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Commerce  >  Accountancy Class 12  >  Chapter Notes - Reconstitution of a Partnership Firm: Admission of a Partner

Reconstitution of a Partnership Firm: Admission of a Partner Chapter Notes | Accountancy Class 12 - Commerce

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CBSE Class -12 Accountancy
 Revision Notes
 Chapter 3 Part - A
 Reconstitution of Partnership

Meaning of Reconstruction

Any change in agreement of partnership or profit sharing ratio is called reconstitution of partnership firm. In following circumstances a partnership firm may be reconstituted:

  1. Change in Profit Sharing Ratio
  2. Admission of a partner
  3. Retirement/Death of a partner.

CHANCE IN PROFIT SHARING RATIO AMONG THE EXISTING PARTNERS

Meaning : A Change in profit sharing ratio means one or more partners acquires interest form another partner or partners. Here it share of profit of one or more partners increases then share of one or more partner decreases to same extent.

When all the partners of a firm agree to change their profit sharing ratio. the ratio may be changed

New profit sharing ratio : The ratio in which the partners are to share the profits in future on reconstitution is known as New profit sharing ratio.

Gaining Ratio : It is the ratio in which the profit sharing ratio of gaining partners increases. It is calculated by taking difference between New profit sharing ratio and old profit sharing ratio.

Sacrificing Ratio : It is the ratio in which the profit sharing ratio of sacrificing partners decreases. It is calculated by taking difference between old profit sharing ratio and new profit sharing ratio.

Note : If old ratio-new ratio is positive it means sacrifice and if it is negative it means gain.

Accounting Treatment of Goodwill

In case of change in profit sharing ratio, the gaining partner must components the sacrificing partner by paying the proportionate amount of goodwill.

Note :

(i) Increase in the value of an Asset and decrease in the value of a liability result in profit. Assets A/cDr.

To Revaluation

(ii) Decrease in the value of any asset and increase in the value of a liability gives loss. Revaluation A/cDr.

To Assets A/c

(iii) For increase in the value of liabilities.

Revaluation A/cDr.

To Liabilities A/c (Increase in value of Liability)

(iv) For decrease in the value of Liabilities Liabilities A/cDr.

To Revaluation A/c

(Decrease in the value of Liabilities)

(v) When Revaluation account shows profit Revaluation A/cDr.

To Partner’s Capital A/c

(Profit credited to Partner’s Capital A/c in old ratio)

(i)  In case of Revaluation Loss Partner’s Capital A/c’sDr.

To Revaluation A/c

(Loss debited to Partner’s Capital A/cs in old ratio)

SPECCIMEN/PROFORMA OF REVALUATION ACCOUNT 

Revaluation Account

Particulars

(Rs.)

Particulars

(Rs.)

To Assets (individually)

Decrease in value

To Liabilities increase

On revaluation

To Unrecorded Liability

To profits transferred to Partner’s capital A/c

(in old ratio)

 

By Assets (individually)

Increase in value of Asset

By Liabilities (individually)

Decrease on revaluation

By Unrecorded asset

By Loss transferred to partners

Capital A/c (in old ratios)

 

 
The document Reconstitution of a Partnership Firm: Admission of a Partner Chapter Notes | Accountancy Class 12 - Commerce is a part of the Commerce Course Accountancy Class 12.
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FAQs on Reconstitution of a Partnership Firm: Admission of a Partner Chapter Notes | Accountancy Class 12 - Commerce
1. What is reconstitution of a partnership firm?
Ans. Reconstitution of a partnership firm refers to the process of changing the existing partnership agreement. This can be done through the retirement or admission of partners, dissolution of the firm, or any other change in the terms of the partnership agreement.
2. How is a new partner admitted to a partnership firm?
Ans. A new partner can be admitted to a partnership firm by mutual agreement between the existing partners and the new partner. The new partner must bring in capital, skills, or other resources that are beneficial to the firm. The partnership agreement must be amended to reflect the new partner's admission, and the new partner must be registered with the Registrar of Firms.
3. What are the advantages of admitting a new partner to a partnership firm?
Ans. Admitting a new partner to a partnership firm can bring several advantages, such as: - Increased capital: The new partner can bring in additional capital, which can be used to expand the business or invest in new ventures. - New skills and expertise: The new partner may have skills or expertise that the existing partners do not possess, which can help the firm to grow and innovate. - Shared workload: With more partners, the workload can be shared, which can reduce stress and increase efficiency. - Improved decision-making: With more partners, there are more perspectives and ideas to consider, which can lead to better decision-making.
4. What are the rights and duties of a new partner in a partnership firm?
Ans. A new partner in a partnership firm has the same rights and duties as the existing partners. These include: - The right to participate in the management of the firm. - The right to share in the profits and losses of the firm. - The duty to contribute capital to the firm. - The duty to act in good faith and in the best interests of the firm. - The duty to keep the affairs of the firm confidential. - The duty to account for any profits made using firm resources.
5. Can a partner be expelled from a partnership firm?
Ans. Yes, a partner can be expelled from a partnership firm if they violate the partnership agreement or engage in misconduct that harms the firm. However, the process for expulsion must be specified in the partnership agreement, and the other partners must follow the procedure outlined. The expelled partner may be entitled to compensation for their share of the firm's assets.
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Document Description: Chapter Notes - Reconstitution of a Partnership Firm: Admission of a Partner for Commerce 2023 is part of Accountancy Class 12 preparation. The notes and questions for Chapter Notes - Reconstitution of a Partnership Firm: Admission of a Partner have been prepared according to the Commerce exam syllabus. Information about Chapter Notes - Reconstitution of a Partnership Firm: Admission of a Partner covers topics like and Chapter Notes - Reconstitution of a Partnership Firm: Admission of a Partner Example, for Commerce 2023 Exam. Find important definitions, questions, notes, meanings, examples, exercises and tests below for Chapter Notes - Reconstitution of a Partnership Firm: Admission of a Partner.

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