Admission of a partner is the chapter where most Class 12 Accountancy students either build their confidence or lose it. It sits inside Accounting for Partnership Firms, which is the single highest weightage unit in the syllabus at 36 marks out of the 80 mark theory paper. A well prepared student can walk into the exam knowing exactly what a six mark or eight mark question on this chapter will look like, because the pattern barely changes from year to year.
This guide covers the concept, all six adjustments, the complete journal entry list, worked sums in the format expected in the answer sheet, and guidance on how to use TS Grewal Chapter 4 and DK Goel solutions without turning them into a copying exercise.
What is Admission of a Partner?
Admission of a partner is the reconstitution of a partnership firm in which a new person is taken into the firm as a partner, resulting in a change in the profit sharing ratio and the mutual relationship among the existing partners. The old partnership comes to an end and a new agreement takes its place, though the firm itself continues to operate.
Under Section 31 of the Indian Partnership Act, 1932, a person can be admitted as a partner only with the consent of all the existing partners, unless the partnership deed provides otherwise.
Two Rights the New Partner Acquires
On admission, the new partner acquires two rights:
- The right to share in the assets of the firm
- The right to share in the future profits of the firm
Because the new partner is acquiring a share in profits that previously belonged entirely to the old partners, the old partners must be compensated. That compensation is called goodwill, and it is the reason the goodwill treatment sits at the heart of this chapter.
Why This Chapter Deserves Priority
Accounting for Partnership Firms carries 36 marks, and admission of a new partner is the most heavily examined reconstitution topic within it, ahead of retirement and death. It typically appears as a six mark question on journal entries or revaluation, or as a full length question asking for the Revaluation Account, the Partners’ Capital Accounts and the Balance Sheet of the reconstituted firm.
The good news is that every question, no matter how long it looks, is a combination of the same six adjustments.
The Six Adjustments on Admission of a New Partner
Memorise this sequence. Every sum you attempt will be some subset of it, in this order.
ADMISSION OF A PARTNER
│
├── 1. NEW PROFIT SHARING RATIO
│ └── Sacrificing Ratio = Old Ratio minus New Ratio
│
├── 2. GOODWILL TREATMENT
│ ├── Write off existing goodwill first (old ratio)
│ ├── Premium brought in cash
│ ├── Premium not brought in cash
│ └── Hidden goodwill
│
├── 3. REVALUATION OF ASSETS AND LIABILITIES
│ └── Profit or loss to OLD partners in OLD ratio
│
├── 4. RESERVES AND ACCUMULATED PROFITS OR LOSSES
│ └── Distributed to OLD partners in OLD ratio
│
├── 5. ADJUSTMENT OF CAPITALS
│ ├── Based on new partner's capital, or
│ └── Based on total capital of the new firm
│
└── 6. PREPARATION OF NEW BALANCE SHEETAdjustment 1: New Profit Sharing Ratio and Sacrificing Ratio
Sacrificing Ratio = Old Ratio minus New Ratio
The sacrificing ratio matters because the premium for goodwill brought by the new partner is distributed among the old partners in this ratio, not in their old ratio. Students lose marks here constantly.
Case 1: New partner acquires his share from old partners in a stated ratio
A and B share profits 3:2. They admit C for 1/5 share. C acquires 3/20 from A and 1/20 from B. Calculate the new ratio and sacrificing ratio.
A’s new share = 3/5 minus 3/20 = 12/20 minus 3/20 = 9/20
B’s new share = 2/5 minus 1/20 = 8/20 minus 1/20 = 7/20
C’s share = 1/5 = 4/20
New ratio = 9 : 7 : 4
Sacrificing ratio = 3/20 : 1/20 = 3 : 1
Case 2: Old partners surrender a fraction of their own share
X and Y share profits 5:3. Z is admitted. X surrenders 1/5 of his share and Y surrenders 1/3 of his share.
X sacrifices = 5/8 × 1/5 = 1/8
Y sacrifices = 3/8 × 1/3 = 1/8
Z’s share = 1/8 + 1/8 = 2/8 = 1/4
X’s new share = 5/8 minus 1/8 = 4/8
Y’s new share = 3/8 minus 1/8 = 2/8
New ratio = 4 : 2 : 2, which is 2 : 1 : 1
Sacrificing ratio = 1 : 1
Case 3: Nothing is stated about how the share is acquired
If the question is silent, assume the old partners sacrifice in their old profit sharing ratio. In that case the sacrificing ratio equals the old ratio.
