Std.

Xll: Book-
Keeping8 Accountancy

Following are the adjustments: of last 3

Varun is to bring 50,000 as his capital for
the
average
profit
years whih
purchase
goodwill will by cheque
Goodwill of the firm valued at 1
times
his
share of
is bring
Varun is to

40,500, 42,000and loss of 15,000. 10%.

ii 10%
discount.
by109
by Aryan at
undervalued
Bills Receivable taken over
is
Machinery
BUuilding is overvalued by 10% and
Provision for doubtful debts is no longer nee new rofit sharing ratio b
profit

vi.
20% Sundrycreditors
On admission it was decidedtoadjust old
were settled
at 20% discount
the
partners'
Capital
as per

firm.
ranvle
of n e w
the balance to Bank Account Balance
Sheet
and
epare: Revaluation Account, Partners' Capital

Objective Type Questions below

those given
from
ratio of
3:2. They
. Select the most opriative alternative in the
and losses
profits ratio will| be
Anuj and Eeshan are two partners sharing sharing
the n e w profit (T) 12:8:5
decided to admit Aaroh for 1/5thshare,
4:3:1
(A) 12:8:5 (B)
(D) 12:3:1
(C) 12:8:1 Is Called
as
partner
admission of
New Ratio on
Difference Old Ratio
Oetween

Sacrifice ratio
Sacrifice ratio

(A) Gain ratio (B) Benefit ratio

(C) Profit ratio (D)
O
average prornt past
calculated on the basis of
i. n e method in which goodwill is Average profit
number of years is called as Super profit method method
(A) Average profit method (B)
Annuity method
(C) Premium method (D)
firms in the same industry.
V. IS the rate of return normally earned by the Normal rate of retum
return
Normal rate of
(A) Average rate of return (B)
Premium rate of retun
(C) Excess rate of return (D)
account is credited. (T)
V.
When goodwill is withdrawn by the partner
(A) Revaluation
(B) Cash/ Bank nue Cash/Bank
(D Profit and Loss Adjustment
(C) Current

is credited when unrecorded asset is brought

into business. (T)
(B) Balance Sheet Revaluation Account
(A) Revaluation Account
(D) Partners capital Account
(C) Trading Account

account is debited. (T)

vii. Ifasset is taken over by the partner
(B) Capital Capital
(A) Revaluation
(D) Balance Sheet
(C) Asset
vii. Excess of proportionate capital over actual capital represents -(T)
(A) Equal capital (B) Surplus Capital Deficit capital
(C) Deficit Capital (D) Gain

160
 Reconstitution
of Partnership
Chapter 3: (AdmissionofPartner)
r i t e& w o r dp h al phrase / term which can substitute each of the following staterinents.
Sacrifice r a t
ntio-Newratio=
(7)
Sacrifice rato
n
which old
ortion in which in

partners make asacrifce (T

tationo f
businese

cness measured in terms of money, () Goodwil

e themethod

in cash (7)
of the
treatment of goodwllwhere wpartnerwil bring hisshare premium met
Superprofit
earned ow
cearned over and
above normal profit
t
hich
is

under which alculation of goodwils one on the basis of extra method

Superprofit
ehove the normalprofit.(T)
ned2bove

a t aemplOyedxR e Normalprofit
100

of goodwil where new

artner does not bring his share of yaluation methiod
of
treatment
Metho

Old profitsharing
n which general reserve is distributed to the old partners. ()
ratio
h e r a t o i n

Undistributed profit/
Pofitand Losaccount balanceappearingonlabilitysideof Balance Sheet.
andLos (T) Accumulated profit

Profit& Lo05s
account opened to adjust the value of assets and labilitie at the time of
Adustment Account
ot a partner.(T Revaluation Account
amission

ich is
A Account which debited when the partner takes over the asset. (T) Partner's Capital
Current Account

State whethe ther the following statements are True or False with reasons:
Reconstitution of partnership. (T)
Oange in relationship betweenthe partners is caled as
True ratio and hence
Rea5on:-Any kind of change in relationship between the partners affect their profit sharing
scaled as Reconstitution
of partnership
account is debited.
When new partner brings cash towards his capital, his capital

:Fase account is credited.

