Reconstitution of a Partnership Firm – Admission of a Partner

Topics in this chapter

• Admission Basics and New Ratios
• Goodwill Valuation and Adjustment
• Revaluation and Memorandum Accounts
• Reserves and Accumulated Profits
• Capital Accounts After Admission
• Admission Journal Entries

Cheat sheet

Practice questions

1. Question 1Q-FBC83A

   When a new partner is admitted, the existing partnership agreement comes to an end, and a new agreement comes into existence. This process is known as:

   1. A.Dissolution of partnership firm
   2. B.Reconstitution of partnership firm
   3. C.Amalgamation of partnership firm
   4. D.Liquidation of partnership firm
   See the answer and solution
2. Question 2Q-277460

   At the time of admission of a new partner, how is the unrecorded asset usually treated in the books of the firm?

   1. A.Credited to Revaluation Account
   2. B.Debited to Revaluation Account
   3. C.Credited to Old Partners' Capital Accounts
   4. D.Debited to New Partner's Capital Account
   See the answer and solution
3. Question 3Q-F65034

   X and Y are partners sharing profits in the ratio of 3:2. They admit Z as a new partner for 1/5th share in the profits, which he acquires entirely from X. What will be the new profit-sharing ratio of X, Y, and Z?

   1. A.9:6:5
   2. B.12:8:5
   3. C.2:2:1
   4. D.3:2:1
   See the answer and solution
4. Question 4Q-DD6D7E

   A and B are partners sharing profits in the ratio 3:2. C is admitted as a partner. The new profit-sharing ratio among A, B, and C is 5:3:2. What is the sacrificing ratio of A and B?

   1. A.3:2
   2. B.2:1
   3. C.1:1
   4. D.5:3
   See the answer and solution
5. Question 5Q-3A7828

   When the new partner brings their share of goodwill in cash, and it is retained in the business, how is the amount of premium for goodwill treated?

   1. A.Credited to sacrificing partners' capital accounts in sacrificing ratio
   2. B.Credited to all partners' capital accounts in old ratio
   3. C.Credited to new partner's capital account
   4. D.Debited to revaluation account
   See the answer and solution