NCERT Book Class 12 Accountancy (Part 1) Chapter 2 Reconstitution of a Partnership Firm – Admission of a partner

Reconstitution of a Partnership Firm –
Admission of a Partner 2

LEARNING OBJECTIVES
After studying this chapter
P artnership is an agreement between two or more
persons (called partners) for sharing the profits
of a business carried on by all or any of them acting
you will be able to:
• Explain the concept of for all. Any change in the existing agreement
reconstitution of a partnership amounts to reconstitution of the partnership firm.
firm; This results in an end of the existing agreement and
• Identify the matters that need
adjustments in the books of
a new agreement comes into being with a changed
firm when a new partner is relationship among the members of the partnership
admitted; firm and/or their composition. However, the firm
• Determine the new profit continues. The partners often resort to reconstitution
sharing ratio and calculate
the sacrificing ratio; of the firm in various ways such as admission of a
• Define goodwill and new partner, change in profit sharing ratio,
enumerate the factors that retirement of a partner, death or insolvence of a
affect it; partner. In this chapter we shall have a brief idea
• Explain the methods of about all these and in detail about the accounting
valuation of goodwill;
implications of admission of a new partner or an on
• Describe how goodwill will
be treated under different change in the profit sharing ratio.
situations when a new
partner is admitted; 2.1 Modes of Reconstitution of a Partnership
• Make necessary adjustments Firm
for revaluation of assets and
reassessment of liabilities; Reconstitution of a partnership firm usually takes
• Make necessary adjustments place in any of the following ways:
for accumulated profits and
losses; Admission of a new partner: A new partner may be
• Determine the capital of each admitted when the firm needs additional capital or
partner, if required according
to the new profit sharing ratio managerial help. According to the provisions of
and make necessary Partnership Act 1932 unless it is otherwise provided
adjustments; in the partnership deed a new partner can be
• Make necessary adjustments admitted only when the existing partners
on change in the profit
sharing ratio among the unanimously agree for it. For example, Hari and
existing partners. Haqque are partners sharing profits in the ratio of