Adjustment 2: Goodwill Treatment
As per Accounting Standard 26, self generated goodwill is not recorded in the books. Goodwill is recorded only when it is purchased for a consideration in money or money’s worth. This single rule explains why the modern treatment never opens a Goodwill Account when the new partner fails to bring cash.
Step 1: Write off any goodwill already appearing in the books
Old Partners’ Capital A/c Dr (in old ratio)
To Goodwill A/c
This must be done before anything else, without exception.
Step 2: Record the premium
When the new partner brings premium in cash and it is retained in the business:
Bank A/c Dr
To New Partner’s Capital A/c
To Premium for Goodwill A/c
Premium for Goodwill A/c Dr
To Sacrificing Partners’ Capital A/cs (in sacrificing ratio)
When the old partners withdraw the premium:
Sacrificing Partners’ Capital A/c Dr
To Bank A/c
When the new partner does not bring premium in cash:
New Partner’s Current A/c Dr
To Sacrificing Partners’ Capital A/cs (in sacrificing ratio)
Step 3: Hidden goodwill
When the question gives the new partner’s capital and his share but says nothing about goodwill, goodwill is hidden inside the capital figure.
A and B share 3:2. Their capitals after all adjustments are ₹1,20,000 and ₹80,000. C is admitted for 1/4 share and brings ₹80,000 as capital, but nothing for goodwill.
Total capital of the firm based on C’s capital = ₹80,000 × 4 = ₹3,20,000
Combined actual capital of all three partners = ₹1,20,000 + ₹80,000 + ₹80,000 = ₹2,80,000
Hidden goodwill of the firm = ₹40,000
C’s share of goodwill = ₹40,000 × 1/4 = ₹10,000
Entry:
C’s Current A/c Dr 10,000
To A’s Capital A/c 6,000
To B’s Capital A/c 4,000
Adjustment 3: Revaluation of Assets and Liabilities
The Revaluation Account, also called the Profit and Loss Adjustment Account, records the effect of restating assets and liabilities at their true values. The rule is simple.
| Situation | Treatment in Revaluation A/c |
|---|---|
| Increase in value of an asset | Credit |
| Decrease in value of an asset | Debit |
| Increase in a liability | Debit |
| Decrease in a liability | Credit |
| Unrecorded asset brought into books | Credit |
| Unrecorded liability brought into books | Debit |
The resulting profit or loss belongs entirely to the old partners and is transferred to their capital accounts in the old profit sharing ratio. The new partner has no claim on it, because these gains and losses arose before he joined.
Worked sum
A and B share 3:2. On admission of C: stock is increased by ₹10,000, building appreciated by ₹40,000, a provision for doubtful debts of ₹4,000 is created, outstanding salary of ₹6,000 is recorded, and creditors of ₹8,000 are no longer payable.
Debit side: Provision for doubtful debts ₹4,000 + Outstanding salary ₹6,000 = ₹10,000
Credit side: Stock ₹10,000 + Building ₹40,000 + Creditors ₹8,000 = ₹58,000
Profit on revaluation = ₹48,000
A’s share = ₹48,000 × 3/5 = ₹28,800
B’s share = ₹48,000 × 2/5 = ₹19,200
Adjustment 4: Reserves and Accumulated Profits or Losses
All undistributed profits and losses lying in the balance sheet on the date of admission belong to the old partners and must be transferred to them in the old ratio.
For credit balances such as General Reserve, Reserve Fund and Profit and Loss (credit balance):
General Reserve A/c Dr
Profit and Loss A/c Dr
To Old Partners’ Capital A/cs (old ratio)
For debit balances such as Profit and Loss (debit balance) and Deferred Revenue Expenditure:
Old Partners’ Capital A/cs Dr (old ratio)
To Profit and Loss A/c
Two special reserves
Workmen Compensation Reserve. If there is no claim, the entire reserve is distributed among old partners in the old ratio. If the claim is less than the reserve, only the excess is distributed and the claim is shown as a liability. If the claim exceeds the reserve, the shortfall is debited to the Revaluation Account.
Investment Fluctuation Reserve. The same logic applies, but the comparison is between the book value and the market value of investments. Any excess reserve after covering the fall in value goes to the old partners.
Adjustment 5: Adjustment of Partners’ Capitals
Sometimes the partners agree that their capitals should be in proportion to the new profit sharing ratio.
A and B share 3:2 and admit C for 1/4 share. C brings ₹1,00,000 as capital. After all other adjustments, A’s capital is ₹1,60,000 and B’s is ₹1,10,000. Capitals are to be adjusted in the new profit sharing ratio, taking C’s capital as the base.
