Class 12 Accountancy - CBSE
Reconstitution of a Partnership Firm: Admission of a Partner
The chapter 'Reconstitution of a Partnership Firm: Admission of a Partner' deals with the scenario when a new partner is introduced into an existing business. It covers crucial adjustments required at the time of admission, including the calculation of new profit-sharing ratios and sacrificing ratios, treatment and valuation of goodwill, revaluation of assets and reassessment of liabilities, and the adjustment of accumulated profits and reserves. For CBSE Class 12 board exams, this is a foundational chapter that forms the basis for long-answer comprehensive problems carrying 6 to 8 marks, making accuracy in journal entries and ledger accounts essential.
Start Learning FreeKey Concepts
Sacrificing Ratio
The ratio in which old partners agree to sacrifice their share of profit in favour of the newly admitted partner. It is calculated as Old Ratio minus New Ratio.
Treatment of Goodwill
Goodwill brought in by the new partner (privately or into the firm) is distributed among the sacrificing partners in their sacrificing ratio to compensate for their loss of future profits.
Revaluation of Assets and Liabilities
A Revaluation Account is prepared to record any increase or decrease in the book value of assets and liabilities so that the new partner neither gains nor loses from past value changes.
Accumulated Profits and Reserves
Any undistributed profits, general reserves, or accumulated losses appearing in the old balance sheet belong exclusively to the old partners and are transferred to their capital accounts in the old profit-sharing ratio.
Adjustment of Capitals
Sometimes partners agree that their capitals should be adjusted in their new profit-sharing ratio, requiring cash to be brought in or withdrawn by partners.
Important Formulas
Board Exam Info
In the CBSE Class 12 Accountancy board exam, this chapter typically carries around 6 to 8 marks. Questions usually appear as a full-length 6-mark or 8-mark comprehensive question combining revaluation, capital adjustments, and balance sheet preparation, alongside 1-mark or 3-mark conceptual questions on sacrificing ratio and goodwill treatment.
Frequently Asked Questions
What is the difference between sacrificing ratio and gaining ratio?
Sacrificing ratio is calculated during admission when old partners give up a part of their share for the new partner. Gaining ratio is calculated during retirement or death when remaining partners acquire the outgoing partner's share.
How is goodwill treated if the new partner brings their share of goodwill in cash?
When a new partner brings goodwill in cash, the amount is credited to the sacrificing partners' capital accounts in their sacrificing ratio through the Premium for Goodwill account.
Are accumulated losses transferred to the new partner?
No, accumulated losses, general reserves, and accumulated profits belong strictly to the old partners and must be distributed among them in the old profit-sharing ratio before the new partner's admission.
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