Reason:-When partner bringscash towards his capital, his capital
new

the firm. (T)

there will be an increase in the capital of
Usually whena new partnerisadmitted inthefirm
s True
capital. Hence, usually when a new
reasons ofadmitting new partner is to get
more
Reason:-One of the
fim.
partneris admitted, there will be an increasein the capital of the
kind. (T)
New Partner can bring capital in cash or
True
Reason:-New partner has an option of bringing capital either in cash or in the form of assets

New ratio minus old ratio is equal to sacrifice ratio. (T)

es False
Keason:-Old ratio minus new ratio is equal to sacrifice ratito.
161
 Std,Xil: Book Keeping and Accountaney partner. )
sdmission of
vi. the time of certain share
r a t i o is calculated at hav to foreg
Dr
Ansi False
ission of partner,
enisting
partriers

calculated
at t e
tifne on oof perte
of adrission
Reason-At the time of sacrifice ratio
is

new incoming partner, Hence, the books,. ()

BIvet to recorded in
partners it
is not
vil. privately to the
e n goodwill is paid ess at
erniterbusiness at aall and hence ro
Ans: True arnount
does not
the
Reason-Whengoodwill is paid privately,
record it in the books,
in cash, (1)
of goodwill
vili. partner always brings his share
Ans:
eW
False in cash. Alternativey,
he fnignt notbringin.
share of goodwill partrer
may bring his and write oN, Hence, ne
easonNew partner methods like raise
other
firm may decide to treat goodwill by
in cash,
always bring his share of goodwill ()
account is debited.
When the goodwill is written off goodwill
Ans: False account is credited
Reason:-When goodwill is written off, goodwill
is withdrawn by the old partners. (T)
Bank Account is credited when goodwil
Cash/
Ans: True
moves out of business
and nence Cash / bank acce
cash
Reason:-When goodwill is withdrawn,
credited,
including new partner. (1)
xi. Revaluation profit is distributed among all partners
decrease in value of a5sets orliabilitiesbelr
Ans: False
Reason:-Revaluation is on account of increase or
profit
admission. Hence it is distributed among old partriers only
available to new partner as well
xii. The benefit of unrecorded asset would be
Ans: False
old partners,
Reason:-Benefit of unrecorded asset will be enjoyed only by

Find the odd one

General reserve, Creditors, Machinery, Capital (T)
Ans.Machinery-Others are liabilities of a business organízatíon,
Decrease in Furniture, Patents written off, Increase in Bills Payable, RDD written off (T)
i.
Ans. RDD written off-Others are debited to Revaluation Account,
Super profit method, Valuation method, Average profit method, Fluctuating capital method (T)
Ans. Fluctuating capital method-Others are method of determining value of goodwill

iv. Admission of a partner, Retirement of a partner, Death of a partner, Hiring of a manager

Ans. Hiring of a manager - Others results in reconstitution of partnership firm,

5. Complete the sentences

The ratio in which the old partners sacrifice their share of profit is called as Sacrificeratio
is the benefit, name, fame, reputation, image of a business which
ultimately helps the business to earn more profits. Goodwill

Under goodwill is calculated on the average basis of the past number Average profit
years of profit. of
method

iv is the profit which is earned over and above the normal profit, Super Profift

V Under method new partner brings his share of goodwill in cash or kind. Premium

162
 Partner
Reconstitution
of
Chapter 3:
(Admission of Partner)

v e r t h e f o l l o w i n g .

ATSWe meant
by
by
Reconstitutio
R e of partnership? (T)
share
the
uhat
n s titution
is of partnershipiis the change in the relationship between the partners and change
in

ofits and lossees.

ofprot
p a

partner
r t n
admitted? (T)
w t h a t pet
neW
partner is admit skills of
to use the
1s

why

pa dnd
verall performance ot the the capital base as well as
7he

o
n e w

mprove t h e partnership firm.

v h a ti ss a c r i f i
ifice ratio? (T)
ot protit
admitted, old the share
artner is
partners have tosacrifice
sacrifice their share of profit to give
When
ratio in which the old partners their share of profit is called as sacrifice rao
partner. The
2 01 n e w g

?
business to
g o o d w i l l

what
is
benefit, name, tame, reputation, image of which ultimately
helps the
the a business
arn more profits.

a ratio of sacrifice calculated for distribution of goodwill? (T)