Step 1: New ratio. C takes 1/4, so the remaining 3/4 is shared by A and B as 3:2.
A = 3/4 × 3/5 = 9/20, B = 3/4 × 2/5 = 6/20, C = 5/20
New ratio = 9 : 6 : 5
Step 2: Total capital of the new firm = ₹1,00,000 × 20/5 = ₹4,00,000
Step 3: New capitals
A = ₹4,00,000 × 9/20 = ₹1,80,000, so A brings in ₹20,000
B = ₹4,00,000 × 6/20 = ₹1,20,000, so B brings in ₹10,000
Where a partner’s existing capital exceeds his required capital, the surplus is either withdrawn or transferred to his current account.
Admission of a Partner Notes: The Complete Journal Entry List
Keep this on one page for revision.
| Transaction | Journal Entry |
|---|---|
| New partner brings capital | Bank A/c Dr, To New Partner’s Capital A/c |
| Premium brought in cash | Bank A/c Dr, To Premium for Goodwill A/c |
| Premium distributed | Premium for Goodwill A/c Dr, To Sacrificing Partners’ Capital A/cs |
| Premium withdrawn by old partners | Sacrificing Partners’ Capital A/cs Dr, To Bank A/c |
| Goodwill not brought in cash | New Partner’s Current A/c Dr, To Sacrificing Partners’ Capital A/cs |
| Existing goodwill written off | Old Partners’ Capital A/cs Dr (old ratio), To Goodwill A/c |
| Increase in asset value | Asset A/c Dr, To Revaluation A/c |
| Decrease in asset value | Revaluation A/c Dr, To Asset A/c |
| Increase in liability | Revaluation A/c Dr, To Liability A/c |
| Decrease in liability | Liability A/c Dr, To Revaluation A/c |
| Profit on revaluation | Revaluation A/c Dr, To Old Partners’ Capital A/cs (old ratio) |
| Loss on revaluation | Old Partners’ Capital A/cs Dr (old ratio), To Revaluation A/c |
| Reserves distributed | General Reserve A/c Dr, To Old Partners’ Capital A/cs (old ratio) |
| Accumulated loss written off | Old Partners’ Capital A/cs Dr (old ratio), To Profit and Loss A/c |
Admission of a Partner Sums: A Fully Worked Example
P and Q are partners sharing profits in the ratio 3:2. They admit R for 1/5 share. R brings ₹4,00,000 as capital and ₹1,00,000 as premium for goodwill. Half of the premium is withdrawn by the old partners. Pass the journal entries.
Working note: As nothing is stated about how R acquires his share, P and Q sacrifice in their old ratio of 3:2.
Entry 1
Bank A/c Dr 5,00,000
To R’s Capital A/c 4,00,000
To Premium for Goodwill A/c 1,00,000
(Being capital and premium brought in by R)
Entry 2
Premium for Goodwill A/c Dr 1,00,000
To P’s Capital A/c 60,000
To Q’s Capital A/c 40,000
(Being premium credited to sacrificing partners in 3:2)
Entry 3
P’s Capital A/c Dr 30,000
Q’s Capital A/c Dr 20,000
To Bank A/c 50,000
(Being half the premium withdrawn by old partners)
Notice that the working note comes first. In the board exam, working notes carry marks even when the final figure is wrong, so never skip them.
How to Use TS Grewal Chapter 4 and DK Goel Solutions Properly
Chapter 4 of TS Grewal Volume 1 covers Admission of a Partner, and DK Goel Volume 1 covers the same ground with a heavier load of practical questions. Both are excellent, and both are commonly misused.
The wrong method is to read the question, look at the solution, understand it, and move on. This creates the illusion of preparation. You recognise the answer without being able to produce it.
The right method has four steps:
- Attempt the sum completely on your own, including the working notes, with a time limit.
- Only then open the solution.
- Compare not just the final answer but the format, the sequence of accounts and the narrations.
- Write down, in a separate error log, the specific reason you went wrong. Not “silly mistake”, but “distributed revaluation profit in new ratio instead of old”.
Within three weeks that error log becomes more valuable than the textbook itself, because it tells you exactly which of the six adjustments your brain gets wrong under pressure.
Solve the illustrations from TS Grewal first, since they are graded, then move to DK Goel for volume and variety.
Six Mistakes That Cost Marks Every Year
Distributing revaluation profit in the new ratio. It goes to old partners in the old ratio, always.
Distributing the goodwill premium in the old ratio. It goes in the sacrificing ratio, which is only the same as the old ratio when the question is silent about how the share is acquired.
