Partnership accounts

New Partner Joining — Revaluation and Goodwill Combined

Order of Steps

When a new partner joins and both revaluation and goodwill apply:

1. Prepare the revaluation account (existing partners in old ratio)
2. Prepare the goodwill account (in old ratio, then out in new ratio)
3. Update capital accounts to reflect both adjustments and the new partner's cash introduction
4. Prepare the statement of financial position at the date of admission

Worked Example — Chuck, Jimmy and Howard

Chuck and Jimmy (old ratio 2:1) admit Howard. New ratio: 2:1:1. Howard introduces £25,000 capital. Goodwill = £60,000.

Asset revaluations (net gain = £20,100):

Revaluation split (old ratio 2:1): Chuck +£13,400; Jimmy +£6,700

Goodwill:

• In (old ratio 2:1): Chuck +£40,000; Jimmy +£20,000
• Out (new ratio 2:1:1): Chuck −£30,000; Jimmy −£15,000; Howard −£15,000

Capital accounts after all adjustments:

Note: Howard's closing capital balance (£10,000) is less than his cash introduction (£25,000) because he has been charged £15,000 for his share of the goodwill.