When a new partner is admitted to a partnership,

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When a new partner is admitted to a partnership, a bonus may be payable to the old partner. This bonus is often calculated by valuing the partnership's assets and liabilities at their fair market value, and then subtracting the partnership's liabilities from its assets. The resulting figure is the partnership's net assets. If the new partner's contribution exceeds their share of the net assets, a bonus may be payable to the old partner. This bonus is recorded as a debit to the new partner's capital account and a credit to the old partner's capital account.

When a New Partner Is Admitted to a Partnership