Short Intro
Admission of a new partner is one of the most important topics in Partnership Accounts. When a new partner joins a firm, several adjustments such as goodwill, revaluation of assets and liabilities, reserves, and profit-sharing ratios are required. This article provides detailed solutions to the Short Answer Questions from the NCERT chapter “Reconstitution of a Partnership Firm – Admission of a Partner”.
Quick Information Box
| Particular | Details |
|---|---|
| Chapter | Reconstitution of a Partnership Firm – Admission of a Partner |
| Subject | Accountancy |
| Class | 12 |
| Topic | Admission of a New Partner |
| Question Type | Short Answer Questions |
| Questions Covered | 1 to 6 |
Concepts Used (Topics Covered)
- Admission of a New Partner
- New Profit Sharing Ratio
- Sacrificing Ratio
- Goodwill Adjustment
- Revaluation of Assets and Liabilities
- Reserves and Accumulated Profits
- Capital Adjustment
Important Formulas
1. New Profit Sharing Ratio
New Share = Old Share − Sacrifice
2. Sacrificing Ratio
Sacrificing Ratio = Old Share − New Share
3. Goodwill Adjustment
New Partner’s Share of Goodwill = Total Goodwill × New Partner’s Share
Question 1
Identify various matters that need adjustments at the time of admission of a new partner.
Step-by-Step Solution
At the time of admission of a new partner, the following matters require adjustment:
- Valuation and adjustment of Goodwill
- Revaluation of Assets
- Reassessment of Liabilities
- Distribution of Reserves and Accumulated Profits/Losses
- Adjustment of Capitals of Partners
- Determination of New Profit Sharing Ratio
- Calculation of Sacrificing Ratio
These adjustments ensure fairness among old and new partners.
Final Answer
The matters requiring adjustment are goodwill, revaluation of assets and liabilities, reserves and accumulated profits/losses, capital adjustments, new profit-sharing ratio, and sacrificing ratio.
Question 2
Why is it necessary to ascertain the new profit-sharing ratio even for old partners when a new partner is admitted?
Step-by-Step Solution
- A new partner acquires a share in profits from the existing partners.
- The profit share of old partners decreases.
- The amount sacrificed by each old partner may differ.
- Therefore, the old ratio no longer remains valid.
- A fresh ratio must be calculated to determine future profit distribution.
Final Answer
It is necessary to ascertain the new profit-sharing ratio because the incoming partner acquires a portion of profit from the existing partners, changing their respective shares in future profits.
Question 3
What is Sacrificing Ratio? Why is it calculated?
Step-by-Step Solution
Meaning
The ratio in which old partners give up a portion of their profit share in favour of the new partner is known as the Sacrificing Ratio.
Formula
Sacrificing Ratio = Old Share − New Share
Need for Calculation
- To determine compensation payable by the new partner.
- To distribute goodwill among sacrificing partners.
- To maintain fairness among partners.
Final Answer
Sacrificing Ratio is the ratio in which old partners sacrifice their profit share for the incoming partner. It is calculated to distribute goodwill and determine compensation due to the sacrificing partners.
Question 4
On what occasions is Sacrificing Ratio used?
Step-by-Step Solution
Sacrificing Ratio is mainly used:
- At the admission of a new partner.
- While distributing goodwill brought by the incoming partner.
- When goodwill adjustment is made through capital accounts.
- When compensation is given to sacrificing partners.
Final Answer
Sacrificing Ratio is used mainly during the admission of a new partner for goodwill adjustment and compensation of old partners who sacrifice their share of profits.
Question 5
If some goodwill already exists in the books and the new partner brings his share of goodwill in cash, how will you deal with the existing amount of goodwill?
Step-by-Step Solution
- Existing goodwill appearing in books should be written off.
- It is written off through the old partners’ capital accounts.
- The amount is distributed in the old profit-sharing ratio.
- The goodwill brought by the new partner is then credited to sacrificing partners.
Journal Entry
Old Partners’ Capital A/c Dr.
To Goodwill A/c
(Being existing goodwill written off)
Final Answer
When goodwill already exists in the books, it should be written off by debiting old partners’ capital accounts in the old profit-sharing ratio and crediting the goodwill account.
Question 6
Why is there a need for revaluation of assets and liabilities on the admission of a partner?
Step-by-Step Solution
- Assets may be overvalued or undervalued.
- Liabilities may not reflect their actual value.
- Some assets or liabilities may remain unrecorded.
- Old partners should receive the benefit or bear the loss arising before admission.
- Revaluation ensures a fair and correct financial position before the new partner joins.
Final Answer
Assets and liabilities are revalued at the time of admission to show their current values and ensure that gains or losses arising before admission are shared only by the old partners.
Common Mistakes
- Forgetting to calculate the sacrificing ratio.
- Distributing goodwill in the new ratio instead of sacrificing ratio.
- Not writing off existing goodwill.
- Sharing revaluation profit with the new partner.
- Ignoring reserves and accumulated profits.
Exam Tips
✔ Learn the formula of sacrificing ratio thoroughly.
✔ Always identify whether goodwill exists in the books.
✔ Revaluation profit/loss is distributed only among old partners.
✔ Practice journal entries related to goodwill and revaluation.
✔ Read the admission agreement carefully before solving numerical questions.
Practice MCQs
1. A new partner is admitted with the consent of:
A. Majority partners
B. Any one partner
C. All existing partners
D. Creditors
Answer: C
2. Sacrificing Ratio is calculated by:
A. New Share − Old Share
B. Old Share − New Share
C. Old Share + New Share
D. New Share ÷ Old Share
Answer: B
3. Goodwill brought by the incoming partner is distributed in:
A. New Ratio
B. Equal Ratio
C. Capital Ratio
D. Sacrificing Ratio
Answer: D
4. Revaluation profit is shared by:
A. All partners
B. New partner only
C. Old partners only
D. Creditors
Answer: C
5. Existing goodwill is generally:
A. Increased
B. Written off
C. Ignored
D. Sold
Answer: B
FAQ Section
Q1. What is admission of a partner?
Admission of a partner means introducing a new person into an existing partnership firm with the consent of existing partners.
Q2. Why is goodwill adjusted at admission?
Goodwill is adjusted to compensate old partners for the sacrifice of their future profit share.
Q3. Who receives revaluation profit?
Only old partners receive revaluation profit because it relates to the period before admission.
Q4. What is sacrificing ratio?
It is the ratio in which old partners sacrifice their profit share in favour of the new partner.
Q5. Is revaluation compulsory?
It is not legally compulsory but is generally advisable to ensure fair valuation.
Preparing for Class 12 Accountancy Board Exams? Explore more chapter-wise NCERT solutions, numerical problems, MCQs, and revision notes on www.mymockmate.com for complete exam preparation.
Next Part: Long Answer Questions (1–8) from the same chapter.
