The accounting problems on admission of a new partner can be put as follows:
(i) Adjustment in the profit sharing ratio.
(ii) Adjustment for goodwill.
(iii) Adjustment for revaluation of assets and liabilities.
(iv) Adjustment for reserves and other accumulated profits.
(v) Adjustment for capital.
Each of the above problems are being discussed in the following pages.
Adjustment in the Profit Sharing Ratio
A newly admitted partner will be entitled to share the profits or bear the losses with the other partners. Hence the profit sharing ratio of the partners will change. There can be two situations.
The new partner may be given a certain proportion of the total profit or required to bear a certain proportion of the total loss and the old partners continue to share the balance of profit or bear the balance of loss in the old ratio in between themselves.