Partnership account

Whenever there is a case of admission or retirement...we need to calculate the appropriate ratio...

The journal entry(for both admission and retirement) is always:

Gaining partner a/c Dr

         To sacrificing partner a/c

This is calculated to ensure fair monetary settlement to both parties...that is the existing parner and new/retiring partner...

Sacrificing ratio is calculated when a new partner is entered in the firm.

Gaining ratio is calculated when a partner/s retires or death of the partner takes place.

When a new partner is being admitted, he is enjoying the reputation/goodwill already gained by the firm, in which he had no part. Therefore, this could affect the interests of the existing partners. In order to preserve their interest and also because they are going to sacrifice their profits for the future periods, the existing partners are paid the amount of Goodwill in their sacrificing ratio. The vice versa applies in case of retirement.  

No if  existing partners decides to co opt a new person to the firm if that firm is profitable then the premium he pays for his share over the value of net assets will go to partners capital account as in  Bank A/c dr to Partners capital account.If the new guy brings capability which enhances the partnership missing in the current firm the current partners may have to sacrifice their stake which in this case will be current partners capital account to new partner account.All accumulated gains/losses should be closed into new partners account so the firm has a new start with stakes predetermined.

So let us say there is a partnership firm which has Net assets of 10lakhs,it has two partners their stake is 5 lakhs each.A new partner comes in & he agrees the firm will earn 10 lakh,11lakh,12 lakh for next 3 years he agrees to put in 10lakhs for this firm.What is the share he will be given by the current partner.

In the absence of any agreement,  ratio will be equal.  However partner can agree to share profit on the basis of their capital ie 1:1:2