Book- Keeping and Accountancy
STANDARD XII
Chapter 3. Reconstitution of Partnership (Admission of Partner)
Page No. in book (160)
Answer in one sentence only
1 What is Revaluation Account?
Ans. At the time of reconstitution of the firm, asstes and liabilities of the firm are revalued, The change made in the value of assets and liabilities are recorded in 'Revaluation Account' or 'Profit and Loss Adjustment Account'.
2 What is meant by Reconstitution of partnership?
Ans. The reconstitution of partnership primarily involves change in the form of partnership. There is change in agreement among the partners which leads to change in the relationship between the partners and change in share of the Profit or Losses of the partners in the firm.
3 Why is new partner admitted?
Ans. According to section 31 (1) of the Partnership Act 1932, A person can be admitted as a new partner only with the consent of all existing partners unless otherwise agreed upon New Partner will bring his share of goodwill and capital and enjoy the right to share the future profits.
4 What is sacrifice ratio?
Ans. When new partner is admitted old partners have to sacrifice their share of profit to give the share profit to new partner. The ratio in which the old partners sacrifice their share of profit is called as sacrifice ratio.
5 What do you mean by raising the goodwill at the time of admission of a new partner?
Ans. The new partner does not bring his share of goodwill, So old partners measure the goodwill of the firm and then it is raised in the books of the firm at the time at the time of admission of new partner. This method is called 'valuation method'
6 What is super profit method of calculation of goodwill?
Ans. Calculation of Goodwill
Goodwill = Super Profit x No. of year's purchase
7 When is the ratio of sacrifice calculated for distribution of goodwill?
Ans. Scarifice ratio is used to retain the goodwill in premium method
8 What is the treatment of accumulated profits at the time of admission of a partner?
Ans. When a new partner is admitted in a partnership firm, then all past accumulated profits or losses and reserves are distributed among all the old partners in their old profit sharing ratio.
9 State the ratio in which old partner’s capital A/c will be credited for goodwill when the new partner does not bring his share of goodwill in cash.
Ans. Old ratio is the ratio in which old partner’s capital A/c will be credited for goodwill when the new partner does not bring his share of goodwill in cash.
10. What does the excess of debit over credits in Profits and Loss Adjustment account indicate?
Ans. The excess of debit on credits in the profit and loss adjustment account indicates the amount of net loss. For this reason, this loss has to be adjusted to the old partners in their old profits.
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