Reconstitution of a Partnership Firm: Admission of a Partner

Introduction
Reconstitution of a partnership firm means any change in the existing partnership agreement. Admission of a partner is one such change that occurs when a new partner is added to the existing partnership firm.

Calculation of New Profit Sharing Ratio
In this case, Mr X and Y are partners sharing profits and losses in the ratio of 4:1. When a new partner is admitted, the profit sharing ratio of all the partners needs to be calculated. This is done by taking into consideration the investments made by each partner and the profit sharing ratio agreed upon by all the partners.

Accounting Treatment
Once the new profit sharing ratio is calculated, the accounting treatment for admission of a new partner is as follows:

1. Revaluation of Assets and Liabilities: A revaluation of all the assets and liabilities of the firm needs to be done. This is to ensure that the capital accounts of the existing partners are adjusted to reflect the true value of the assets and liabilities of the firm.

2. Adjustment of Capitals: After the revaluation of assets and liabilities, the capital accounts of the existing partners need to be adjusted. This is done by transferring any profits or losses to the capital accounts of the partners in the new profit sharing ratio.

3. Recording the Investment of the New Partner: The investment made by the new partner needs to be recorded in the books of accounts. This is done by creating a new capital account for the new partner.

4. Sharing of Profits and Losses: Once the investment of the new partner is recorded, the profits and losses of the firm are shared among all the partners in the new profit sharing ratio.

Conclusion
Thus, admission of a new partner involves the calculation of a new profit sharing ratio, revaluation of assets and liabilities, adjustment of capital accounts, recording the investment of the new partner and sharing of profits and losses. It is important to follow the correct accounting treatment to ensure that the reconstitution of the partnership firm is done smoothly.