Scribd Logo
Upload

Welcome to Scribd!

  • 454 views

    Accountancy Notes PDF Class 12 Chapter 2

    Uploaded by

    Miss Palak.k
    This document discusses reconstitution of a partnership firm due to changes in the profit sharing ratio among existing partners. It explains that when partners acquire interest from each other, changing their profit ratios, it reconstitutes the firm without adding or removing partners. The key adjustments made are determining sacrificing and gaining ratios for each partner based on changes to their share, accounting for goodwill, revaluing assets and liabilities, and adjusting reserves and accumulated profits/losses through partners' capital accounts. Reconstitution ends the old partnership agreement and starts a new one, with the firm continuing under the new terms.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Accountancy Notes PDF Class 12 Chapter 2

    Uploaded by

    Miss Palak.k
    454 views4 pages
    This document discusses reconstitution of a partnership firm due to changes in the profit sharing ratio among existing partners. It explains that when partners acquire interest from each other, changing their profit ratios, it reconstitutes the firm without adding or removing partners. The key adjustments made are determining sacrificing and gaining ratios for each partner based on changes to their share, accounting for goodwill, revaluing assets and liabilities, and adjusting reserves and accumulated profits/losses through partners' capital accounts. Reconstitution ends the old partnership agreement and starts a new one, with the firm continuing under the new terms.

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses reconstitution of a partnership firm due to changes in the profit sharing ratio among existing partners. It explains that when partners acquire interest from each other, changing their profit ratios, it reconstitutes the firm without adding or removing partners. The key adjustments made are determining sacrificing and gaining ratios for each partner based on changes to their share, accounting for goodwill, revaluing assets and liabilities, and adjusting reserves and accumulated profits/losses through partners' capital accounts. Reconstitution ends the old partnership agreement and starts a new one, with the firm continuing under the new terms.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    454 views4 pages

    Accountancy Notes PDF Class 12 Chapter 2

    Uploaded by

    Miss Palak.k
    This document discusses reconstitution of a partnership firm due to changes in the profit sharing ratio among existing partners. It explains that when partners acquire interest from each other, changing their profit ratios, it reconstitutes the firm without adding or removing partners. The key adjustments made are determining sacrificing and gaining ratios for each partner based on changes to their share, accounting for goodwill, revaluing assets and liabilities, and adjusting reserves and accumulated profits/losses through partners' capital accounts. Reconstitution ends the old partnership agreement and starts a new one, with the firm continuing under the new terms.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    Follow us on Facebook CommerceLerning.

    com Join us on Telegram

    Accountancy Notes
    PDF

    Chapter-2

    For More Notes PDF: CommerceLerning.com


    Follow us on Facebook CommerceLerning.com Join us on Telegram

    Accounting for Partnership: Basic Concepts


    Any change in existing agreement of partnership amounts to reconstitution of a firm. As a result, the
    existing agreement comes to an end and a new agreement comes into existence and the firm continues.

    1. Modes of Reconstitution of a Partnership Firm


    Reconstitution of a firm can take place in any of the following ways
    (i) Change in the profit sharing ratio of existing partners.
    (ii) Admission of a new partner.
    (iii) Retirement of an existing partner.
    (iv) Death of a partner.

    2. Change in Profit Sharing Ratio Among the Existing Partners


    When one or more partners acquire an interest in the business from another partner(s), it is said to be a
    change in the profit sharing ratio in a partnership firm. A change in the profit sharing ratio among the
    existing partners means it is a reconstitution of the firm without admission, retirement or death of a new
    partner(s).
    The sacrifice made or gain received by a partner is calculated by deducting the new share from the old
    share of a partner.
    Sacrificing/(Gaining) Share = Old Share – New Share
    Reconstitution of a Partnership Firm: Change in Profit Sharing Ratio 43

    3. Adjustments Required at the Time of Change in Profit Sharing Ratio (i) Determination
    of Sacrificing Ratio and Gaining Ratio
    New Profit Sharing Ratio It is the ratio in which the partners are to share profits/losses in future.
    Sacrificing Ratio It is the ratio in which the partners have agreed to sacrifice their share of profit in
    favour of other partners or partners. This ratio is calculated by taking out the difference between old
    profit share and new profit share.
    Sacrificing Ratio = Old Ratio – New Ratio
    Gaining Ratio It is the ratio in which the partners have agreed to gain their share of profit from other
    partner(s). This ratio is calculated by taking out the difference between new profit share and old profit
    share.
    Gaining Ratio = New Ratio – Old Ratio
    (ii) Accounting Treatment of Goodwill
    The entry to be passed for adjustment of goodwill, when there is a change in profit sharing ratio is
    Gaining Partners’ Capital/Current A/c Dr [In gaining ratio]
    To Sacrificing Partners’ Capital/Current A/c [In sacrificing ratio]
    (Being the adjustment made for goodwill on change in profit sharing ratio)
    Treatment of Existing Goodwill
    Goodwill (if any) appearing in the books of the firm is written-off by debiting it to all partners’ capital
    accounts in their old profit sharing ratio and by crediting the goodwill account.
    The entry is

    For More Notes PDF: CommerceLerning.com


    Follow us on Facebook CommerceLerning.com Join us on Telegram

    All Partners’ Capital/Current A/c Dr [In old ratio]


    To Goodwill A/c [With book value of goodwill]

    (iii) Revaluation of Assets and Reassessment of Liabilities


    (a) When Revised Values are to be Recorded in the Books of Accounts
    An account titled ‘Revaluation account or ‘Profit and loss adjustment account is opened for revaluation of
    assets and reassessment of liabilities.
    Format of Revaluation Account

    (b) When Revised Values are not to be Recorded in the Books of Accounts
    If partners decide to record the net effect of revaluation of assets and liabilities without affecting the old
    amount of assets and liabilities, a single adjusting entry involving the capital accounts of gaining partners
    and sacrificing partners is passed.
    (iv) Accounting Treatment of Reserves, Accumulated Profits or Losses

    For More Notes PDF: CommerceLerning.com


    Follow us on Facebook CommerceLerning.com Join us on Telegram

    Adjustment of Reserves and Accumulated Profits/Losses through Capital Accounts Only


    A single adjusting entry involving the capital accounts of sacrificing and gaining partner is passed, when
    the partners decide to record net effect of reserves and accumulated profits/losses without affecting the
    old figures.
    In Case of Profit
    Gaining Partner’s Capital A/c Dr
    To Sacrificing Partner’s Capital A/c
    In Case of Loss
    Sacrificing Partner’s Capital A/c Dr
    To Gaining Partner’s Capital A/c

    Follow on Facebook Follow on Instagram Join us on Telegram

    For More Notes PDF: CommerceLerning.com

    You might also like