.
  • Example: Premium for Goodwill A/C Dr. to A’s Capital A/C, B’s Capital A/C

Comprehensive Entries for New Partner

1. Capital brought by new partner:
   • Bank A/C Dr. to New Partner's Capital A/C
2. Goodwill brought by new partner:
   • Bank A/C Dr. to Premium for Goodwill A/C
3. Distributing Goodwill among existing partners:

   • Premium for Goodwill A/C Dr. to A’s Capital A/C, B’s Capital A/C (in sacrificing ratio)

   • Combined Entry:

     • Bank A/C Dr. to New Partner’s Capital A/C to Premium for Goodwill A/C
4. Goodwill not brought by new partner:
   • New Partner's Current A/C Dr. to Old Partners’ Capital A/C (in sacrificing ratio)

Withdrawal by Existing Partners

• When old partners withdraw goodwill:
  • Old Partners' Capital/Current A/C Dr. to Cash/Bank A/C (in sacrificing ratio)
  • Eg., A’s Capital A/C Dr., B’s Capital A/C Dr. to Cash/Bank A/C

Adjust Existing Goodwill in the Books

• Adjust existing goodwill in books in the old ratio:
  • All Partners' Capital A/C Dr. to Goodwill A/C
• Example: A’s & B’s Capital A/C Dr. to Goodwill A/C

Advanced Entries

1. If a new partner cannot bring goodwill:
   • Entry adjusted through their current account:
     • New Partner’s Current A/C Dr. to Old Partners’ Capital/Current A/C
2. Goodwill withdrawn by old partners:
   • Old Partners' Capital/Current A/C Dr. to Cash/Bank A/C
3. Adjustment entry in goodwill:
   • Old Partners' Capital/Current A/C Dr. to Goodwill A/C

Special Cases

• Private payment of goodwill by the new partner: No entry required.
• Calculating adjusted partner's sacrifice share and new profit-sharing ratio:
  • Detailed calculations provided for various problem scenarios for understanding.

Shortcut Methods

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