Tag: reconstitution of partnership

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Questions Related to reconstitution of partnership

Multiple choice book keeping and accountancy admission of a new partner accounting treatment of admission of a partner partnership accounts: admission of a new partner reconstitution of partnership

General Reserve at the time of admission of a partner is transferred to ____________ .

  1. Revaluation Account

  2. Old Partner's Capital Account

  3. Capital Accounts of all partners, including new partner

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Sometimes a firm may have accumulated reserves not yet transferred to the partner's capitals accounts. These are in the form of general reserve, reserve fund etc. The new partner is not entitled to share in these reserves. Hence, at the time of admission, these reserves are transferred to the old partner's capital accounts in their profit sharing ratio. 
Multiple choice book keeping and accountancy admission of a new partner accounting treatment of admission of a partner partnership accounts: admission of a new partner reconstitution of partnership

In the absence of any agreement, it is presumed that the new partner acquires his share in profits from the old partners in the:

  1. New ratio

  2. Old ratio

  3. Sacrificing ratio

  4. Gaining ratio
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In the absence of a specific agreement, a new partner is assumed to acquire their share of profits from the existing partners in their old profit-sharing ratio.

Multiple choice book keeping and accountancy admission of a new partner accounting treatment of admission of a partner partnership accounts: admission of a new partner reconstitution of partnership

__________ is not essential requirement of a partnership. 

  1. An association of two or more persons

  2. Existence of a contract

  3. Sharing of profit

  4. Mandatory registration
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A partnership is formed by an agreement (contract) between two or more persons to share profits. Registration of a partnership firm is optional under the Indian Partnership Act, 1932, not mandatory.

Multiple choice book keeping and accountancy admission of a new partner accounting treatment of admission of a partner partnership accounts: admission of a new partner reconstitution of partnership

A and B are two partners sharing profit and loss equally. Their capital A/c stood at Rs.30,000 and Rs.25,000 respectively on 31st March, 2013. On 1st April C is admitted for 1/3rd share of profit for which he brings Rs.12,000 as his share of goodwill. On the date of his admission, stock was appreciated by Rs.11,000 and provisions for bad debts also increased by Rs.2,000. Old partners decided that C's capital should be in accordance with his share of profit sharing ratio, what adjustment will be done to make their capital in proportion to their profit sharing ratio?

  1. A to bring Rs.2500, B to be refunded Rs.2500

  2. A to be refunded Rs.2500, B to bring Rs.2500

  3. A to bring Rs.5500, B to be refunded Rs.5500

  4. A to be refunded Rs.5500, B to bring Rs.5500
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

After adjusting for revaluation (stock +11,000, provision -2,000, net +9,000) and goodwill, the new capital balances are calculated. To make capitals proportional to the new 1:1:1 ratio, adjustments are made between partners.

Multiple choice book keeping and accountancy admission of a new partner accounting treatment of admission of a partner partnership accounts: admission of a new partner reconstitution of partnership

A new partner may be admitted to partnership

  1. With the consent of all the old partners

  2. With the consent of any one partner

  3. With the consent of two-thirds of the old partners

  4. With the consent of three-fourths of the old partners
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

According to the Indian Partnership Act, a new partner can only be admitted with the consent of all existing partners unless otherwise agreed in the partnership deed.

Multiple choice book keeping and accountancy admission of a new partner accounting treatment of admission of a partner partnership accounts: admission of a new partner reconstitution of partnership

X and Y are partners sharing profit in the ratio of 1: 1. They admit Z for 1/5th share who contributed 25,000 for his share of goodwill. The total value of the goodwill of the firm will be:

  1. 25,000

  2. 50,000

  3. 1,00,000

  4. 1,25,000
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

If Z brings 25,000 for a 1/5th share of goodwill, the total value of the firm's goodwill is calculated as 25,000 / (1/5) = 125,000.

Multiple choice book keeping and accountancy admission of a new partner accounting treatment of admission of a partner partnership accounts: admission of a new partner reconstitution of partnership

R admitted as a new partner for one-fourth share of future profits, fails to bring in cash of 5,000 towards goodwill but the existing (old) partners S and T, sharing profits in the ratio of 3 : 2, raise the goodwill account at its full value. Therefore the partners will be credited for goodwill as:

  1. S - 3000, T - 2000, R - Nil

  2. S - 9000, T - 6000, R - 5000

  3. S - 12000, T - 8000, R - Nil

  4. S - 2250, T - 1500, R - 1250
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When goodwill is raised at full value, the total goodwill is calculated based on the new partner's share. If R's 1/4 share is 5,000, total goodwill is 20,000. This is credited to old partners in their profit-sharing ratio (3:2). 3/5 of 20,000 = 12,000 and 2/5 of 20,000 = 8,000.

Multiple choice book keeping and accountancy admission of a new partner accounting treatment of admission of a partner partnership accounts: admission of a new partner reconstitution of partnership

If, at the time of admission, some profit and loss account balance appears in the books, it will be transferred to _______________.

  1. Profit and Loss Adjustment Account

  2. All partners' Capital Account

  3. Old partner's Capital Account

  4. Revaluation Account
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Accumulated profits or losses existing in the books at the time of admission belong to the old partners. Therefore, these balances are transferred to the old partners' capital accounts in their old profit sharing ratio.

Multiple choice book keeping and accountancy admission of a new partner accounting treatment of admission of a partner partnership accounts: admission of a new partner reconstitution of partnership

A and B are partners sharing the profit in the ratio $3:2$. They take C as the new partner, who is supposed to bring Rs. $25,000$ against capital and Rs. $10,000$ against goodwill. New profit sharing ratio is $1:1:1$. C is able to bring Rs. $30,000$ only. How this will be treated in the books of the firm?

  1. A and B will share goodwill bought by C as $4,000:1,000$.

  2. Goodwill will be raised to Rs. $15,000$ in old profit sharing ratio.

  3. Both a and b.

  4. None of these.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When a new partner brings goodwill, it is shared by old partners in their sacrificing ratio. If the goodwill is not fully brought in cash, the remaining amount is adjusted through the new partner's current account, and the goodwill can be raised in the books if required by the partnership agreement.

Multiple choice book keeping and accountancy admission of a new partner accounting treatment of admission of a partner partnership accounts: admission of a new partner reconstitution of partnership

Capital accounts of partner A & B are Rs.$30,000$ & Rs.$16,000$. They admitted C on the following conditions.
 -That C brings in Rs.$10,000$ as his capital for $1/4$th share in profits.
 -That a goodwill account be raised in the books of the firm at Rs.$15,000$
 -Profit on revaluation of assets & liabilities was Rs.$2,100$.
 -That the capital accounts of the partners be readjusted on the basis of their profit sharing ratio and any additional amount be debited or credited to their current accounts.
 -General reserve appearing in balance sheet at the time of admission of C was Rs.$6,000$.
To give effect to above current account of A & B  will be ________________.

  1. Debited by Rs.$25,400$ & Rs.$13,700$

  2. Credited by Rs.$20,500$ & Rs.$10,300$

  3. Credited by Rs.$26,550$ & Rs.$12,550$

  4. Debited by Rs.$20,500$ & Rs.$10,300$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

After adjusting for revaluation profit, general reserve, and the raised goodwill, the total capital of the new firm is determined. The partners' capital accounts are then adjusted to the new profit sharing ratio, and the difference is transferred to their current accounts.