Wheni s
calculated e w partner brings his share of the goodwill in the business
cacrifice
ratio
Is
per profit metho of calculation of goodwill? (T)
Whatis
calculated on
the basis of
profit m e t nethod of calculation of goodwill ismethod in which oodwill is
a
profits
normal or average
the profits earned over and above the
,Suprofiits
supero
of the firm. Super profits are

normal rate of return

?
what is ind ustry or it is the
return is the rate of return normally earned firms in the same
rate of bythe
Normal by the investor on the capital employed.
profitexpected

mean by raising the goodwill at the time of admission of a new partner? (1)
uhat do
ing the
yougoodwill at the time of admission of a new partner means creating goodwil ds duu d a

a eof the firm and crediting the capital accounts of old partners.
when the new parther
ratio in which Old Partner's Capital A/c will be credited for goodwill
State the

does not bring his share of goodwill in cash. (T) does not
for goodwill when new partner
Qld Partner's Capital A/c
will be credited in old profit sharing ratio

bring his share of goodwill in cash.

What is Revaluation Account? (T)
and liabilities are recorded
made in the values of assets
s Revaluation account is an account in which changes
at the time reconstitution of partnership.
Account indicate? (T)
What does the excess of debit over credits in Profit and Loss Adjustment
indicates loss on revaluation.
credit in Profit and Loss Adjustment Account
sExcess of debit over

at the time of ad mission of a partner? (T)

is the treatment of accumulated profits
iWhat
s Accumulated profits are distributed among old partners in their old profit sharing ratio.

Calculate the following:

Aand B are partners in a firm sharing profits and losses in the ratio of 1:1. C is admitted. A surrenders
his share in favour of C. Calculate the new profit sharing ratio. (T)
1/4 share and B surrenders 1/5
s:Old Ratio of Aand B = 1:1 or

Assacrifice= x

sSerfice 1
Cs Share =
A's Share + B's Share

10 40 40 40 sqwer
163
 Std. Xll: Book Keeping and
-

New Ratio
Accountancy
=
Old Ratio -

Sacrifice Ratio
A'sNew Share --
B's New Share=
0
NewRatio of A, Band C- 15 1 15:16 :9
40
sper the Text book the answer is 2 : 1:1, however as per our calculation the answer comes to -. sto 15 1

Anika and Radhika are tners sharing profits in the

ratio of 5:1. They
decide to admit
:
Sanika in the
tor 1/5 share. Calculate the sacrifice ratio of Anika and Radhika. (1)
Ans: Balance Ratio
=1- Share of Incoming Partner
1-
New Ratio =Old Ratio x Balance Ratio

Anika's new ratio =

Radhika's new ratio =

Sanika's New
Ratio =ie 30
New Ratio =Anika : Radhika: Sanika

3030 30
= 10:2:3

Calculation of sacrifice ratio

Sacrifice Ratio = Old Ratio - New Ratio

Anika
Radhika = 3030

Thus sacrifice ratio =

30 5:1
30
Please note, since the old and new profit sharing ratio of the old partners is same (as 10: 2 is same as 5:1
the sacrifice ratio will also remain the same i.e. 5 : 1.

iii. Pramod and Vinod are partners sharing profits and losses in the ratio 3:2. After admission of Ramesh
the
new ratio of Pramod, Vinod and Ramesh is 4:3:2. Find out the sacrifice ratio.
(T)
Ans: Sacrifice Ratio =Old Ratio - New Ratio

Pramod'ssacrfice-
Vinod

Sacrificeratio= 7:3

iv. Profit of 2019-20-7 30,000; Profit of 2018-19 -?

20,000; Profit of 2017-18-z
valued at purchase of 2 years. Find goodwill using average profit method.
40,000; Gooc
Ans: Calculation of Goodwill:

Total Profit(30,000+ 20,000

Average Profit
No. of Years
40,000) 90,0000.o00
Goodwill =Average Profit x Number of years of purchase 30,000 x =
2 =7 60,000
164
 Reconstitution of Partnership
Chapter 3:
(Admission of Partner)

Complete the table. (T)

Total Profit Average Profit
Number of years

NRR CapitalEmployed
Normal Profit = x
100

Stock shown in Balance Sheet Stock undervalued by 20%> Value of Stock 40,000, 72,00,000

1,60,000