Class 12 Accountancy - ANDHRA-PRADESH
Reconstitution of a Partnership Firm: Admission of a Partner
The chapter 'Reconstitution of a Partnership Firm: Admission of a Partner' in Class 12 Accountancy under the Andhra Pradesh Board (BSEAP) deals with the procedures followed when a new partner joins an existing business. It covers vital accounting adjustments such as calculating new profit-sharing and sacrificing ratios, treatment of goodwill, revaluation of assets and liabilities, and adjustment of accumulated profits and reserves. Mastering this chapter is essential for board exams as it forms the foundation for long-answer practical problems that frequently appear in the final question paper, carrying substantial weightage.
Start Learning FreeKey Concepts
Sacrificing Ratio
The ratio in which old partners give up a share of their profit in favor of the newly admitted partner. It is calculated as Old Ratio minus New Ratio.
Treatment of Goodwill
Goodwill brought in cash by the new partner is distributed among the sacrificing partners in their sacrificing ratio, or adjusted through partners' capital accounts.
Revaluation of Assets and Liabilities
A Revaluation Account is prepared to record the increase or decrease in the value of assets and liabilities so that the new partner neither gains nor loses due to past changes.
Accumulated Profits and Reserves
Undistributed profits, general reserves, and losses appearing in the old balance sheet are transferred to the old partners' capital accounts in their old profit-sharing ratio.
Adjustment of Capital
Sometimes partners agree that their capitals should be adjusted in their new profit-sharing ratio, requiring the calculation of excess or deficit capital to be paid in or withdrawn.
Important Formulas
Board Exam Info
In the Andhra Pradesh (BSEAP) Class 12 Accountancy board exam, this chapter typically carries around 10 to 15 marks. Common question types include 1 or 2 short-answer questions (2 or 4 marks) on calculation of ratios or treatment of goodwill, and a compulsory 10 or 12-mark long-answer practical problem involving the preparation of Revaluation Account, Partners' Capital Accounts, and the new Balance Sheet.
Frequently Asked Questions
Why is a Revaluation Account prepared during the admission of a partner?
It is prepared to adjust the values of assets and liabilities to their current market price so that the profit or loss up to the date of admission belongs exclusively to the old partners.
What is the difference between sacrificing ratio and gaining ratio?
Sacrificing ratio is calculated when a new partner is admitted (old partners give up share), whereas gaining ratio is calculated during retirement or death of a partner (remaining partners take over the share).
How do we treat existing goodwill appearing in the old balance sheet?
Existing goodwill is written off among the old partners in their old profit-sharing ratio by debiting their capital accounts and crediting the goodwill account.
Learn Reconstitution of a Partnership Firm: Admission of a Partner with Your AI Tutor
10 different ways to study this chapter. Free for 3 chapters per day.
Lecture
Key Points
Interactive
Quiz
Flashcards