Admission of a New Partner

Admission of a New Partner:

A structural change to a business involving the addition of one or more new partners. This requires that the business be revalued immediately prior to the admission of the new partner(s), and that the ‘old’ partner(s) is credited with any increase in the value of the net assets shown on the balance sheet (or debited with any decrease) before the new partner(s) takes up office.

Worked example
George and Mildred have been in partnership for over 25 years sharing profits and losses in the ratio 2:1 respectively. They decide to admit Veronica as a partner with effect from 1 July 20*9. The new partners will share profits and losses equally.
The partnership balance sheet at 30 June 20*9 was as follows:

 

£

 

 

£

Premises at cost

46 000

Capital accounts

George

45 000

Fixtures and fittings at cost

14 000

 

Mildred

30 000

Vehicles at cost

9 000 

 

 

 

Inventory

4 000 

 

 

 

Trade receivables

5 000 

Trade payables

 

6 000 

Cash and cash equivalents

3 000 

 

 

 

 

81 000

 

 

81 000

The following asset values have been agreed between George, Mildred and Veronica:
Premises                   £100 000
Fixtures and fittings     £10 000 
Vehicles                      £7 000 
Goodwill                      £12 000  

All other asset and liability values are agreed at book value.

Veronica is to introduce £20 000 cash.

Required:
The accounts in the partnership books of account to record the admission of Veronica as a partner and the partnership balance sheet as it would appear immediately after her admission as a partner. 

Solution:

 

 

Revaluation account

 

 

Fixtures and fittings

4 000

Premises

54 000

Vehicles

 

2 000

Goodwill

12 000

Capital

George

40 000

 

 

 

Mildred

20 000

 

 

 

 

66 000

 

66 000

 

 

 

Capital accounts

 

 

 

 

George

Mildred

Veronica

 

George

Mildred

Veronica

Goodwill

4 000

4 000

4 000

Bal. b/d

45 000

30 000

 

 

 

 

 

Reval. a/c

40 000

20 000

 

Bal. c/d

81 000

46 000

16 000

Cash

   

20 000

 

85 000

50 000

20 000

 

85 000

50 000

20 000

 

 

 

 

Bal. b/d

81 000

46 000

16 000

 

Goodwill

 

 

 

Revaluation

12 000

Capitals

George

4 000

 

 

 

Mildred

4 000

 

 

 

Veronica

4 000

 

12 000

 

 

12 000

George, Mildred and Veronica balance sheet at 1 July 20*9 immediately after the introduction of Veronica as a partner.

Premises at valuation

100 000

Capital

George

81 000

Fixtures and fittings at valuation

10 000 

 

Mildred

46 000

Vehicles at valuation

7 000 

 

Veronica

16 000

Inventory

4 000 

 

 

 

Trade receivables

5 000 

 

Trade payables

6 000 

Cash and cash equivalents

23 000 

 

 

 

 

149 000

 

 

149 000

 

Note: The goodwill has been written off immediately.

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02/12/2020

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