Forgetting to write off existing goodwill. If a Goodwill Account appears in the old balance sheet, it must be written off among old partners in the old ratio before any new goodwill treatment.
Creating a Goodwill Account when the new partner does not bring cash. Accounting Standard 26 does not permit this. Use the new partner’s current account instead.
Confusing sacrificing ratio with gaining ratio. Sacrificing ratio applies on admission. Gaining ratio applies on retirement and death.
Skipping working notes. Ratio calculations, goodwill workings and capital adjustments must be shown separately below the answer.
Important Questions on Admission of a Partner
One and two mark questions
- State any two rights acquired by a newly admitted partner.
- Give the formula for calculating the sacrificing ratio.
- Why is the Revaluation Account prepared on admission of a partner?
- Under which ratio is the goodwill premium distributed among old partners?
- Why are accumulated profits not shared with the new partner?
- State the provision of Section 31 of the Indian Partnership Act, 1932 regarding admission.
Three and four mark questions
- Calculate the new profit sharing ratio and sacrificing ratio when old partners surrender fractions of their own shares.
- Pass the journal entries for goodwill when the incoming partner is unable to bring his share of premium in cash.
- Explain the treatment of Workmen Compensation Reserve when the claim exceeds the reserve.
- Distinguish between the sacrificing ratio and the gaining ratio.
Six and eight mark questions
- Prepare the Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of the reconstituted firm.
- Calculate hidden goodwill and pass the necessary adjustment entry.
- Adjust the capitals of the old partners in the new profit sharing ratio, taking the new partner’s capital as the base.
Where Commerce Takes You After This Chapter
Admission of a partner is not a chapter invented for exams. Every time a firm brings in a new working partner or an investor, exactly these adjustments are made by a practising accountant. Students who enjoy this chapter usually do well in Chartered Accountancy, Company Secretaryship, Cost Accountancy and finance roles, because all of them are built on the same reasoning about who owns what and who sacrificed what.
If you are still deciding on your stream, it helps to look at what a strong commerce programme actually offers, particularly one that runs CA Foundation coaching alongside the regular curriculum. You can explore the PU Commerce programme at Trinity College to see how the two years are structured. Students planning to continue after PUC can look at the B.Com and BBA options among degree colleges in Mysore, where partnership accounting is taken considerably further.
Frequently Asked Questions
What is admission of a partner in simple words?
Admission of a partner means taking a new person into an existing partnership firm as a partner. The old partnership agreement ends and a new one begins, the profit sharing ratio changes, and the assets, liabilities and reserves of the firm are adjusted before the new partner joins.
Why is the sacrificing ratio calculated on admission of a partner?
Because the goodwill premium brought by the new partner must be shared among the old partners in proportion to the share each of them gave up, not in proportion to their old profit sharing ratio.
In which ratio is revaluation profit distributed on admission?
Revaluation profit or loss is distributed among the old partners in their old profit sharing ratio, because the change in value of assets and liabilities occurred before the new partner joined the firm.
What is hidden goodwill in admission of a partner?
Hidden goodwill is goodwill not stated in the question but implied by the new partner’s capital. It is calculated as the total capital of the firm based on the new partner’s capital and share, minus the combined actual capital of all partners.
Which chapter is admission of a partner in TS Grewal?
Admission of a Partner is Chapter 4 in TS Grewal Class 12 Accountancy Volume 1, following the chapters on partnership fundamentals, goodwill valuation and change in profit sharing ratio.
How many marks is admission of a partner worth?
It falls under Accounting for Partnership Firms, which carries 36 marks, the highest unit weightage in the Class 12 Accountancy paper. Admission questions commonly appear for six or eight marks. Check your own board blueprint, as weightage varies slightly between boards.
Can a new partner be admitted without the consent of all partners?
No. Under Section 31 of the Indian Partnership Act, 1932, a person can be admitted as a partner only with the consent of all existing partners, unless the partnership deed states otherwise.
Final Word
Admission of a partner rewards method, not memory. Learn the six adjustments in order, learn which ratio applies to each one, and practise until the sequence becomes automatic. Present your answer with clean formats, proper narrations and visible working notes, and this chapter will give you more marks per hour of study than almost anything else in the syllabus.
About the Author
Dr. Shama E M is the Principal of Trinity Institutions, Mysuru. With extensive experience in academic leadership and pre university education, she works closely with faculty and students to strengthen conceptual clarity in core commerce subjects and to guide students towards well informed academic and career decisions.