NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3

NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3

Accounting is one of those subjects with numerous applications in the real world. This does not, however, imply that this subject is easy to study or understand. Instead, every year, a large number of students complain that accounting is a challenging subject.

Chapter 3 Reconstitution of a Partnership Firm – Admission of a Partner, talks about how a partnership is an agreement among partners or members of a firm to share profits and losses from the business carried on by all or any of them acting on behalf of all. Any modification to this agreement constitutes a reorganisation of the partnership firm.

To excel in this tricky subject, students need to go through Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3. This study material contains detailed information, and the solutions are prepared by the subject matter experts in the Accounting field. 

Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3 proves beneficial for the students to study new concepts and revise them. In addition to these, students can use the Extramarks website to access a number of other study resources such as NCERT books, CBSE revision notes, CBSE sample papers, CBSE previous year question papers, etc.

Key Topics Covered In NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3

Below are the major topics covered in NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3- Reconstitution of a Partnership Firm- Admission of a Partner.

Let us look at in-depth information on each subtopic covered in Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3.

What is Reconstitution of a Partnership Firm?

A partnership refers to an agreement between two or more persons to split the profits from a transaction carried out by all of them or by any one acting on their behalf. Reconstitution of the partnership firm refers to any modification in the present agreement.

Modes of Reconstitution of a Partnership Firm

The following ways usually accomplish the reconstitution of a partnership firm:

• Admission of a new partner: A new partner may be accepted when a company requires extra financial or organisational support. A new partner can be admitted when the current partners jointly grant their approval, according to the Partnership Act of 1932, which is diversely supplied in the deed of partnership.
• Change in the profit-sharing ratio: An enterprise’s partners may decide to modify their present gain (profit) share ratio at any moment. 
• Retirement of an existing partner: This refers to a partner’s departure from the firm’s business, which might be due to worsening health, old age, or a shift in company’s activity. In reality, if the partnership is created at will, a partner can leave at any moment. However, this leads to the firm’s reorganisation, with only two partners remaining.
• Death of a partner: In case when one of the partners die and if the surviving partners decide to continue the company as usual, then the partnership will have to be rebuilt

Different modes of reconstitution for a Partnership firm are briefly covered above. To gain a deeper understanding of each of them, students can register on the Extramarks website to gain full access to  

NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3. Our Chapter-wise solutions give students step-by-step explanations on this topic.

Admission of a New Partner

One of the main factors for a company to seek new partners is to expand its business. Unless otherwise agreed upon, a new partner can be allowed into the business with the permission of all current partners under the Partnership Act of 1932.

With the addition of a new partner, the partnership firm is reconfigured, and all of the partners enter into a new agreement to conduct the firm’s operations.

The criteria that led to the inclusion of a new partner were as follows:

• When the company is expanding and needs additional funds.
• When the new partners have the skills to help, the firm expands its operations.
• When the partner in issue has a good reputation and contributes to the firm’s goodwill.

When a new partner is admitted, the following modifications must be made:

• Calculating the new profit sharing and sacrifice ratios.
• Keeping track of goodwill.
• Assets and liabilities are revalued.
• Capital adjustment in accordance with the revised profit sharing ratio.

Few of the above scenarios might be difficult to understand by reading these bullet points. So we recommend students to go through Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3 to get  detailed and authentic solutions to all problems . All scenarios of when a new partner is admitted are explained with real-life examples and case studies for students to easily understand these difficult concepts.

Treatment of Goodwill in the Admission of a Partner

When a new partner joins the firm, they are entitled to a share of the firm’s future revenues. The act of admitting a new partner also results in a reduction in the existing partners’ future profit sharing ratio. As a result, a new partner must provide additional value in addition to cash, which is known as Premium for Goodwill.

The following circumstances shall govern the treatment of goodwill with the entry of a new partner:

• When the goodwill payment is made privately.
• When the sum required to pay the goodwill share is brought in cash.
• When kindness is not exchanged for money.

These are some of the treatment of goodwill with the entry of a new partner as stated in Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3.

New Profit Sharing Ratio

The new profit sharing ratio is known as the ratio in which the existing and new partners agree to divide the profit and loss proportion in the future following the addition of the new partner. A new partner receives a few items after being accepted into an existing partnership company, as follows:

• The existing partners relinquish a percentage of their gain in goodwill for the new associate partner when a new associate is admitted.
• If nothing is said about how the new associate partner gets his share from the existing partners, it’s safe to assume he gets it through their gain (profit) sharing ratio.
• The previous partners and the new associate partner collaborate to decide the new associate partner’s share and how he would get it from the presently existing partners.
• As a result, determining the new profit sharing ratio among all associate partners is required. This is dependent on how the new associate partner collects his share from the previous partners, which can be done in various ways.
• In any case, when a new partner is admitted, the profit-sharing ratio between the existing partners will alter, taking into account their respective contributions to the new arriving partner’s profit-sharing ratio.

