Admission of a Partner — Class 12 Accountancy Notes & Practice

Imagine a small stationery shop run by two friends. It works, it earns, it has a name customers trust. One day a third person wants to join and put money in. Fair enough — but the shop the two friends built already has value that the newcomer did nothing to create. Who pays for that? Who loses a slice of future profit? Whose old profits and old losses still belong to whom? That single moment is what admission of a partner is about, and this chapter is your complete, unhurried guide to it — built for CBSE Class 12 Accountancy, syllabus 2026-27, following the NCERT textbook Accountancy — Partnership Firms and Company Accounts (Part 1).

Most students find this chapter frightening because it looks like six unrelated calculations stapled together. It is not. It is one story told in a fixed order, and once you learn the order, every question in the paper becomes the same question wearing a different costume. Below you will find every sub-topic explained from zero, with solved examples, journal entries, revaluation and capital accounts, and the reconstituted balance sheet. If you have been searching for admission of a partner class 12 accountancy important questions with solved examples, treat this page as your workbook: read a section, then close the screen and rebuild the working on paper.

What You’ll Learn

Your Game Plan

1. Learn the Six R’s routine first. Everything else hangs on it.
2. Get comfortable with fractions — new ratio and sacrificing ratio are pure fraction work.
3. Master the three goodwill situations: premium in cash, premium not brought in, hidden goodwill.
4. Practise the Revaluation Account until gains and losses land on the correct side automatically.
5. Distribute reserves and accumulated losses to the old partners in the old ratio — never to the new partner.
6. Finish with capital adjustment and the new balance sheet, and check that both sides agree.
7. Then attempt the worksheet at the bottom with a pen, a calculator and no peeking.

Study Notes

The Six R’s — Your Master Routine for Admission of a Partner

When a new partner walks in, the old firm technically comes to an end and a new firm begins with the same books. Accountants call this reconstitution (पुनर्गठन). The business does not stop, the shutters do not come down, but the profit-sharing arrangement changes, and so every item that belonged to the old arrangement must be settled before the new one starts.

Here is the memory device that makes this chapter easy. Every admission question, no matter how long, is answered in six steps that all begin with the letter R. Learn them in order and never break the order.

Why the order matters. Steps R2 and R3 both hand money to the old partners in the old ratio, because those profits and those valuation changes were earned or suffered before the newcomer arrived. Step R4 hands money to the sacrificing partners in the sacrificing ratio, because goodwill is compensation for a slice of the future, not a share of the past. If you jumble the order you will end up applying the wrong ratio to the wrong item, and that is the single biggest source of lost marks in this chapter.

If partnership accounting is still new to you, it is worth revisiting the basics of profit sharing, interest on capital and the Profit and Loss Appropriation Account in our chapter on Accounting for Partnership Firms: Fundamentals before going further. The admission chapter assumes you are already fluent there.

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Calculating the New Profit-Sharing Ratio

Think of the firm’s profit as one whole chapati. Before admission, the old partners divide the entire chapati among themselves. After admission, the newcomer must be handed a piece — and that piece can only come from the pieces the old partners were holding. The new profit-sharing ratio simply records who holds how much of the chapati afterwards.

Questions give you the information in one of three ways, and each way has its own short method.

Why it works. Profit shares are fractions of the same whole, so they must always add up to exactly 1. That gives you a free self-check on every single question. Convert all the shares to a common denominator, add the numerators, and confirm the total equals the denominator. If it does not, you have made an arithmetic slip — find it before you go anywhere near the capital accounts, because a wrong ratio poisons every later step.

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Sacrificing Ratio, and When a Partner Actually Gains

The sacrificing ratio answers one question: how much profit did each old partner give up so that the new partner could be accommodated? It is the ratio in which the goodwill premium is shared, so getting it wrong costs marks twice — once in the ratio and once in the goodwill entry.

Why it works. The total profit is fixed at 1. If the newcomer walks away with a slice, that slice must be exactly equal to the net amount the continuing partners give up. So “total sacrifice minus total gain equals the new partner’s share” is not a lucky coincidence — it is arithmetic, and it is the best proof-read you have.

Sacrificing Ratio vs Gaining Ratio

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Goodwill Treatment on Admission: Premium Brought in Cash

Goodwill (साख) is the value of everything a business owns that never shows up in a stock register: the regular customers, the location, the staff who know the work, the name people trust. The newcomer will start earning from all of that on day one without having spent a rupee building it. So he pays the old partners a lump sum called a premium for goodwill.

One accounting standard governs everything here. Under AS 26 — Intangible Assets, goodwill can be recorded in the books only when it is actually purchased for a price. Goodwill that a firm generates by simply doing good business over the years is self-generated goodwill, and it must never be brought into the books. This is why you will never open a “Goodwill Account” on admission and leave it sitting in the balance sheet.

Why it works. Goodwill premium is a private payment from the incoming partner to the partners who gave up part of their future profit. It is not firm income, so it never touches the Profit and Loss Account; and because it is compensation for the slice given up, it must follow the sacrificing ratio. If you want a deeper look at how goodwill itself is valued — average profit, super profit and capitalisation methods — work through Goodwill and Change in Profit-Sharing Ratio.

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Premium Brought in Kind, and Premium Withdrawn

Two small variations trip up otherwise well-prepared students. The first is when the newcomer pays the premium with an asset instead of money. The second is when the old partners take the premium out of the business afterwards.

Premium in kind. Nothing conceptual changes. You simply debit the asset that came in instead of debiting Bank. The distribution entry is untouched.

