HomeTren&dAdmission of a Partner Class 12 Solutions

Admission of a Partner Class 12 Solutions

Admission of a partner is a crucial decision for any business, as it can have a significant impact on the company’s operations, financials, and overall success. Class 12 students studying commerce or business studies often come across the topic of admission of a partner and may require solutions to understand the concept better. In this article, we will provide comprehensive solutions to the admission of a partner for Class 12 students, covering the key aspects, methods, and considerations involved in this process.

Understanding Admission of a Partner

Before diving into the solutions, let’s first understand what the admission of a partner means. Admission of a partner refers to the process of including a new partner into an existing partnership firm. It can occur due to various reasons, such as the retirement of an existing partner, the need for additional capital or expertise, or the expansion of business operations.

Methods of Admission

There are primarily three methods of admitting a partner:

  1. By Investment: In this method, a new partner brings in capital in the form of cash or assets into the partnership firm. The new partner’s capital contribution is recorded, and their share in profits and losses is determined based on the agreed terms.
  2. By Purchase of Share: Sometimes, an existing partner may sell their share to a new partner. The new partner pays the purchase consideration to the existing partner, and their share in the firm is determined accordingly.
  3. By Sacrificing Ratio: In certain cases, the existing partners may decide to admit a new partner by sacrificing a portion of their share in the firm. The new partner’s share is determined based on the agreed ratio of sacrifice.

Solutions for Admission of a Partner

Solution 1: Calculation of New Profit Sharing Ratio

When a new partner is admitted, it is essential to determine their profit sharing ratio. The profit sharing ratio determines the distribution of profits and losses among the partners. To calculate the new profit sharing ratio, follow these steps:

  1. Determine the existing profit sharing ratio among the existing partners.
  2. Decide on the new profit sharing ratio, considering factors such as the new partner’s capital contribution, expertise, and responsibilities.
  3. Allocate the remaining profit sharing ratio among the existing partners based on their agreed ratio of sacrifice, if applicable.

Let’s understand this with an example:

ABC Partnership Firm has three partners: A, B, and C. Their existing profit sharing ratio is 3:2:1. They decide to admit a new partner, D, who will contribute capital and share profits and losses equally with partner A. The new profit sharing ratio will be:

A: 3/5 (existing ratio) + 1/10 (equal sharing with D) = 4/10

B: 2/5 (existing ratio)

C: 1/5 (existing ratio)

D: 1/10 (equal sharing with A)

Solution 2: Revaluation of Assets and Liabilities

When a new partner is admitted, it is necessary to revalue the assets and liabilities of the partnership firm. Revaluation helps in determining the fair value of assets and liabilities and adjusting the capital accounts of the partners accordingly. The steps involved in the revaluation process are as follows:

  1. Revalue all the assets and liabilities of the firm to their fair values.
  2. Record the increase or decrease in the value of assets and liabilities in the Revaluation Account.
  3. Adjust the capital accounts of the partners based on their share in the firm.

For example, if the firm’s land is revalued at a higher value, the increase in value will be recorded in the Revaluation Account. The partners’ capital accounts will be adjusted accordingly based on their profit sharing ratio.

Solution 3: Treatment of Goodwill

Goodwill is an intangible asset that represents the reputation, customer base, and other non-physical aspects of a business. When a new partner is admitted, the existing goodwill of the firm needs to be valued and adjusted. There are two methods to treat goodwill:

  1. Capitalization Method: Under this method, the existing goodwill is capitalized and distributed among the partners’ capital accounts based on their profit sharing ratio.
  2. Adjustment Method: In this method, the new partner pays their share of goodwill to the existing partners. The existing partners’ capital accounts are adjusted accordingly.

The choice of method depends on the agreement among the partners and the valuation of goodwill.

Case Study: Admission of a Partner in XYZ Firm

Let’s consider a case study to understand the admission of a partner in a real-life scenario. XYZ Firm is a partnership firm with two partners, A and B, sharing profits and losses in the ratio of 3:2. They decide to admit a new partner, C, who will bring in additional capital and share profits and losses equally with partner B.

Here are the steps involved in the admission process:

  1. Calculate the new profit sharing ratio: A: 3/5, B: 2/5, C: 2/5
  2. Revalue the assets and liabilities of the firm: Land – Increase by $50,000, Building – Decrease by $20,000, Liabilities – Increase by $10,000
  3. Treat the existing goodwill: Capitalization Method – Goodwill valued at $60,000

Based on the above information, the new profit sharing ratio will be:

A: 3/5

B: 2/5

C: 2/5

The revaluation of assets and liabilities will be:

Land: Increase by $50,000

Building: Decrease by $20,000

Liabilities: Increase by $10,000

The treatment of goodwill will be:

Goodwill: Capitalized at $60,000

Q&A

Q1: What is the admission of a partner?

A1: Admission of a partner refers to the process of including a new partner into an existing partnership firm.

Q2: What are the methods of admitting a partner?

A2: The methods of admitting

Aarav Singhania
Aarav Singhania
Aarav Singhania is an еxpеriеncеd tеch writеr and AI еnthusiast focusing on computеr vision and dееp lеarning. With a background in computеr sciеncе and еxpеrtisе in AI algorithms, Aarav has contributеd to advancing computеr vision applications.

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