Video Lectures 
Study Material & Notes
An existing partnership firm may take up expansion/ diversification of the business. In that case it may need managerial help or additional capital. An option before the partnership firm is to admit partner/partners. When a person is admitted to the existing partnership firm, it is called admission of a partner.
According to the Partnership Act 1932, a person can be admitted into partnership firm only with the consent of all the existing partners unless otherwise agreed upon.
Video Lectures 
The new profit-sharing ratio is decided mutually between the existing partners and the new partner. The incoming partner acquires his share of future profits either from one or more existing partner.
Sacrificing/(Gaining) Share = Old Share – New Share
The new partner acquires his/her share of profit from the existing partners. This will result in the reduction of the share of existing partners. Therefore, the existing partners asks for Compensation for sacrifice of their profits, he/she compensates the existing partners for the sacrifices this compensation is called Premium for Goodwill. He/she compensates them by making payment in cash or in kind. The payment is equal to his/her share in the goodwill.
Premium for Goodwill = Goodwill of the Firm X New Partner’s Share
Important to Note: The Assets and Liabilities remain at the book value. No adjustment in the Balance Sheet of the revalued assets/liabilities
Firm’s Goodwill = Total Capital – Net Worth
Total Capital = New Partner’s Capital X Reciprocal of New Partner’s share
Net Worth = Adjusted Existing Partners Capital + New Partner’s Capital
Computation of Net Worth (Liabilities Side Approach) = Existing Partner’s Capital + Free Reserves + Revaluation Profit – Revaluation Loss – Accumulated Losses – Existing Goodwill – Fictitious Assets
Computation of Net Worth (Assets Side Approach) = Total Assets – Outside Liabilities + Revaluation Profit – Revaluation Loss – Accumulated Losses – Existing Goodwill Fictitious Assets
Premium For Goodwill = Goodwill of the Firm X New Partner’ Share
Partners reevaluate market value of Fixed Assets and remeasure Current Assets and Current Liabilities. Any change in the value of Assets/Liabilities is dealt via Revaluation Account and the resultant gain/loss is shared amongst the existing partners in their current profit-sharing ratio.
a) Capital of new partner’s is computed in proportion to the total capital of the new firm
b) Adjustment of existing partners capital on the basis of New Partner’s Capital
Step-1 Firm’s Total Capital = New Partner’s Capital X Reciprocal of new partner’s share
Step-2 Specific Partner’s New Capital = Firm’s Total Capital X Specific Partner’s share
Step-3 Specific Partner’s Existing Capital = Old Capital (+)(-) Adjustments of Goodwill, Reserves & Accumulated Losses
Step-4 Capital to be introduced/withdrawn = Specific Partner’s New Capital – Specific Partner’s Existing Capital