Test: Admission of a Partner - UGC NET MCQ

The main purpose of admission of a new partner is to increase the capital of the firm. When old partners feel that the capital they have employed in the business is not enough for the future growth of the business. They may admit a new partner to maintain or to build up the financial strength of the business.

When a new partner is admitted into a partnership business. He gets following rights:
1.Right to share future profits of the firm
2.Right to share in the assets of the firm
New partner is not entitled to the profits and other incomes earned by a partnership business before his admission

A new partner can be admitted in the partnership firm only with the consent of all the existing partners. A new partner cannot be admitted if all existing partners are not ready to admit him as a partner.

Goodwill existing in the old balance sheet of a partnership firm before admitting a new partner will be written off by the old partners in their old profit sharing ratio. A new partner cannot be debited for the same.

Calculation of sacrificing ratio of partners:
Old Ratio = 2:1
New Ratio = 3:1:1
Sacrificing Ratio = A : 2/3 – 3/5 = 1/15
B : 1/3 – 1/5 = 2/15

REPORT ERROR

When a new partner is admitted into the partnership firm, he brings some amount of premium for goodwill which will be shared/distributed by the sacrificing partners in their sacrificing ratio

Reconstitution on a partnership means change in the number of partners through Admission, Retirement or Death of the partners or change in the ratio of partners. Puchase of Assets will not change the constitution of the partnership.

When there is no proper guidelines or when there is no partnership deed or when partnership deed is silent on the issue of admission of a new partner. In such a case all provisions of the Partnership Act, 1932 will be applicable according to which a new partner can be admitted into the partnership only with the consent of all existing partners.

When a new partners is admitted into the partnership he brings some amount in cash as his capital and some amount for his share in goodwill. The amount he brings for the share of goodwill is known as premium for goodwill.

Correct option is B. Reconstitution of the partnership firm