Financial Accounting · Admission of Partner

Admission of a Partner: Meaning and Effects

Updated 10 October 2026 · Fact-checked

Admission of a partner means a new person joins an existing firm, usually with consent of all partners. The old firm is reconstituted, not closed. The deed is changed, the profit ratio is reset, and goodwill, assets, liabilities, reserves and capitals are adjusted in the books through journal entries.

Understand Admission of a Partner: Meaning and Effects

A partnership firm is a relationship between persons who share profits of a business. When a new person is brought in, the firm is reconstituted. The old partnership ends and a new one starts with the same business. Books continue and the business is not wound up.

Under the Indian Partnership Act, 1932, a person can become a partner only with the consent of all existing partners, unless the deed says otherwise. A new partner is not liable for debts of the firm incurred before joining, unless he agrees to take them on. He is liable for acts of the firm after he joins.

The old partnership deed no longer fits. Admission needs a new agreement, or an amended deed, that fixes the new profit sharing ratio, capital to be brought in, goodwill terms and any salary or interest. Old terms continue only where they are not changed and not inconsistent with the new ones.

The old partners carry the firm's past. Its assets may be worth more or less than their book values. It may hold reserves and undistributed profits. It may have built goodwill. The new partner should neither gain nor lose from these. So the books are adjusted for: goodwill, revaluation of assets and liabilities, reserves and accumulated profits or losses, and capitals.

The new partner gets a share of future profit, which the old partners give up from their shares. That gives up share is the sacrifice. Most adjustments flow from it.

Key rules to remember

New partner's share: New partner's share = fraction of profit he gets, taken from old partners; The new ratio of all partners must add up to 1.
Sacrificing ratio: Sacrifice = Old share − New share (for each old partner); Sacrificing ratio is the ratio of these sacrifices. If it is not given, assume it equals the old ratio.
Goodwill of the firm (premium-based method): Firm's goodwill = New partner's goodwill premium ÷ his share fraction; Use this when the new partner brings a goodwill premium in cash. For example, a premium of ₹50,000 for a 1/5 share gives firm goodwill of ₹50,000 ÷ 1/5 = ₹2,50,000.
Hidden goodwill: Total firm capital = New partner's capital ÷ his share; Goodwill = Total firm capital − Actual net assets; Actual net assets are the old partners' adjusted capitals (after revaluation and reserves) plus the new partner's capital, excluding goodwill. If total firm capital is more than these net assets, the difference is goodwill.
Goodwill entry (premium brought in cash): Bank A/c Dr (capital + premium); to New Partner's Capital A/c; to Premium for Goodwill A/c; Premium is then shared by old partners in their sacrificing ratio.
Revaluation: Profit or loss on revaluation is shared by old partners in the old ratio; It belongs to the period before admission.
Reserves and accumulated profits: Transfer to old partners' capital accounts in the old ratio; Accumulated losses are debited to old partners in the old ratio.

How to solve Admission of a Partner: Meaning and Effects questions

Use the same order for any admission problem. Do the old-partner adjustments first, then bring in the new partner.

1Read the question and note the old ratio, the new partner's share and who sacrifices how much.
2Find the new ratio and the sacrificing ratio. Check that the new ratio adds up to 1.
3Pass entries for revaluation of assets and liabilities, and prepare the Revaluation Account. Share profit or loss in the old ratio.
4Distribute reserves, accumulated profits and losses to old partners in the old ratio.
5Deal with goodwill: find its value, the new partner's share, and pass entries in the sacrificing ratio. Follow the question's instruction on whether goodwill is kept in the books.
6Record the new partner's capital brought in, with any premium. If capitals must be adjusted to the new ratio, calculate and pass those entries.
7Prepare the partners' capital accounts and the new Balance Sheet. Check that the Balance Sheet totals tally.
8Show workings clearly, as step marks depend on them.

Quickest way: Sacrifice-first shortcut

When to use it: Use it for numerical questions with limited time, especially when goodwill and the new ratio are both required.

Write old ratio, new share and new ratio in one line.
Compute each old partner's sacrifice by subtracting new share from old share.
Compute the new partner's share of goodwill and credit it to sacrificing partners in their ratio.
Prepare one combined capital account with columns for each partner. Post revaluation, reserves, goodwill and capital in a single pass.
Total the capital columns and tally with the Balance Sheet.

