Tiêu đề Chapter 2 Reconstitution Of A Partnership Firm – Admission of a Partner.pdf ✅

ACCOUNTANCY Chapter 2: Reconstitution: Admission of a Partner
(1) 02 RECONSTITUTION : ADMMISSION OF A PARTNER Reconstitution: Admission of a Partner Introduction to Admission of a Partner Section 31, Rights, Liabilities, Effects and Adjustments in the event of Admission of a Partner: ● Section 31 of the Indian Partnership Act, 1932: According to section 31 of the Indian Partnership Act, 1932, a person can be admitted as a new partner: i. if it is so agreed in the Partnership Deed, or ii. in the absence of the above, if all partners agree for the admission. ● Rights and liabilities of the newly admitted partner: ▪ When a partner is newly admitted into the partnership, the new partner gets the following rights: i. Right to share the future profits of the firm, and ii. Right to share in the assets of the firm. ▪ At the same time, the newly admitted partner becomes liable for any liability of the business incurred after his admission and any loss incurred by the firm ● Effects of admission of a Partner: Following are the effects of admission of a new partner: i. New partnership comes into existence. ii. Old partnership comes to an end but the firm continues. iii. New partner is entitled to share of future profits. iv. The combined share of old partners get reduced. v. New partner contributes an agreed amount towards the capital of the firm. vi. Goodwill is to be valued and paid to the sacrificing partners for their sacrifice by the gaining partners through their Capital Accounts. vii. Incoming partner is entitled to the rights in the assets of the firm and also liable for the liabilities. viii. Adjustment is to be made for reserves, accumulated profits or losses. ix. Revaluation of assets and reassessment of liabilities is to be done. The net increase or decrease is then adjusted in the existing partner's capital account in their old profit sharing ratio. ● Adjustments required on the admission of a partner: Following are the adjustments required on the admission of a partner:
(2) 02 RECONSTITUTION : ADMMISSION OF A PARTNER i. Determining the new profit sharing ratio and gaining/ sacrificing ratio. ii. Goodwill valuation and its adjustment. iii. Revaluation of Assets and reassessment of liabilities and adjustment of the net gain or loss on such revaluation. iv. Adjustment of reserves, accumulated profits and losses. v. Adjustment of capital on the basis of new profit sharing ratio. Change in Profit Sharing Ratio Change in Profit Sharing Ratio and Calculation of Ratios: ● Change in Profit Sharing Ratio in the event of admission of a Partner: In the event of admission of a partner in the existing firm, the incoming partner becomes entitled to share future profits of the firm. Such share is acquired by the incoming partner from old partners, therefore, it is necessary to determine new profit sharing ratio and also the gaining or sacrificing ratio. The new partner may acquire his share from old partner or partners in old ratio, in a particular ratio (sacrificing ratio) or in a particular fraction from old partners. ● Calculation of new profit sharing ratio when profit share of new or incoming partner is given but sacrifice made by old partners is not given: i. In such a case, it is assumed that the new partner has acquired his share from old partners in their old profit-sharing ratio. ii. Therefore, old partners will continue to share balance profits or losses in their old profit sharing ratio. It means that, in the absence of any information, profit sharing ratio among the existing partners remains unchanged. iii. Calculation of new profit sharing ratio for each partner will be as follows: ● Deduct new or incoming partners' share of profit from 1; and ● Divide the remaining share of profit among old partners in their old profit sharing ratio. ● Calculation of new profit sharing ratio when share of new or incoming partner is given and also new profit sharing of old partners is given: i. In such a case, new partner's share of profit is deducted from 1 and balance share of profit is divided among old partners in their new profit sharing ratio. ii. Such arrangement gives the new profit share of each of the partners in the new firm. ● Calculation of new profit sharing ratio when new or incoming partner acquires his share from the old or existing partners equally: i. In such case, new share of each old partner is to be determined by calculating the new profit
(3) 02 RECONSTITUTION : ADMMISSION OF A PARTNER sharing ratio among all the partners. ii. The sacrifice made in favour of the new or incoming partner is deducted from the existing share of profit of each old partner. ● Calculation of new profit sharing ratio when new or incoming partner acquires his share from the old or existing partners in a particular ratio: i. In such situation, share of existing or old partners will change to the extent of share sacrificed on admission of the new or incoming partner. ii. New share of profits of the existing partners in the reconstituted firm is determined by deducting the sacrifice made by them from their existing share of profits. ● Calculation of new profit sharing ratio when new or incoming partner acquires his share in a particular fraction from old or existing partners: i. In such situation, share of new or incoming partner is to be determined by adding the shares surrendered by the old partners in favour of new or incoming partner. ii. Such share surrendered by the old or existing partners are deducted from their respective shares to determine old partners' shares in the reconstituted firm. ● Calculation of new profit sharing ratio when one of the existing partner retains his original share of profit on admission of a new partner: i. In such a case, the share of profit of new partner and share of profit of existing partner who retains his old share is deducted from 1. ii. After such deduction, remaining share of profit is divided among remaining old partners in their profit sharing ratio. ● Calculation of sacrificing ratio when share of new or incoming partner is given without giving details of sacrifice made by old or existing partners: i. In such a case, it is assumed that old partners make sacrifice in their old profit sharing ratio. ii. In such situations, sacrificing ratio and old profit sharing ratio will always be same and therefore, there will be no change in profit sharing ratio of old partners. ● Calculation of sacrificing ratio when old ratio of existing partners and new ratio of all partners is given: i. When old ratio and new ratio of the old and existing partners is available, sacrificing ratio is to be calculated by deducting the new share from the old share. ii. Formula used is as follows: Sacrificing Share = Old Share - New Share ● Calculation of sacrificing ratio when new or incoming partner acquires the share by