Sacrificing Ratio

The sacrificing ratio is calculated when a new associate partner is added or admitted. It’s the part where the former partners hand over their share to the new partner.

A new collaborator is required to:

• Reimburse the former partners for their loss of share in the company’s profits, which he receives in the form of a goodwill or premium payment.

The partners usually agree upon this ratio, and it might be the old ratio, an equal amount of sacrifice, or a predetermined ratio. 

The concept of Sacrificing ratio is explained in further detail in Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3.

Goodwill

A goodwill asset is generally an intangible asset acquired when one business buys another. Goodwill is usually recognised when the purchase price exceeds the total fair value of all the visible solid and intangible assets bought in during the transaction, as well as the liabilities taken in the transaction. Goodwill might include a company’s brand name, a solid customer base, good customer relations, good staff relations, and any patents or proprietary technologies.

There are two different kinds of goodwill:

• Purchased: Purchased goodwill is known as the difference between the price paid for a firm as a continuing concern and the total value of its assets, subtracting the total value of its liabilities, each of which has been identified and appraised individually.
• Inherent: It’s the difference between the business’s fair value and the fair value of its separable net assets. It’s known as internally produced goodwill, and it develops over time as a result of a company’s strong reputation. 

Adjustment for Accumulated Profits and Losses

After the dividend is paid, Accumulated Profits and Losses are the summations of an enterprise’s profits and losses. As covered in Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3, it’s also known as retained profits, retained capital, or earned surplus.

An enterprise’s profits may have accumulated but not yet been transferred to the partners’ capital accounts. The general reserve, reserve fund, and/or profit and loss account balance are the most common examples. The new partner, on the other hand, is not entitled to any of the accrued earnings. These are only distributed to the former partners by moving them to their capital accounts in accordance with the previous profit sharing ratio if there are any accumulated losses in the form of a Debit balance in the Profit and Loss Account on the balance sheet of the company.

Revaluation of Assets and Reassessment of Liabilities

It is usually preferable to establish whether the enterprise’s assets are shown in the books at their current valuations with the admission of a new partner. The assets must be revalued if they are overvalued or undervalued. A few factors that demonstrate why asset revaluation and liability reassessment is essential:

• Obligations are reassessed so that the liabilities are reflected in the books at their correct values.
• There may be specific assets and obligations of the company that go unrecognised and unrecorded from time to time. These must also be recorded in the business’s books. As a result, the company must define the Revaluation Account.
• The profit or loss on revaluation of each asset and obligation is transferred to this account. The balance is transferred to the previous partners’ capital accounts in their old profit-sharing ratio.

The topic of Revaluation of Assets and Reassessment of Liabilities is complex to understand. Our  experienced faculty has simplified this topic for students in our Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3 study notes.

Adjustment of Capitals

An adjustment of capital is a modification made to an account to compensate for the effect of inflation caused by changes in the cost of products and/or services consumed by the company. Stocks are not included in this calculation, but prepaid expenses, receivable invoices, and trade debtors are included.

At the time of admission, the partners may agree that their capital should be modified according to their profit sharing ratio. If the capital of the new partner is known, it can be used as a starting point for computing the new capital of the former partners. After all, adjustments relating to goodwill reserves and revaluation of assets and liabilities, etc., have been made, the capitals thus determined should be compared with their old capitals. The partner whose capital falls short will have to bring in the required amount to cover the lack of it, and the partner who has a plethora will withdraw the exceeding amount of capital.

Change in Profit Sharing Ratio among the Existing Partners

Without any retirement or admittance of a partner, the partners of an organisation decide to adjust their present or existing profit sharing ratio. This leads to certain partners earning an increased share of the enterprise’s future profits while others lose a portion of it.

Modifying the profit sharing ratio is one of the most common forms of reconstitution used to change the current partner ratio. This modification simply affects the value of profit-sharing between partners and has no impact on the existence of the company partners.

NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3 Accounting for Share Capital NCERT Solutions – Exercise and Solutions

Click on the below links to view NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3: 

• Class 12 Accounting Chapter 3: Very Short Answer Type Questions
• Class 12 Accounting Chapter 3: Short Answer Type Questions
• Class 12 Accounting Chapter 3: Long Answer Type Questions

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• NCERT Solutions Class 1
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By getting access to Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3, students can easily understand Reconstitution of a Partnership Firm- Admission of a Partner.

Key Features of NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3

All students want to excel in the board examination. In order to achieve that, Extramark has created NCERT solutions for all Classes and subjects. For Class 12 Accountancy, students can refer to NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 3 and other Chapters NCERT Solutions materials. Here are some compelling  reasons why students should register with Extramarks:

• Focusing on these NCERT solutions makes the process of preparation for board examinations easy for the students.
• The solutions are created by the subject experts  in a simple and comprehensible language. 
• These solutions prove time-saving for students and also help them learn all the concepts quickly and easily. .