\nReconstitution of a firm can take place in any of the following ways
\n(i) Change in the profit sharing ratio of existing partners
\n(ii) Admission of a new partner.
\n(iii) Retirement of an existing partner.
\n(iv) Death of a partner.<\/p>\n
2. Change in Profit Sharing Ratio Among the Existing Partners<\/strong> The sacrifice made or gain received by a partner is calculated by deducting the new share from the old share of a partner.<\/p>\n 3. Adjustments Required at the Time of Change in Profit Sharing Ratio<\/strong> 1. Give the meaning of \u2018reconstitution of a partnership firm\u2019. (AllIndia; Delhi2014)<\/strong> 2. State the ratio in which the partners share the accumulated profits when there is a <\/strong>change in the profit sharing ratio amongst existing partners. (All India 2013)<\/strong> 3.State the ratio in which the partners share profits or losses on revaluation of assets <\/strong>and liabilities, when there is a change in profit sharing ratio amongst existing partners. (Delhi 2013)<\/strong> 4. State any two occasions on which a firm can be reconstituted.<\/strong> 5. Why are \u2018reserves and surplus\u2019 distributed at the time of reconstitution of the firm? <\/strong>(Delhi, All India 2010)<\/strong> 4 Marks Question<\/strong><\/span><\/p>\n 6. Anita, Asha and Amrit are partners sharing profits in the ratio of 3:2:1 respectively From 1st January, 2010, they decided to share profits in the ratio of 1:1:1. The partnership deed provided that in the event of any change in profit sharing ratio, the goodwill should be valued at three years\u2019 purchase of the average of five years\u2019 profits. The profits and losses of the preceding five years are<\/strong> Important Questions for CBSE Class 12 Accountancy Reconstitution of a partnership Firm Any change in existing agreement of partnership amounts […]<\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_yoast_wpseo_focuskw":"","_yoast_wpseo_title":"Important Questions for CBSE Class 12 Accountancy Reconstitution of a partnership Firm","_yoast_wpseo_metadesc":"Get Important Questions for CBSE Class 12 Accountancy Reconstitution of a partnership Firm: Change in profits Sharing Ratio(Among the Existing partner) on Infinity Learn.","custom_permalink":"study-material\/cbse-notes\/class-12\/accountancy\/important-questions-for-cbse-class-12-accountancy-reconstitution-of-a-partnership-firm-change-in-profits-sharing-ratioamong-the-existing-partner\/"},"categories":[93,21],"tags":[],"table_tags":[],"acf":[],"yoast_head":"\n
\nWhen one or more partners acquire an interest in the business from another partner(s), it is said to be a change in the profit sharing ratio in a partnership firm. A change in the profit sharing ratio among the existing partners means it is a reconstitution of the firm without admission, retirement or death of a new partner(s).<\/p>\n
\n (i) Determination of Sacrificing Ratio and Gaining Ratio<\/strong>
\nNew Profit Sharing Ratio<\/strong> It is the ratio in which the partners are to share profits\/losses in future.
\nSacrificing Ratio<\/strong> It is the ratio in which the partners have agreed to sacrifice their share of profit in favour of other partner or partners. This ratio is calculated by taking out the difference between old profit share and new profit share.
\nGaining Ratio<\/strong> It is the ratio in which the partners have agreed to gain their share of profit from other partner(s). This ratio is calculated by taking out the difference between new profit share and old profit share.
\n![\"important-questions-for-class-12-accountancy-cbse-reconstitution-of-a-partnership-firm-change-in-profits-sharing-ratioamong-the-existing-partner-3\"](\"https:\/\/infinitylearn.com\/surge\/wp-content\/uploads\/2022\/01\/25011152741_7518362262_o.png\")
\n(ii) Accounting Treatment of Goodwill<\/strong>
\nThe entry to be passed for adjustment of goodwill, when there is a change in profit sharing ratio is
\nGaining Partners\u2019 Capital\/Current A\/c Dr [In gaining ratio]\nTo Sacrificing Partners\u2019 Capital\/Current A\/c [In sacrificing ratio]\n(Being the adjustment made for goodwill on change in profit sharing ratio)
\nTreatment of Existing Goodwill<\/strong>
\nGoodwill (if any) appearing in the books of the firm is written-off by debiting it to all partners\u2019 capital accounts in their old profit sharing ratio and by crediting the goodwill account.