Premium withdrawn. Once the premium has been credited to the sacrificing partners’ capital accounts, that money belongs to them personally. If the question says they withdraw it — fully or partly — you pass a plain withdrawal entry. Never merge this with the distribution entry.

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When Goodwill Is Not Brought In, or Only Partly

Sometimes the newcomer cannot spare the cash for goodwill, or brings only a part of it. He still owes the old partners his share of goodwill — so instead of cash, the debt is settled inside the books by debiting his capital account.

Why it works. Think of the goodwill premium as an IOU. If the newcomer pays cash, the IOU is settled at once. If he does not, the unpaid amount is carried as a debit in his Current Account while the agreed Capital Account remains intact. Either way the old partners receive full value, and AS 26 is respected because no self-generated goodwill has been recorded as an asset.

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Hidden Goodwill and How to Dig It Out

Occasionally a question refuses to tell you what the goodwill is worth. It simply says the new partner brings a certain capital for a certain share, and then asks you to record goodwill. The value is hidden inside the deal itself, and you can extract it with a single idea: the newcomer would not hand over more money than his share of the firm’s book capital is worth unless he were also paying for something intangible.

Why it works. Ishan paid ₹50,000 for one-fifth of the firm. If the firm were worth only its book capital, one-fifth would have cost him one-fifth of ₹1,70,000, which is ₹34,000. He willingly paid ₹16,000 more. That extra ₹16,000 is his purchase of goodwill, and scaling it up by five gives the firm’s goodwill of ₹80,000. The formula is just this common-sense reasoning written backwards.

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Revaluation of Assets and Liabilities

The balance sheet on the day before admission shows assets at old, historical figures. A building bought fifteen years ago may be worth three times its book value; stock may have gone stale. If the newcomer joined at those stale figures, he would quietly share in gains the old partners had earned, or escape losses the old partners had suffered. So the firm re-values everything and pushes the entire result to the old partners in the old ratio.

The account used is the Revaluation Account, also called the Profit and Loss Adjustment Account. It behaves exactly like a mini profit and loss account for valuation changes only.

Why it works. A change in the value of an asset did not happen on the morning of admission — it built up silently over the years the old partners were running the firm. Handing that build-up to them, and only to them, is simply matching the gain or loss to the period that produced it. The revised figures then carry forward into the new balance sheet, which is why the Revaluation Account is prepared before the capital accounts are closed.

Revaluation Account vs Realisation Account

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Reserves, Accumulated Profits and Accumulated Losses

A firm’s balance sheet often carries profits that were earned but never distributed — a General Reserve, a credit balance of Profit and Loss Account, a Reserve Fund. It may equally carry losses that were suffered but never written off — a debit balance of Profit and Loss Account, or a Deferred Revenue Expenditure or Advertisement Suspense Account. All of these belong entirely to the old partners, because all of them arose before the newcomer arrived.

Two reserves need extra care because they are only partly free.

• Workmen Compensation Reserve. Keep back an amount equal to the claim and show it as a liability called Provision for Workmen Compensation Claim. Distribute only the balance. If the claim is larger than the reserve, the excess is a loss and goes to the debit side of the Revaluation Account.
• Investment Fluctuation Reserve. Keep back the fall in the market value of investments below their book value; distribute the rest.

Why it works. Reserves are simply profits the partners chose not to withdraw. Letting the newcomer share them would be handing him money he never earned; letting him share the accumulated losses would be charging him for mistakes he was not present for. Clearing the slate before he arrives keeps both sides honest.

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Adjustment of Capitals on Admission

Partners often agree that their capitals should stand in the same proportion as their profit shares. It feels fair: if you take one-fourth of the profit, you should have one-fourth of the money at risk. Questions ask for this in two clearly different flavours, and the whole trick is spotting which one you are looking at.

Why it works. A profit-sharing ratio and a capital ratio are two different things, and the Partnership Act does not force them to match. When partners choose to make them match, all you are doing is solving a proportion. The only judgement call is deciding which figure the question treats as fixed — the old partners’ money or the new partner’s money. Read the sentence twice; the answer is always in the wording.

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Partners’ Capital Accounts and the Reconstituted Balance Sheet

This is R6, the final step, and it is mostly bookkeeping discipline rather than new theory. The Partners’ Capital Accounts collect every adjustment you have made, and the reconstituted balance sheet displays the firm as it now stands.

Three quick checks before you call a balance sheet finished. First, the two sides must total the same figure. Second, the revised values from the Revaluation Account must appear on the assets and liabilities — not the old ones. Third, every reserve you distributed and every fictitious asset you wrote off must be gone.

Once you can close a set of capital accounts confidently, the same skill carries straight into the winding-up chapter, where every account is closed at once — see Retirement or Death of a Partner for the mirror-image treatment.

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A Full Board-Style Question, Start to Finish

Here is a complete six-mark question worked through with the Six R’s, exactly as you would write it in the examination hall. Cover the solution, attempt it yourself, then compare line by line.

Why it works. Look back at the solution and notice that you never once had to decide what to do next — the Six R’s decided for you. That is the whole point of a routine. In an examination you are not being tested on cleverness; you are being tested on whether you can apply a fixed sequence calmly under time pressure. Build the routine now, and the pressure takes care of itself.

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Practice Worksheet

Eleven original questions covering every sub-topic above. Work each one on paper first, then open the answer. Marking yourself honestly is the whole exercise.

One more idea for the road. Every time you sit down with this chapter, do not aim to finish it — aim to be one small step better than yesterday: one more question attempted without looking, one fewer arithmetic slip, one ratio checked instead of assumed. That is kaizen, continuous small improvement, and over a term it beats any amount of last-week panic.