An existing partnership may admit a new partner with the consent of all the partners. When a new partner is admitted, the partnership is dissolved and a new partnership is formed. Upon the admission of a new partner, a new agreement covering partners' interests, profit and loss sharing and other consideration should be drawn because the dissolution of the original partnership cancels the old agreement.

The admission of a new partner, may occur in either of the two ways, namely;

1. Purchase of all or part of the interest of one or more of the existing partners.
2. Investment of assets in the partnership by the incoming partner.

When an incoming partner purchases a portion or all of the interest of one or more of the original partners, the partnership assets remain unchanged and no cash or other assets flow from the new partner to the partnership. This transaction is recorded by opening a capital account for the new partner and decreasing the capital accounts of the selling partners by the same amount. The cash paid by the buyer is not recorded in the books of the partnership for this is a personal transaction between the seller partners and the buyer. The gain or loss arising from the transaction is not to be recorded in the partnership books.

Acquisition of Interest by Investment

A new partner may be admitted to the firm by investing directly to the partnership. This method of admission of a new partner is a transaction between the partnership and the incoming partner. In this case the partnership receives the cash or other assets, thereby increasing its total assets as well the total capital. The following procedures may be used to record the admission of the new partner:

1. Record the investment (contributed capital) of the new partner.
2. Determine the agreed capital of the new partner in the new firm after admission. Total agreed capitalization of the new firm x Percentage of capital of the new partner
3. Determine and record goodwill or bonus if any. This usually exist when the new partners' investment is not equal to his agreed capital in the new firm. The computation of the goodwill or bonus will depend under the following assumptions:
   
   Assumption 1. The total agreed capitalization of the new firm is specially stated.
   
   Assumption 2. The total agreed capitalization of the new firm is not specially stated.
   
   Assumption 1: Total Agreed Capitalization of the New Firm is Specially Stated. The agreement for the admission of new partner usually fail to specify whether a bonus or goodwill is involved.

   However the amount of bonus or goodwill implied by the agreement can be determined by analyzing the following data:

   1. Contributed capital of the new partner.
   2. Old partners' contributed capital (net tangible assets of the old firm).
   3. Total agreed capitalization of the new partnership.
   4. Agreed capital of the new parner in the new partnership.

   In analyzing the above data, the following procedures are followed.

   1. Compare the total agreed capitalization of the partnership and the total contributed of the old and new partners.
      1. If the total agreed capital is equal to the contributed capital, then no goodwill is to be recognized.
      2. If the total agreed capital is more than the contributed capital, the difference is treated as goodwill.
      3. If the total agreed is less than the total contributed capital, the difference is treated as capital withdrawals by the partners.
   2. Compare the agreed capital of the partners with their contributed capitals.
      1. If the agreed capital of the partners are equal to the contributed capital, then no goodwill or bonus is to be recognized.
      2. If the agreed capital credit of the new partner is more than his capital investment, the difference is treated as either goodwill to him or bonus (capital transfer) from the old partners.
      3. If the agreed capital of the new partner is less than his contributed capital, the difference is treated as bonus (capital transfer) to the old partners.
   Assumption 2. Total Agreed Capital of the New Firm is not Specifically Stated. Partners agreement usually provides that the new partner is to received an interest in the new partnership equal to, greater or lesser than his investment. However, such agreement may failed to specify the total agreed capitalization of the new partnership after the admission of the new partner. In the absence of an expressed agreements, either the bonus or the goodwill method maybe used.

An existing partnership may admit a new partner with the consent of all the partners. When a new partner is admitted, the partnership is dissolved and a new partnership is formed. Upon the admission of a new partner, a new agreement covering partners' interests, profit and loss sharing and other consideration should be drawn because the dissolution of the original partnership cancels the old agreement.

When a partner retires or withdraw from the partnership, the partnership is dissolved, but the remaining partners may continue operating the business. The retiring partners may receive a settlement equal to his interest, more than his interest, or less than his interest. The interest of the withdrawing partner is usually measured by his capital balance before his withdrawal, increased or decreased in the following adjustments:

1. Profit old loss from operation from the last closing date to the date of his retirement, and
2. Changes in the valuation (fair market versus book value) of all assets and liabilities.

If the net income or loss of prior years were improperly computed, these should likewise be corrected before determining the interest of the retiring partner.

An existing partnership may admit a new partner with the consent of all the partners. When a new partner is admitted, the partnership is dissolved and a new partnership is formed. Upon the admission of a new partner, a new agreement covering partners' interests, profit and loss sharing and other consideration should be drawn because the dissolution of the original partnership cancels the old agreement.

In the event of the death of a partner, the estate of the deceased partner is entitled to receive the amount of his interest in the partnership at the date of if death. The deceased partner's capital is adjusted using of his profit and loss percentage for changes in assets values arising from revaluation of assets, and for the profit from the date the books were last closed. The balance of his capital account after considering the necessary adjustments should be transferred to a liability account pending settlement.

The partners may agreed that the settlement with the estate of the deceased partner be postponed until the end of the regular fiscal period when the books are closed, at which time his capital account shall be credited with a share in the earnings. Various methods maybe used in determining the deceased partner's share in the net income. He may receive a pro-rata share of the profit from the beginning of the accounting period to the date of his death plus interest on his capital balance from the date of his death to the date of settlement. If not, he may receive a share of the profit for the full period.

When a partnership is converted into a corporation, the corporation takes over the assets and assumes the liabilities of the partnership in exchange for shares of stocks. The stock received by the partnership are distributed to the partners in settlement of their interest. The partners now become stockholders of the newly formed corporation.

The accounting procedures in recording the incorporation of a partnership will depend on whether the original books of the partnership will be continued by the corporation or new books will be opened.

Partnership Books Retained. If the partnership books are retained, the steps to be taken are as follows:

1. Revalue the assets and recognized goodwill, if any.
2. Closed the partners' capital accounts to the corporate capital accounts.

New Books Opened for the Corporation. If new books are to be opened, the old partnership books must be closed. The accounting procedures may be outlined as follows:

In the Books of the Partnership:

1. Revalue the assets (and any other items agreed on) in accordance with the agreed transfer values.
2. Record the transfer of assets and liabilities to the corporation and the receipt of capital stocks by the partnership.
3. Record the distribution of the stocks to the partners in settlement of the balances of their capital accounts.