\nThe entry is
\nAll Partners\u2019 Capital\/Current A\/c Dr [In old ratio]\nTo Goodwill A\/c [With book value of goodwill]\n(iii) Revaluation of Assets and Reassessment of Liabilities
\n(a) When Revised Values are to be Recorded in the Books of Accounts<\/strong>
\nAn account titled \u2018Revaluation account\u2019 or \u2018Profit and loss adjustment account\u2019 is opened for revaluation of assets and reassessment of liabilities.
\nFormat of Revaluation Account<\/strong>
\n(b) When Revised Values are not to be Recorded in the Books of Accounts<\/strong>
\nIf partners decide to record the net effect of revaluation of assets and liabilities without affecting the old amount of assets and liabilities, a single adjusting entry \u2018 involving the capital accounts of gaining partners and sacrificing partners is passed.
\n(iv) Accounting Treatment of Reserves, Accumulated Profits or Losses
\n(a) For Transfer of Reserves and Accumulated Profits<\/strong>
\nReserve\/Profit and Loss A\/c Dr
\nWorkmen\u2019s Compensation Reserve A\/c Dr
\nInvestments Fluctuation Reserve A\/c Dr
\nTo All Partners\u2019 Capital* (or Current)** A\/c (Individually)
\n(b) For Transfer of Accumulated Losses<\/strong>
\nAll Partners\u2019 Capital* (or Current)** A\/c (Individually) Dr
\nTo Profit and Loss A\/c
\nTo Deferred Revenue Expenditure A\/c
\n\u2666Capital- Under fluctuating capital method.
\n\u2666\u2666Current- Under fixed capital method.
\nAdjustment of Reserves and Accumulated Profits\/Losses through Capital Accounts Only<\/strong>
\nA single adjusting entry involving the capital accounts of sacrificing and gaining partner is passed, when the partners decide to record net effect of reserves and accumulated profits\/losses without affecting the old figures.
\nIn Case of Profit <\/strong>
\nGaining Partner\u2019s Capital A\/c Dr
\nTo Sacrificing Partner\u2019s Capital A\/c
\nIn Case of Loss<\/strong>
\nSacrificing Partner\u2019s Capital A\/c Dr
\nTo Gaining Partner\u2019s Capital A\/c
\nPrevious Years Examination Questions<\/strong><\/span>
\n1 Mark Questions<\/strong><\/span><\/p>\n
\nAns<\/strong> Change in the existing agreement of partnership is considered as reconstitution of a partnership firm. Due to this, existing agreement comes to an end and the new agreement comes into existence and the firm continues.<\/p>\n
\nAns.<\/strong> Accumulated profits are distributed in old profit sharing ratio, at the time of change in profit sharing ratio amongst the existing partners.<\/p>\n
\nAns.<\/strong> Revaluation profits or losses are distributed in old profit sharing ratio, at the time of change in profit sharing ratio amongst the existing partners.<\/p>\n
\n(Delhi 2012,2008; All India 2011)<\/strong>
\nAns.<\/strong> A firm can be reconstituted on the following occasions (Any two)
\n(i) When there is a change in the profit sharing ratio of existing partners.
\n(ii) When a new partner is admitted.
\n(iii) When an existing partner retires.
\n(iv) When an existing partner dies.<\/p>\n
\nAns.<\/strong> At the time of reconstitution of the firm, reserves and surplus should be transferred to old partners\u2019 capital\/current accounts in their old profit sharing ratio because the new partner is not entitled to any share in such undistributed profits or losses as these are earned\/accrued by the old partners.<\/p>\n
\n![\"important-questions-for-class-12-accountancy-cbse-reconstitution-of-a-partnership-firm-change-in-profits-sharing-ratioamong-the-existing-partner-5\"](\"https:\/\/infinitylearn.com\/surge\/wp-content\/uploads\/2022\/01\/25078111136_d0851b15e6_o.png\")
\nShowing the working clearly, give the necessary journal entry to record the above
\nchange
\n![\"important-questions-for-class-12-accountancy-cbse-reconstitution-of-a-partnership-firm-change-in-profits-sharing-ratioamong-the-existing-partner-6\"](\"https:\/\/infinitylearn.com\/surge\/wp-content\/uploads\/2022\/01\/25104442105_8fb92dccc9_o.png\")
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