Class 12 Accountancy Reconstitution of Partnership firm Notes

Reconstitution of Partnership firm.... Short & Easy Notes for Board Exam

#1. What do you mean by reconstitution? In what condition reconstitution take place?

=> when there is change in the relation between partners without affecting the existence of partnership firm, is called reconstitution.

following are the condition in which reconstitution take place:-

i.change in profit sharing ratio of the partners.

ii. Admission of the partners.

iii. retirement of the partners.

iv. Death of the partners.

v. Amalgamation of two or more firms.

#2. What do you mean by sacrificing ratio?

=> when existing partner have to surrender of their share in favour of other partners is called sacrificing ratio.

Sacrificing ratio = old ratio - new ratio

#3. What do you mean by gaining ratio?

=> It is the ratio in which new partner has increased their share from old one.

Gaining ratio = new ratio - old ratio

 

#4.Difference between sacrificing ratio and gaining ratio.

=> Sacrificing ratio;

i.It is the ratio in which old partner surrender their share in favour of new partners.

ii. It is calculated at the time of admission.

iii.its main objective is to calculate the goodwill to be received from the new partners.

iv. Sacrificing ratio = old ratio - new ratio

Gaining ratio;

i.It is the ratio in which new partner gain their share.

ii. It is calculated at the time of death or retirement of a partner

iii.Its main objective is to calculate the amount of goodwill payable to old partners.

iv. Gaining ratio = new ratio - old ratio

#5. What is revaluation account? what are its characteristics?

=>In the event of reconstitution of partnership firm, the value of assets and liabilities are revalued. Revaluation account is an account which shows profit and loss on revaluation of assets and liabilities, it is also known as profit and loss adjustment account.

Following are its characteristics;

i. It is nominal account.

ii. Value of assets increase and burden of liabilities are decrease, recorded in credit side of revaluation account.

iii. Burden of liabilities increase and value of assets decrease are shown in debit side of the revaluation account.

iv. Balance of revaluation account are transferred to partner's capital account in their old profit sharing ratio.

    Journal Entries;

i. For distribution of profit;

profit & loss account.....Dr

          To old partners capital account (old ratio)

(being undistributed profit transferred to capital account in their old ratio)

ii. For distribution of Reserve;

Reserve account.......Dr

          To old partners capital account (old ratio)

(being balance of Reserve transferred to partners capital account in old ratio)

iii. For distribution of undistributed loss;

Old partners capital account......Dr (old ratio) 

            To profit & loss account

(being undistributed loss transferred to partners capital account in their old ratio)

iv. When account of profit & reserve are not to be closed;

Gainers capital account.....Dr 

            To sacrificers capital account

(Being adjust mint made for profit and reserve)

v. When account of loss are not to be closed;

Sacrifices capital account.....Dr 

            To Gainers capital account 

(being adjustment made for loss)

vi. For value of assets increase and burden of liabilities decrease;

Assets account......Dr

Liabilities account.......Dr 

             To revaluation account 

(being value of assets increase and burden of liabilities decrease)

vii. For value of assets decrease and burden of it is increase;

Revaluation account.....Dr

             To assets account 

             To liabilities account 

(being value of liabilities increase and value of assets decrease)

viii. For distribution of revaluation profit;

Revaluation account.....Dr

             To old partners capital account

(being revaluation profit transfer to partners capital account in old ratio)

ix. For distribution of revaluation loss;

Old partners capital account.....Dr

              To revaluation account

(being revaluation loss transferred to partners capital account in old ratio)

                                    FORMAT OF REVALUATION ACCOUNT

       THE END

GOODWILL

PARTNERSHIP FIRM