1. Changes in partnership agreement

2. Changes in partnership agreement
First: The admission of a new partner. Second: The withdrawal of a partner.

3. First :The admission of a new partner
A new partner may join a partnership by one of two ways:
1- Presentation of investment in the partnership.
In this case the capital and the assets of the partnership are going to be increased.
2- Purchase of interest of old partners.
In this case the capital of the partnership will not be changed since the transaction is a personal transaction between the partners. (However, sometimes the partners agree to revaluate the assets and liabilities).

4. (1)Presentation of investment in the partnership:
In this case the partner may provide cash or other assets to have a share in the capital of the partnership. Therefore, the accounting treatment is using one of the following methods:
1- The goodwill method.
2- The bonus method.
Knowing that the goodwill or the bonus may be to the old partners or the new partner.
First : The goodwill method:
The following steps should be applied:
1) Determine the total paid in capital (old partners capital + capital provided by the new partner).
2) Determine the total required capital (capital after admission) and the partners share in this capital.
3) The goodwill is the difference between the total paid in capital and required capital of the partnership.
- If the two figures are equal so there is no goodwill.
Who will take the goodwill??

5. 1- The goodwill to the old partners:
If their capital before the admission is less than their capital after the admission.
2-The goodwill to the new partner :
If his paid in capital is less than his share in the capital after the admission.
Second: The bonus method:
If the partners do not change the book values of assets before the admission, here we can use the bonus method and the bonus may be to the new partner or to the old partners as follows:
1- The bonus to the old partners:
If the amount paid by the new partner more than his share in the capital
2- The bonus to the new partner:
If the amount paid by the new partner less than his share in the capital

6. Example (1)
A and B are partners in a general partnership. They share the net income on a ratio of 2:3. Partner (C) is to be admitted to the partnership for an interest of 1/3 in capital, and 25% of net income. Before admission, the partners had the following capital balances: A B Capital Partner (C) will present the following assets: Cash Building The partners agreed that the capital after admission will be 180,000. Required: Prepare the journal entry to record the admission of partner (C) using the goodwill method.

7. Capital after admission Partner A 30000 Partner B 90000 Partner C
Paid in capital
Capital after admission
Partner A
30000
Partner B
90000
Partner C
40000
60000
( * 1/3)
Total
160000
180000
- The total paid in capital (160000) < total capital after admission (180000) so there is goodwill.
-The paid in capital of the new partner (40000) < his share in the capital after admission (60000 = * 1/3) so there is a goodwill of and belong to the new partner Dr Cr
Cash
10000
Building
goodwill
20000
Capital, C
Share in the capital after admission

8. Example (2)
A and B are partners in a general partnership. They share the net income on a ratio of 2:3. Partner (C) is to be admitted to the partnership for an interest of 1/3 in capital, and 25% of net income. Before admission, the partners had the following capital balances: A B Capital Partner (C) will present : Cash The partners agreed that the capital after admission will be 150,000. Required: Prepare the journal entry to record the admission of partner (C) using the goodwill method.

9. Paid in capital
Capital after admission
Partner A
30000
Partner B
60000
Partner C
50000
( * 1/3)
Total
140000
150000
The total paid in capital (140000) < total capital after admission (150000) so there is goodwill.
The paid in capital of the new partner (50000) = his share in the capital after admission
(50000 = * 1/3)
So the goodwill of belongs to the old partners.
We allocate the goodwill using the ratio of profit and loss of old partners before the admission
Partner A’s share = *( 2/5)= (A’s capital after admission = = 34000)
Partner B’s share = *( 3/5) = (B’s capital after admission = = 66000) Dr Cr
Cash
goodwill
10000
Capital, (C)
Share in the capital after admission
Capital, A
4000
Share in the goodwill
Capital, B
6000

10. Example (3)
A and B are partners in a general partnership. They share the net income on a ratio of 2:3. Partner (C) is to be admitted to the partnership for an interest of 25%in capital, and net income. Before admission, the partners had the following capital balances: A B Capital Partner (C) will present : Cash Required: Prepare the journal entry to record the admission of partner (C) using the bonus method.

11. Partner A 40000 Partner B 80000 Partner C 50000 42500 (170000 * 25%)
Paid in capital
Capital after admission
Partner A
40000
Partner B
80000
Partner C
50000
42500
( * 25%)
Total
170000
When we use the bonus method , it means that the total paid in capital must equal the total capital after admission, so it equals (170000) .
The paid in capital of the new partner (50000) > his share in the capital after admission (42500 = * 25%) so there is a bonus of 7500 (50000 – 42500) to the old partners. The bonus will be allocated on a ratio of 2:3 and will be added to their capitals.
(A) = 7500 *(2/5) = (A’’s capital after admission = = 53000)
(B) = 7500 * (3/5) = (B’s capital after admission = = 74500) Dr Cr
Cash
Capital, C
(Share in the capital after admission)
Capital, A
3000
(Bonus added)
Capital, B
4500

12. Example (4)
A and B are partners in a general partnership. They share the net income on a ratio of 2:3. Partner (C) is to be admitted to the partnership for an interest of (1/3) in capital, and 25% of net income. Before admission, the partners had the following capital balances: A B Capital Partner (C) will present : Cash Required: Prepare the journal entry to record the admission of partner (C) using the bonus method.

13. Partner A 50000 Partner B 70000 Partner C 30000 (150000 * 1/3) Total
Paid in capital
Capital after admission
Partner A
50000
Partner B
70000
Partner C
30000
( * 1/3)
Total
150000
When we use the bonus method , it means that the total paid in capital must equal the total capital after admission, so it equals (150000) .
The paid in capital of the new partner (30000) < his share in the capital after admission (50000 = * 1/3) so there is a bonus of (50000 – 30000) to the new partner(C).
The bonus will be allocated on a ratio of 2:3 and will be deducted from the old partners’ capital.
(A) = *(2/5) = (A’s capital after admission = = 42000)
(B) = * (3/5) = (B’s capital after admission = = 58000) Dr Cr
Cash
Capital, A
8000
(Bonus deducted)
Capital, B
12000
Capital, C
(Share in the capital after admission)