Old Partners Brings Capital- Partnership Adjustments Part 11

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Introduction

In this article we will learn about the adjustment for 'Old Partners Bring more capital' in partnership accounts.

Please note that the adjustment will be done in a similar manner whether you are doing admission, retirement, death or change in profit ratio question. You need not understand the adjustments separately for these chapters.

Let's first understand the meaning of capital brought by the partner.

Capital brought by partner or capital introduced by partner

Let's first understand the meaning of capital brought by the partner.

Capital brought by partner are the assets which the partners brings to run the business. Usually capital is brought in the form of cash. But capital can be brought in the form of other assets as well. Partner can bring
- cash,
- bank,
- machinery,
- building,
- stock,
- vehicles,
- or any other asset towards his capital.

When a partner brings his share of capital, then he can bring any type of asset. It's not that capital can be brought only in cash. When a partner brings cash as his share of capital then it is called capital brought in cash. When a partner brings his share of capital in the form of an asset other than cash then it is called capital brought in kind.

graph TD A[Capital brought by partner] --> B[Capital in Cash]-->C[Partner brings Cash or Bank] A --> D[Capital in Kind]-->E[Partner brings assets other than cash or bank] E-->F[Machinery] E-->G[Building] E-->H[Stock] E-->I[Vehicle] classDef default stroke:#333,fill:#fff;

When does partner brings capital in partnership firm

Now let's see when does partners bring capital in the partnership firm.

when a new firm is started then all partners bring capital
when a new partner is admitted then the new partner brings capital
When a partner retires then old partners could bring capital to arrange funds to pay off retiring partner. This is covered under capital adjustment
As and when required partners can bring additional capital any time
When a new partner is admitted then one or more of the old partners can also bring capital
- The adjustment that we are discussing in this article is related to the fifth point.

graph TD A[When partners bring capital] --> B[Admission of a partner] A --> C[Retirement of a partner] A --> H[Any other time when required] B --> D[New Partner Brings Capital] B --> E[Old Partner Brings Capital]-->F[Discussed in this article] C --> G[To Repay retiring partner] classDef default stroke:#333,fill:#fff;

Old partner brings more capital adjustment given in question

Now we have understood the meaning of capital. We have also understood when does partner's bring capital. Now let's see how 'Old partner brings capital' adjustments are given in the question.

C and D are Partners. E joined the firm. At the time of admission of E, D also brought in Rs 2000 as fresh capital in the form of Rs 1000 as Cash, Rs 500 as Stock and Rs 500 as machinery.

Old Partner brings capital - Understanding the adjustment

Next we come to understanding the adjustment. E is admitted to the firm and so he will be bringing his share of capital and goodwill. These entries will be made in the usual manner when new partner brings capital and his share of goodwill. These entries are not the subject of this article.

But in addition to E, one of the old partner D is also bringing in capital. He is bringing capital, may be as business needs more funds. Accounting entries for D bringing in more capital, are discussed in this article. Here D is bringing capital both in the form of cash and kind.

Old partner brings capital journal entry

Cash A/c Dr.. 1000
Stock A/c Dr.. 500
Machinery A/c Dr.. 500
- To D's Capital A/c 2000

D is bringing in Cash, Stock and machinery. This will increase the assets of the partnership firm. Increase in assets is debited. These accounts will get debited.

Secondly, D's capital in the partnership firm will increase. Increase in capital is credited. We will credit D's Capital Account

Old Partner brings capital in Revaluation Account

Particulars	Amount	Particulars	Amount

There will be no impact in revaluation account due to this adjustment. This is because we are not revaluing any assets or liabilities in this adjustment.

Old Partner brings capital in Partner Capital A/c

Particulars	C	D	E	Particulars	C	D	E
				By Cash		1000
				By Stock		500
				By Machinery		500

Since D's capital is increasing so we will write on credit side of his capital account. We will write By Cash Rs 1000. By Stock Rs 500. And By Machinery Rs 500.

There will be no entry on the debit side of partner capital account

Old Partner brings capital in Balance Sheet

Liabilities	Amount	Assets	Amount
		Cash	+1000
		Stock	+500
		Machinery	+500

Next we will discuss how this adjustment will be shown in the balance sheet. The partnership firm's assets are increasing. So we will write on assets side. The amount of cash will increase by Rs 1000, stock will increase by Rs 500 and machinery will increase Rs 500.

There will be no impact on the liabilities side of the balance sheet.

Finally

Here is the summary of the whole adjustment.

graph LR A[Old Partner brings capital] -->B[Revaluation Account]--> C[No Impact] A -->D[Partner Capital Account]--> E[Credit Side] A -->F[Balance Sheet]--> G[Assets will increase] classDef default stroke:#333,fill:#fff;

That's all for this adjustment. Please go through below links for more partnership accounts adjustments on reconstitution.

Partnership Accounts Index