Class 12 Accountancy - ISC
Admission of a Partner
The chapter 'Admission of a Partner' in Class 12 ISC Accountancy deals with the accounting treatment when a new partner is inducted into an existing firm. As the business expands, a new partner brings in capital and goodwill, requiring the reconstitution of the partnership. Students will learn how to calculate new profit-sharing ratios, sacrifice ratios, treat accumulated profits and losses, revalue assets and liabilities, and adjust capital accounts. This chapter carries significant weight in the ISC Board exam, often appearing as a compulsory 6-mark or 8-mark long-answer question involving comprehensive ledger accounts and balance sheets.
Start Learning FreeKey Concepts
New Profit Sharing Ratio
The proportion in which all partners, including the incoming partner, agree to share future profits and losses of the reconstituted firm.
Sacrificing Ratio
The ratio in which old partners give up a part of their share in favor of the new partner, calculated as Old Ratio minus New Ratio.
Treatment of Goodwill
The accounting procedure for valuing and premium brought in by the new partner to compensate old partners for their sacrificed share of future profits.
Revaluation of Assets and Liabilities
The process of assessing the true current values of existing assets and liabilities at the time of admission, with the net gain or loss transferred to old partners' capital accounts.
Adjustment of Accumulated Profits and Reserves
Distributing existing general reserves, accumulated profits, and losses lying in the balance sheet among the old partners in their old profit-sharing ratio before admission.
Important Formulas
Board Exam Info
In the ISC Class 12 Accountancy exam, this chapter typically contributes around 6 to 10 marks. Questions usually include a 6-mark or 8-mark long-answer problem requiring the preparation of Revaluation Account, Partners' Capital Accounts, and the new Balance Sheet, alongside 1-mark or 2-mark short questions on calculating the sacrificing ratio or treating goodwill.
Frequently Asked Questions
How do we treat goodwill when the new partner cannot bring cash for their share?
When the new partner fails to bring cash for goodwill, the New Partner's Current Account is debited, and the Old Partners' Capital Accounts are credited in their sacrificing ratio.
Are existing reserves always distributed among old partners during admission?
Yes, all accumulated profits, general reserves, and losses appearing in the old balance sheet must be distributed strictly among the old partners in their old profit-sharing ratio before the new partner is admitted.
What is the difference between sacrificing ratio and gaining ratio?
Sacrificing ratio is used during the admission of a partner when old partners give up a share of profit. Gaining ratio is used during the retirement or death of a partner when remaining partners acquire an increased share of profit.
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