Reconstitution of a Partnership Firm quiz

Sacrificing ratio is calculated as:

Goodwill is:

A and B share profits 3:2. C is admitted for a 1/5 share. The new ratio is:

Gaining ratio is calculated on:

As per AS 26, goodwill can be recorded in the books only when:

Increase in the value of an asset on revaluation is:

Average profit Rs 60,000, normal profit Rs 45,000. Goodwill at 2 years' purchase of super profit is:

General Reserve existing at the time of admission is transferred to:

Amount due to a deceased partner, if not paid immediately, is transferred to his:

When a partner retires, the amount payable to him is NOT affected by:

Why is it necessary to revalue assets and liabilities at the time of reconstitution? (2 marks)

Distinguish between sacrificing ratio and gaining ratio on two bases. (2 marks)

What is hidden goodwill? How is it calculated on admission? (2 marks)

Pass the journal entry when a new partner brings his share of goodwill in cash and it is retained in the business. (2 marks)

What is meant by change in profit sharing ratio among existing partners? Why does it require valuation of goodwill? (2 marks)

How is existing goodwill appearing in the books treated on admission of a new partner? (2 marks)

State two methods by which the share of profit of a deceased partner up to the date of death may be calculated. (2 marks)

What is a Joint Life Policy? Why do firms take it? (2 marks)

Pass the entry when the new partner cannot bring his share of goodwill in cash. (2 marks)

State two ways in which the amount due to a retiring partner may be settled. (2 marks)

X and Y share profits 5:3. They admit Z for a 1/4 share, which he takes 1/8 from X and 1/8 from Y. Calculate the new profit sharing ratio. (3 marks)

Average profit of a firm is Rs 80,000, capital employed is Rs 5,00,000 and the normal rate of return is 10%. Calculate goodwill by the capitalisation of average profit method. (3 marks)

D, E and F share profits 3:2:1. E retires and the new ratio of D and F is 3:1. Calculate the gaining ratio. If goodwill is Rs 1,20,000, calculate the amount to be debited to D and F. (3 marks)

G, H and I share profits 2:1:1. I died on 30 September 2025. Last year's sales were Rs 6,00,000 and profit Rs 1,20,000. Sales from 1 April 2025 to the date of death were Rs 2,00,000. Calculate I's share of profit on the basis of sales. (3 marks)

J and K share profits 3:2 with capitals of Rs 2,40,000 and Rs 1,60,000. L is admitted for a 1/5 share. Calculate L's capital on the basis of the total capital of the old partners (hidden goodwill not to be considered). (3 marks)

Read the passage and answer the questions. Ananya and Bhavesh run a design studio in Chennai, sharing profits 3:2. With growing work, they admit Chitra, an expert animator, for a 1/4 share. Chitra brings Rs 2,00,000 as capital and Rs 40,000 as her share of goodwill in cash. (i) Calculate the new profit sharing ratio assuming old partners sacrifice in their old ratio. (ii) Pass the entry for Chitra's capital and goodwill brought in. (iii) Show the distribution of goodwill premium between the old partners. (5 marks)

Read the passage and answer the questions. On Chitra's admission to the firm in the previous question, the following revaluation was agreed: equipment of Rs 1,00,000 is to be depreciated by 10%; a computer software of Rs 30,000 not recorded is to be brought into the books; an unrecorded liability of Rs 6,000 is to be recorded; and the provision for doubtful debts is to be raised from Rs 2,000 to Rs 5,000. (i) Calculate the profit or loss on revaluation. (ii) Show its distribution between Ananya and Bhavesh. (iii) Why is the new partner not given any share of revaluation profit? (5 marks)

Read the passage and answer the questions. Ramesh, Suresh and Mahesh share profits 2:2:1. Ramesh retires on 31 March 2026. The firm's goodwill is valued at Rs 75,000. The Balance Sheet shows General Reserve Rs 25,000 and Profit and Loss debit balance Rs 10,000. Suresh and Mahesh decide to share future profits 3:2. (i) Calculate the gaining ratio. (ii) Calculate Ramesh's share of goodwill and pass the entry. (iii) Pass the entries for General Reserve and Profit and Loss debit balance. (5 marks)

Read the passage and answer the questions. Tara, Uma and Vani share profits equally. They decide that from 1 April 2026 they will share profits 2:2:1. Goodwill is valued at Rs 90,000, and the reserves are not to be distributed but adjusted. (i) Calculate each partner's sacrifice or gain. (ii) Pass the single entry for goodwill adjustment. (iii) Why is it fair that the gaining partner compensates the sacrificing partner? (5 marks)

Read the passage and answer the questions. Wasim, a partner in a three-partner firm, died on 31 December 2025. The firm had a Joint Life Policy of Rs 3,00,000. His capital was Rs 1,50,000, his share of goodwill Rs 40,000, his share of profit to date Rs 18,000 and his drawings Rs 12,000. The firm paid his executors immediately in full. (i) How is the Joint Life Policy amount credited to partners? (ii) Calculate the amount due to Wasim's executors, assuming his share in the policy is Rs 1,00,000. (iii) Pass the entry for payment to the executors. (5 marks)

Explain the methods of valuation of goodwill: average profit, weighted average profit, super profit and capitalisation. Illustrate each with your own figures and draw a chart summarising formulae. (6 marks)

A and B share profits 3:2 with capitals of Rs 1,00,000 and Rs 80,000. General Reserve Rs 20,000. C is admitted for a 1/5 share and brings Rs 50,000 as capital and Rs 20,000 for goodwill. Building is appreciated by Rs 15,000 and stock reduced by Rs 5,000. Prepare the Revaluation Account and Partners' Capital Accounts in prose form. (6 marks)

Explain the treatment of goodwill on admission when (i) the new partner brings premium in cash (ii) premium is paid privately (iii) the new partner cannot bring premium (iv) there is existing goodwill in the books. Draw a flowchart of these cases. (6 marks)

Explain the steps in calculating the amount due to a retiring partner. Draw a chart showing the items credited and debited to his capital account, and illustrate with a numerical example of your own. (6 marks)

Explain the accounting treatment on death of a partner, including share of profit to the date of death, Joint Life Policy and the Executor's Account. Draw a flowchart from death to final payment to the executors. (6 marks)