CBSE Class 12 Accountancy Reconstitution Of Partnership Assignment Part B

Admission of a Partner

Learning objectives:-

MCQ Questions for NCERT Class 12 AccountancyReconstitution of Partnership Firm – Admission of a Partner  

Question: When a new partner brings his share of goodwill in cash, the amount is debited to:
(a) Cash account
(b) Capital accounts of the new partner
(c) Goodwill account
(d) Capital accounts of the old partner

Answer: A

Question: At the time of admission of a new partner, the entry for unrecorded investment will be:
(a) Dr. Investment A/c and Cr. Revaluation A/c
(b) Dr. Partners’ Capital A/c and Cr. Investment A/c
(c) Dr. Revaluation A/c and Cr. Investment A/c
(d) None of the above 

Answer: A

Question: X and Y are partners in a firm with capital of Rs.180000 and Rs.200000. Z was admitted for 1/3rd share in profits and brings Rs.340000 as capital. Calculate the amount of goodwill
(a) Rs.2,40,000
(b) Rs.1,00,000
(c) Rs.1,50,000
(d) Rs.3,00,000 

Answer: D

Question: A and B are partners in a firm having capital of Rs.54,000 and Rs.36,000 respectively. They admitted C for 1/3^rd share in the profits. C brought proportionate amount of capital. The capital brought in by C would be
(a) Rs.90,000
(b) Rs.45,000
(c) Rs.54,000
(d) Rs.36,000

Answer: B

Question: Anil and Aman are partners sharing profits and losses in the ratio of 3:2. Akhil is admitted as a new partner for 1/3^rd share in the profits. Goodwill of the firm is valued at Rs.60000 and goodwill already appears in the books at Rs.18000. It is decided that the existing goodwill should continue to appear in the books at its old value. Akhil’s share of goodwill is:
(a) Rs.26,000
(b) Rs.14,000
(c) Rs.20,000
(d) Rs.6,000 

Answer: B

Question: A and B are partners sharing profits and losses in the ratio of 5:3. On admission, C brings Rs.70000 as capital and Rs.43000 against goodwill. New profit ratio between A, B and C is 7:5:4. The sacrificing ratio of A and B is:
(a) 3:1
(b) 1:3
(c) 4:5
(d) 5:9 

Answer: A

Question: A and B are partners sharing profits in the ratio of 7:3. A surrenders 1/7th of his share and B surrenders 1/3rd of his share in favour C the new partner. The sacrificing ratio will be:
(a) 3:7
(b) 1:1
(c) 7:3
(d) 3:2 

Answer: B

Question: Ramesh and Suresh are partners sharing profits in the ratio of 2:1 respectively. Ramesh’s capital is Rs.1,02,000 and Suresh capital is Rs.73,000. they admit Mahesh and agreed to give him 1/5^th share in future profit. Mahesh brings Rs.14,000 as his share of goodwill. He agrees to contribute capital in the new profits sharing ratio. How much capital will be brought by Mahesh?
(a) Rs.43,750
(b) Rs.45,000
(c) Rs.47,250
(d) Rs.48,000 

Answer: C

Question: The share of new partner and the sacrificing ratio of old partners is decided by:
(a) the new partner only
(b) the old partners only
(c) the old partners and the new partner
(d) the accountant of the firm 

Answer: C

Question: On admission of a new partner, the method of valuation of goodwill is decided by:
(a) the new partner only
(b) the old partners only
(c) the old partners and the new partner
(d) the accountant of the firm 

Answer: C

Question: At the time of admission of a new partner, the balance of Workmen Compensation Reserve will be transferred to:
(a) Old partners in the old profit sharing ratio
(b) Sacrificing partners in the sacrificing ratio
(c) Revaluation Account
(d) All partners in the new profit sharing ratio

Answer: A

Question: The profit sharing ratio of Seema and Ghosh was 5:3. They admitted Munmun as a new partner and the new profit sharing ratio of Seema, Gosh and Munmun was 4:3:3. The sacrificing ratio Seem and Gosh will be:
(a) 5:3
(b) 4:3
(c) 1:1
(d) 3:1 

Answer: D

Question: Which statement is true with respect to AS-26?
(a) Purchased goodwill can be shown in the Balance Sheet
(b) Revalued goodwill can be shown in the Balance Sheet
(c) Both purchased goodwill and revalued can be shown in the Balance Sheet
(d) None of the above 

Answer: A

Question: Premium brought by newly admitted partner should be:
(a) Credited to sacrificing partners
(b) Credited to all partners in the new profit sharing ratio
(c) Credited to old partners in the old profit sharing ratio
(d) Credited to only gaining partners

Answer: A

Question: The firm of P, Q and R with profit sharing ratio of 6:3:1, had the balance in General Reserve Account amounting Rs.1,80,000. S joined as a new partner and the new profit sharing ratio was decided to be 3:3:3:1. Partners decide to keep the General Reserve unchanged in the books of accounts. The effect will be:
(a) P will be credited by Rs.54,000
(b) P will be debited by Rs.. 54,000
(c) P will be credited by Rs.36,000
(d) P will be debited by Rs.36,000 

