Question

Which Journal Entries are passed in the books of the firm at the time of admission of a new partner?

Hint:

Four groups: capital brought in, goodwill distributed in sacrificing ratio, revaluation adjusted in old ratio, reserves distributed in old ratio.

Answer 1

Step 1: Entry for capital brought in by the new partner:
Bank/Cash A/c Dr.
   To New Partner's Capital A/c
(Being capital brought in cash by the new partner)

Step 2: Entry for premium (goodwill) brought in cash:
Bank/Cash A/c Dr.
    To Premium for Goodwill A/c
(Being premium for goodwill brought in cash by the new partner)

Step 3: Entry distributing the premium to old partners:
Premium for Goodwill A/c Dr.
    To Old Partners' Capital A/cs (in sacrificing ratio)
(Being premium for goodwill credited to old partners in their sacrificing ratio)

Step 4: Entry for revaluation of assets and liabilities:
Assets are revalued and liabilities reassessed through a Revaluation Account (increase in asset/decrease in liability credited to Revaluation A/c; decrease in asset/increase in liability debited); the resulting profit or loss on revaluation is transferred to the old partners' capital accounts in the old profit-sharing ratio.

Step 5: Entry for reserves and accumulated profits:
General Reserve/Profit & Loss A/c (Cr. balance) Dr.
    To Old Partners' Capital A/cs (in old ratio)
(Being existing reserves and accumulated profits distributed to old partners before admission)

Final Answer:
The entries cover: capital brought in, goodwill premium brought in and distributed to old partners in sacrificing ratio, revaluation of assets/liabilities transferred to old partners in old ratio, and existing reserves/accumulated profits distributed to old partners in old ratio.