CHAPTER 2
INTERMIDIATE ACCOUNTING
 Admission of a new partner
Case 1: - the capital allocated to the new partner is equal ta assets provided by that partner.
Example: Partner (C) is admitted to the partnership by providing $ 60,000 cash and his capital would be the same amount
So, the entry would be: Cash
60,000
C, capital
60,000
Assume that (L H M) share net income or losses equally and each has a capital balance of $ 60,000. (N) Acquires one-half
of (L) interest in the partnership by a cash payment to (L).
The entry would be: L, capital
30,000
𝟏𝟏
( X 60,000) N,capital
30,000
𝟐𝟐
Case 2: -
 Bonus to existing partners: Assume that (C & D) partnership share net income and losses equally and have capital balances of$ 45000 each. They
agree to admit (E) to one - third interest in capital and one -third in net income or losses for a cash investment of$ 60,000.
Solve: Net assets of the new firm = $ 45,000 + 45,000 + 60,000 = $ 150,000
𝟏𝟏
Capital allocated to (E) = x 150,000 = $ 50,000
𝟑𝟑
So, bonus = 60,000 - 50,000 = $ I0,000
The entry would be: Cash
60,000
𝟏𝟏
5,000
𝟐𝟐
50,000
( X 10,000) C,capital
𝟐𝟐
𝟏𝟏
( xl0,000)
D,Scapital
Mr. Amir Rabie
E, capital
5,000
CHAPTER 2
INTERMIDIATE ACCOUNTING
 Good will to existing partners: Assume in the previous example the new partner asked to receive a capital equal to cash provided by him.
this means his capital will equal:
𝟏𝟏
$ 60,000. Each partner ( of net capital)
𝟑𝟑
Solve: -
𝟏𝟏
Total assets of the new firm = 60,000 ÷ = $ 180,000
𝟑𝟑
So, (C and D) capital = 180,000 - 60,000 = $120,000
The old capital = 45.000+ 45.000 =$90,000
So, good will = 120,000 – 90,000 = $ 30.000
The entry would be: Cash
good will
60,000
30,000
𝟏𝟏
15,000
(30,000 X ) C, capital
𝟐𝟐
𝟏𝟏
15,000
(30,000 X ) D, capital
𝟐𝟐
60,000
E, capital
 Bonus to new partners: If the new partner is a well-known or has some skills capital allocated to the new partner might be more this net asset
provided the difference might be consider as a bonus or goodwill to the new partner.
Example: Partnership of (F HG) share net income and losses equally. They have capital balances of $35.000 each. If (H) admitted
for one-third of capital and net earnings in return of$ 20,000.
•
Prepare journal entry.
Solve: The capital after an admission = 35.000 + 35,000 + 20,000 = $ 90,000
𝟏𝟏
Capital allocated to new partner = x 90,000 = $ 30.000
𝟑𝟑
Mr. Amir Rabie
CHAPTER 2
INTERMIDIATE ACCOUNTING
The entry would be: -
Cash
20,000
𝟏𝟏
5,000
𝟏𝟏
5,000
(10000 x ) F. capital
𝟐𝟐
(10000 x ) G. capital
𝟐𝟐
30,000
H. capital
 Goodwill to new partner: If the existing partners agree that the capital of the new partner will be the same as the existing partners. So, in the
previous example the capital of the new partner would be $ 35,000 and he invested only$ 20,000 so, the difference is
recorded as goodwill.
The entry would be: -
Cash or other assets
Goodwill to (H)
H, capital
Mr. Amir Rabie
20,000
15,000
35,000