At the time of admission of a new partner, following points are taken into consideration.

1. Change in Profit and Loss sharing ratio : After the admission of a new partner in the firm, new profit and loss ratio is came into existence. After admission of a new partner, profit share of existing partner is reduced. It is necessary to determine the profit share of new partner and new profit and loss ratio of existing partners. On the basis of old partners’ profit-loss ratio, profit share of a new partner and sacrifice done by old partners, new profit-loss sharing ratio is determined by keeping different situation in the mind. When the capital of all partners are keep in new profit and loss ratio then it is necessary to find out new profit and loss sharing ratio.

2. Sacrificing ratio of Existing (old) Partners : At the time of admission of a new partners in existing partnership firm, old partners have to give certain share of profit in favour of the new partner. This ratio of sacrifice is known as sacrificing ratio.

Sacrifice of partner in profit = Old share of profit – New share of profit

 Amount of goodwill bring by a new partner in the ratio of sacrifice done by old partners is credited to their accounts. Goodwill is compensation of sacrifice of profit done by old partners.

3. Accounting Treatment of Goodwill: To compensate the profit share acquired by the new partner, he is required to give his share in goodwill to the firm which is called as premium for goodwill.