PPT : Admission of a new partner | Accountancy Class 12 - Commerce PDF Download

 Page 1


Reconstitution of 
a Partnership 
Firm- Admission 
of a Partner
Page 2


Reconstitution of 
a Partnership 
Firm- Admission 
of a Partner
Introduction
Partnership Defined
Partnership is an 
agreement between two 
or more persons (called 
partners) for sharing the 
profits of a business 
carried on by all or any of 
them acting for all.
Reconstitution 
Explained
Any change in the existing 
agreement amounts to 
reconstitution of the 
partnership firm, resulting 
in an end of the existing 
agreement and a new 
agreement with changed 
relationships.
Continuity Maintained
Despite reconstitution, the 
firm continues to operate. 
Partners often 
reconstitute the firm 
through admission of a 
new partner, change in 
profit sharing ratio, 
retirement, death or 
insolvency of a partner.
Page 3


Reconstitution of 
a Partnership 
Firm- Admission 
of a Partner
Introduction
Partnership Defined
Partnership is an 
agreement between two 
or more persons (called 
partners) for sharing the 
profits of a business 
carried on by all or any of 
them acting for all.
Reconstitution 
Explained
Any change in the existing 
agreement amounts to 
reconstitution of the 
partnership firm, resulting 
in an end of the existing 
agreement and a new 
agreement with changed 
relationships.
Continuity Maintained
Despite reconstitution, the 
firm continues to operate. 
Partners often 
reconstitute the firm 
through admission of a 
new partner, change in 
profit sharing ratio, 
retirement, death or 
insolvency of a partner.
Modes of Reconstitution of a Partnership Firm
Admission of a New Partner
A new partner may be admitted 
when the firm needs additional 
capital or managerial help. 
According to the Partnership 
Act 1932, a new partner can be 
admitted only when the existing 
partners unanimously agree.
Change in Profit Sharing 
Ratio
Partners may decide to change 
their existing profit sharing ratio 
due to changes in their roles. 
For example, Ram, Mohan and 
Sohan changed from 3:2:1 to 
equal shares when Sohan 
brought additional capital.
Retirement or Death of a 
Partner
A partner may retire due to 
health, age, or changing 
interests. Similarly, a 
partnership is reconstituted 
upon a partner's death if the 
remaining partners continue 
the business with adjusted 
profit sharing.
Page 4


Reconstitution of 
a Partnership 
Firm- Admission 
of a Partner
Introduction
Partnership Defined
Partnership is an 
agreement between two 
or more persons (called 
partners) for sharing the 
profits of a business 
carried on by all or any of 
them acting for all.
Reconstitution 
Explained
Any change in the existing 
agreement amounts to 
reconstitution of the 
partnership firm, resulting 
in an end of the existing 
agreement and a new 
agreement with changed 
relationships.
Continuity Maintained
Despite reconstitution, the 
firm continues to operate. 
Partners often 
reconstitute the firm 
through admission of a 
new partner, change in 
profit sharing ratio, 
retirement, death or 
insolvency of a partner.
Modes of Reconstitution of a Partnership Firm
Admission of a New Partner
A new partner may be admitted 
when the firm needs additional 
capital or managerial help. 
According to the Partnership 
Act 1932, a new partner can be 
admitted only when the existing 
partners unanimously agree.
Change in Profit Sharing 
Ratio
Partners may decide to change 
their existing profit sharing ratio 
due to changes in their roles. 
For example, Ram, Mohan and 
Sohan changed from 3:2:1 to 
equal shares when Sohan 
brought additional capital.
Retirement or Death of a 
Partner
A partner may retire due to 
health, age, or changing 
interests. Similarly, a 
partnership is reconstituted 
upon a partner's death if the 
remaining partners continue 
the business with adjusted 
profit sharing.
Admission of a New Partner
1
Legal Requirements
According to the Partnership 
Act 1932, a new partner can 
be admitted only with the 
consent of all existing 
partners unless otherwise 
agreed upon. This 
reconstitutes the firm under 
a new agreement.
2
Rights Acquired
A newly admitted partner 
acquires two main rights: the 
right to share the assets of 
the partnership firm and the 
right to share in the profits 
of the partnership firm.
3
Capital Contribution
For these rights, the new partner brings an agreed amount of 
capital either in cash or in kind. In established firms earning above-
normal profits, the new partner also contributes premium or 
goodwill.
Page 5


Reconstitution of 
a Partnership 
Firm- Admission 
of a Partner
Introduction
Partnership Defined
Partnership is an 
agreement between two 
or more persons (called 
partners) for sharing the 
profits of a business 
carried on by all or any of 
them acting for all.
Reconstitution 
Explained
Any change in the existing 
agreement amounts to 
reconstitution of the 
partnership firm, resulting 
in an end of the existing 
agreement and a new 
agreement with changed 
relationships.
Continuity Maintained
Despite reconstitution, the 
firm continues to operate. 
Partners often 
reconstitute the firm 
through admission of a 
new partner, change in 
profit sharing ratio, 
retirement, death or 
insolvency of a partner.
Modes of Reconstitution of a Partnership Firm
Admission of a New Partner
A new partner may be admitted 
when the firm needs additional 
capital or managerial help. 
According to the Partnership 
Act 1932, a new partner can be 
admitted only when the existing 
partners unanimously agree.
Change in Profit Sharing 
Ratio
Partners may decide to change 
their existing profit sharing ratio 
due to changes in their roles. 
For example, Ram, Mohan and 
Sohan changed from 3:2:1 to 
equal shares when Sohan 
brought additional capital.
Retirement or Death of a 
Partner
A partner may retire due to 
health, age, or changing 
interests. Similarly, a 
partnership is reconstituted 
upon a partner's death if the 
remaining partners continue 
the business with adjusted 
profit sharing.
Admission of a New Partner
1
Legal Requirements
According to the Partnership 
Act 1932, a new partner can 
be admitted only with the 
consent of all existing 
partners unless otherwise 
agreed upon. This 
reconstitutes the firm under 
a new agreement.
2
Rights Acquired
A newly admitted partner 
acquires two main rights: the 
right to share the assets of 
the partnership firm and the 
right to share in the profits 
of the partnership firm.
3
Capital Contribution
For these rights, the new partner brings an agreed amount of 
capital either in cash or in kind. In established firms earning above-
normal profits, the new partner also contributes premium or 
goodwill.
New Profit Sharing Ratio
Acquisition of Share
When a new partner is admitted, 
they acquire their share from 
the old partners, who sacrifice a 
portion of their profits.
Mutual Agreement
The share of the new partner 
and how they acquire it is 
decided mutually among all 
partners.
Default Assumption
If not specified, it's assumed the 
new partner gets their share 
from old partners in their 
existing profit sharing ratio.
Ratio Recalculation
The profit sharing ratio among old partners changes based on their contribution to the incoming partner's 
share.
The new profit sharing ratio depends on how the new partner acquires their share, which can happen in various 
ways. This requires careful calculation to ensure fairness to all partners.