Common mistakes in Admission of a Partner: Meaning and Effects

Sharing revaluation profit or reserves in the new ratio
Students forget these belong to the period before admission.
Fix: Share revaluation result, reserves and accumulated profits among old partners in the old ratio only.
Using the old ratio for goodwill instead of the sacrificing ratio
Students mix up the two ratios.
Fix: Goodwill premium goes to the partners who sacrifice, in the ratio of their sacrifice. Always compute old share minus new share.
Crediting goodwill to the new partner
Students think the incoming partner earns goodwill.
Fix: The new partner pays for goodwill. Credit the sacrificing partners. Debit the new partner's capital or bank.
Reversing revaluation entries
Students confuse the effect on assets with the effect on the Revaluation Account.
Fix: Increase in an asset or decrease in a liability is a gain and is credited. Decrease in an asset or increase in a liability is a loss and is debited.
Ignoring the existing goodwill in the books
Students value new goodwill but forget an old balance.
Fix: Write off old goodwill to old partners in the old ratio first, then record new goodwill.
Assuming the old deed ends entirely
Students misread what reconstitution means.
Fix: A new agreement is needed. Old terms carry on only if not changed by the new one and not inconsistent with it.

Worked examples

Example 1

Anil and Bharat share profits in the ratio 3:2. They admit Chetan for a 1/5 share. Chetan brings ₹2,00,000 as capital and ₹50,000 as premium for goodwill, both in cash. Anil and Bharat sacrifice in the ratio of their old shares. Pass the journal entries and show the sharing of premium.

Show the solution

Chetan takes 1/5 from Anil and Bharat in the ratio 3:2.
Anil's sacrifice = 3/5 × 1/5 = 3/25. Bharat's sacrifice = 2/5 × 1/5 = 2/25. Sacrificing ratio is 3:2.
Anil's new share = 3/5 − 3/25 = 12/25. Bharat's new share = 2/5 − 2/25 = 8/25. Chetan = 5/25. Total = 25/25.
Premium ₹50,000 is shared 3:2. Anil gets ₹30,000. Bharat gets ₹20,000.
Entry 1: Bank A/c Dr ₹2,50,000; to Chetan's Capital A/c ₹2,00,000; to Premium for Goodwill A/c ₹50,000.
Entry 2: Premium for Goodwill A/c Dr ₹50,000; to Anil's Capital A/c ₹30,000; to Bharat's Capital A/c ₹20,000.

Answer: New ratio Anil:Bharat:Chetan = 12:8:5. Anil's capital is credited with ₹30,000 and Bharat's with ₹20,000 as goodwill premium. Chetan's capital is ₹2,00,000.

Example 2

Ravi and Sunil share profits equally. Their capitals are ₹3,00,000 each and there is a General Reserve of ₹60,000. They admit Tarun for a 1/4 share. Stock of ₹80,000 is revalued at ₹90,000 and furniture of ₹50,000 is revalued at ₹45,000. Tarun brings ₹2,00,000 as capital. No goodwill is raised. Find the partners' capitals after admission.

Show the solution

Revaluation: gain on stock ₹10,000. Loss on furniture ₹5,000. Net profit ₹5,000.
Share in old ratio 1:1: ₹2,500 to Ravi and ₹2,500 to Sunil.
General Reserve ₹60,000 is shared equally: ₹30,000 each.
Ravi's capital = 3,00,000 + 2,500 + 30,000 = ₹3,32,500.
Sunil's capital = 3,00,000 + 2,500 + 30,000 = ₹3,32,500.
Tarun's capital = ₹2,00,000 as brought in.
New ratio: Tarun gets 1/4. Ravi and Sunil share 3/4 equally, so 3/8 each.

Answer: Capitals after admission: Ravi ₹3,32,500, Sunil ₹3,32,500, Tarun ₹2,00,000. New ratio is 3:3:2.

Exam tips

In MCQs, identify which ratio is asked: old, new, sacrificing or gaining. Most wrong options use the wrong ratio.
In written answers, show the new ratio and sacrificing ratio calculation first, as it earns step marks.
Tag each entry with a clear narration and keep the Revaluation Account in proper T-form.
Read for the phrase 'goodwill not to appear in books' and follow it. It changes the entries.
Check that the Balance Sheet totals match before you finish. A mismatch shows an entry is missing.

Practice questions from Admission of Partner

Admission of a Partner: Meaning and Effects in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Admission of a Partner: Meaning and Effects: frequently asked questions

What is admission of a partner?

It is the entry of a new person into an existing firm with the consent of all partners. The firm is reconstituted and continues the same business. A new agreement sets the new profit sharing ratio and related terms.

What happens to the partnership deed when a new partner is admitted?

The old deed is replaced or amended by a new agreement. Terms not changed and not inconsistent with the new agreement can continue. The profit ratio, capital and goodwill terms must be fixed afresh.

Is the new partner liable for the firm's old debts?

Not automatically. A new partner is not liable for debts incurred before he joined, unless he agrees to take them over. He is liable for acts of the firm after joining.

Which journal entries are needed on admission?

You usually pass entries for revaluation, reserves and accumulated profits, goodwill, and the new partner's capital. Capital adjustment entries are passed if the question asks for capitals in the new ratio.