Class 12 Accountancy - KERALA
Reconstitution of a Partnership Firm: Admission of a Partner
This chapter covers the reconstitution of a partnership firm when a new partner is admitted. For Kerala SCERT Class 12 board exams, this is a high-scoring and crucial chapter. Students will learn how to calculate new profit-sharing ratios and sacrificing ratios, account for accumulated profits and losses, revalue assets and liabilities, adjust capitals, and treat goodwill as per AS-26. Mastering these concepts is essential because comprehensive 8-mark questions are frequently asked from this chapter in the board examinations, combining revaluation, partners' capital accounts, and the final balance sheet.
Start Learning FreeKey Concepts
Sacrificing Ratio
The ratio in which old partners surrender a portion of their share in favor of the incoming partner. It is calculated as Old Ratio minus New Ratio.
Treatment of Goodwill
Goodwill brought in cash by the new partner is distributed among sacrificing partners in their sacrificing ratio, adhering to Accounting Standard 26.
Revaluation of Assets and Liabilities
Preparing a Revaluation Account to record increases or decreases in the book value of assets and liabilities at the time of admission, with the net gain or loss transferred to old partners' capital accounts.
Distribution of Accumulated Profits and Reserves
General reserves, accumulated profits, and losses appearing in the old balance sheet are distributed among old partners in their old profit-sharing ratio before the new partner joins.
Adjustment of Capitals
Adjusting the capital accounts of old and new partners based on a specified profit-sharing ratio to ensure the firm's capital structure reflects the new agreement.
Important Formulas
Board Exam Info
In the Kerala SCERT Class 12 Accountancy board examination, this chapter typically carries around 8 to 12 marks. Students can expect a compulsory long-answer question worth 8 marks involving the preparation of Revaluation Account, Partners' Capital Accounts, and the revised Balance Sheet, along with short 2-mark or 3-mark questions on calculating the sacrificing ratio or treatment of goodwill.
Frequently Asked Questions
Why is the sacrificing ratio calculated during a partner's admission?
The sacrificing ratio is calculated to determine how much share of profit the old partners have given up for the new partner, so that the goodwill brought in by the new partner can be shared among them correctly.
How are accumulated losses treated upon the admission of a new partner?
Accumulated losses (such as a debit balance of Profit and Loss Account) are written off by debiting the old partners' capital accounts and crediting the Profit and Loss Account in their old profit-sharing ratio.
Is the revaluation account prepared using book values or market values?
Assets and liabilities are recorded in the Revaluation Account to bring them from their old book values up to their current revalued market values at the time of admission.
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