Partnership accounting Unit 3 Further aspects of Financial Accounting Mr. BarryYear 13 A-level Accounting

Topic 4 Changes in partners: Admission of a partner Mr. BarryYear 13 A-level Accounting

Revaluation Debit revaluation account Credit each partner in their profit sharing ratio prior to the new partner Debit each partner in their profit sharing ratio prior to the new partner Credit revaluation account Mr. BarryYear 13 A-level Accounting

Treatment of goodwill 1.Not to remain in books To create: Debit goodwill account Credit existing partners’ capital accounts in old profit sharing ratios To destroy: Debit all partners capital accounts in new profit sharing ratio Credit goodwill account Mr. BarryYear 13 A-level Accounting

Treatment of goodwill 2. To remain in books Debit goodwill account Credit existing partners capital accounts in old profit sharing ratio NOTE: IF GOODWILL REMAINS THEN IT IS SHOWN ON THE STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) IN NON-CURRENT ASSETS SECTION Mr. BarryYear 13 A-level Accounting

Admitting a new partner Any money introduced will be debited to the bank and credited to the capital account Any assets introduced will be debited to the asset accounts and credited to the capital account The overall effect of an admission to a partnerships is an increase in capital and the new partner buying his way into the partnership Mr. BarryYear 13 A-level Accounting

Changes needed to reflect the introduction of a new partner If a partner is introduced during year, the appropriation account needs to be split into two sections to show this Adjust for any cash or non-current assets introduced, show their new capital account balance, which may be less than they introduced if goodwill was introduced and then written off Mr. BarryYear 13 A-level Accounting

Practice questions Mr. BarryYear 13 A-level Accounting Can you complete Question 1-3 on pages 45 & 46 of the textbook now?