Journal Entry for Admission of a New Partner

Introduction:
When a new partner is admitted to the partnership, there is an increase in the amount of capital and a change in the profit-sharing ratio. Therefore, a new partner's admission requires a journal entry to record the transaction.

Heading:
Journal Entry for Admission of Basheer as a New Partner

HTML bullet points:

- Determine the new profit-sharing ratio:
- Johan's share = 5/8 (5 out of 8 parts)
- Mohan's share = 3/8 (3 out of 8 parts)
- Basheer's share = 1/5 (1 out of 5 parts)
- Calculate the total value of the business:
- Total capital before admission = Johan's capital + Mohan's capital
- Total capital before admission = (5/8) x Total capital + (3/8) x Total capital
- Total capital before admission = 8/8 x Total capital
- Total capital before admission = Total capital
- Record the entry for Basheer's capital contribution:
- Debit Bank Account for the amount of Basheer's capital = 50,000
- Credit Basheer's Capital Account for the same amount = 50,000
- Record the entry for Basheer's share of premium:
- Debit Goodwill Account for the amount of Basheer's premium = 20,000
- Credit Basheer's Capital Account for the same amount = 20,000
- Adjust the capital accounts of Johan and Mohan:
- Debit Johan's Capital Account for his share of premium = (5/8) x 20,000 = 12,500
- Debit Mohan's Capital Account for his share of premium = (3/8) x 20,000 = 7,500
- Credit Goodwill Account for the total amount of premium = 20,000
- Adjust the profit and loss appropriation account:
- Debit Profit and Loss Appropriation Account for Johan's share of profit = (5/8) x Profit
- Debit Profit and Loss Appropriation Account for Mohan's share of profit = (3/8) x Profit
- Credit Profit and Loss Appropriation Account for the total profit
- Calculate the new capital balance for each partner:
- Johan's new capital balance = Old capital balance + Premium received - Share of premium paid
- Johan's new capital balance = Johan's capital + 12,500 - 0 = Johan's capital + 12,500
- Mohan's new capital balance = Old capital balance + Premium received - Share of premium paid
- Mohan's new capital balance = Mohan's capital + 7,500 - 0 = Mohan's capital + 7,500
- Basheer's new capital balance = Basheer's capital + Premium paid = 50,000 + 20,000 = 70,000

Conclusion:
The admission of a new partner requires multiple entries in the accounting records to reflect the changes in the profit-sharing ratio and the increase in capital. By following the above steps, the partnership can ensure accurate and transparent accounting practices.