New partner becomes entitled to share future profits of the firm and the profit share of old partners gets reduced However, sometimes the old partners may also gain depending upon the terms of the agreement.
New partner contributes an agreed amount of capital into the firm. The capital can be in the form of any asset like cash, bank machinery, buildings, vehicles, etc.
New partner also contributes an agreed amount towards the goodwill of the firm. The amount contributed is distributed among the sacrificing partners in the sacrificing ratio.
The new partner acquires rights in the assets of the firm and also becomes liable for the liabilities of the firm.
Asserts and liabilities of the firm as on the date of admission are revalued and any consequent profit or loss is distributed amongst the old partners in the old ratio.
Any reserves, accumulated profits or the accumulated losses lying idle in the books of the firm as on the date of admission of new partner are distributed amongst the old partners in the old ratio. Henceforth, these reserves and accumulated profits or losses are not shown in the balance sheet of the new firm unless otherwise agreed.
Hence the old partnership comes to an end and a new partnership comes into existence.