Answer: A

Question: Aryaman and Bholu are partners sharing profit and losses in ratio of 5:3. Chirag is admitted for 1/4^th share. On the date of reconstitution, the debtors stood at Rs. 40,000, bill receivable stood at Rs.10,000 and the provision for doubtful debts appeared at Rs.4000. A bill receivable, of Rs.10,000 which was discounted from the bank, earlier has been reported to be dishonoured. The firm has sold, the debtor so arising to a debt collection agency at a loss of 40%. If bad debts now have arisen for Rs.6,000 and firm decides to maintain provisions at same rate as before then amount of Provision to be debited to Revaluation Account would be:
(a) Rs. 4,400
(b) Rs. 4,000
(c) Rs..3,400
(d) None of the above

Answer: C 

True/ False: 

Question: Employee Provident Fund is a part of Accumulated profits and reserves.
Answer: False

Question: Admission of a partner changes the relationship between / among existing partners.
Answer: True

Question: Goodwill exists only when firm earns super profits.
Answer: True

Question: Admission of a new partner does not amount to reconstitution of the partnership firm.
Answer: False

Question: The need for valuation of goodwill also arises when the firm is dissolved involving sale of business as a going concern.
Answer: True

Fill in the blanks

Question: At the time of admission of a partner, new profit sharing is used for sharing future………
Answer: Profits

Question: Revaluation account is a …………………
Answer: Nominal account 

Question: The newly admitted partner brings his/ her share of capital for which he/she will get ……….in firm.
Answer: Profit share

Question: At the time of admission, it the book value and the market value of investment is same then investment fluctuation reserved is transferred to …………….account of the old partners in their ………..ratio.
Answer: Capital accounts of old partners, old profit sharing ratio

Question: R and S are partners sharing profits equally. They admitted T for 1/3 share in the firm. New profit sharing ratio will be………..
Answer: Equal 

Question: A, B and C are partners sharing profits and losses in the ratio of 3:2:1. On admission of D, they agree to share profits and losses in the ratio of 5:4:2:1. Sacrificing ratio of A, B and C will be………..
Answer: Only A sacrifice- 1/12

Question: At the time of change in profit sharing ratio among the existing partners, where will you record an unrecorded liability? 
Answer: Revaluation Account-Debit side 

Question: Anand, Bhutan and Chadha are partners sharing profits in ratio of 3:2:1. On 1st April 2007, they decided to share profits equally.Name the partners who is gaining on consequence of such change. 
Answer: Chadha. 

Question: Give two characteristics of goodwill.  
Answer: (i) it is an intangible asset having a definite value. 

            (ii) It helps in earning more profit. 

Question: Name any two factors affecting goodwill of a partnership firm. 
Answer: (i) Favorable location (ii) Time period 

Question: In a partnership firm assets are Rs.5, 00,000 and liabilities are Rs. 2, 00,000. The normal profit rate is 15%. State the amount of normal profits. 
Answer: Rs.45,000 

Question: State the amount of goodwill, if goodwill is to be valued on the basis of 2 years‘ purchase of last year‘s profit. Profit of the last year was Rs.20, 000. 
Answer: Rs.40,000 

Question: Where will you record 'increase in machinery‘ in case of change in profit sharing ratio among the existing partners? 
Answer: Revaluation Account- Credit Side. 

After studying this lesson, the students will be able to:

• Identify and deal effectively with the situation of reconstitution of partnership.

• Identify the problem arising due to admission of a partner in the firm.

• Calculate new and sacrifice ratio in different cases.

• Understand, calculate and make treatment of goodwill in different cases.

• Make accounting treatment of the revaluation of assets and liabilities and distribute the profit and loss on revaluation among the old partners.

• Make accounting treatment of unrecorded assets and liabilities

• Prepare capital Accounts, Cash A/c and Balance Sheet of the New firm

• Adjust the Partners‘ Capital Accounts 

Salient Points:- 

1. Goodwill is the monetary value of business reputation. It is an intangible asset. 

2. Goodwill may be of two types: 

a. Purchased goodwill 

b. Non-purchased goodwill 

3. When existing firm faces problem of limited financial resources and man power then one new additional partner enters into firm. 

4. There are three methods of valuation of goodwill: 

a. Average Profit Method 

b. Super Profit method 

c. Capitalisation Method

 5. When new partner is admitted into existing partnership then existing partners have to sacrifice in favour of new partner, it is called sacrificing ratio.  

Salient Points:- 

1. Goodwill is the monetary value of business reputation. It is an intangible asset. 

2. Goodwill may be of two types: 

    a. Purchased goodwill 

    b. Non-purchased goodwill 

3. When existing firm faces problem of limited financial resources and man power then one new additional partner enters into firm. 

4. There are three methods of valuation of goodwill: 

    a. Average Profit Method 

    b. Super Profit method 

    c. Capitalisation Method 

5. When new partner is admitted into existing partnership then existing partners have tosacrifice in favour of new partner, it is called sacrificing ratio. 

6. Share of goodwill of new partner will be credited to sacrificing partners into their sacrificing ratio. 

7. At the admission of new partner Profit & Loss on revaluation of assets and liabilities and balances of accumulated profits & losses will be distributed among old partners (only) in old ratio.  

Please refer to attached file for CBSE Class 12 Accountancy Reconstitution Of Partnership Assignment Part B