Reconstitution of Partnership : Admission of a Partner
ICSE · Class 12 · Accountancy
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What is meant by reconstitution of a partnership firm?
Answer
Reconstitution happens when the partnership agreement changes and the firm continues with a new arrangement. The old agreement ends and a new agreement comes into operation. A change in profit sharing…
Why is admission of a new partner treated as reconstitution?
Answer
Admission of a new partner changes the rights and duties of the existing partners. The old partnership agreement ends, a fresh agreement begins, and the firm continues in a new form. That is why admis…
What legal condition applies to the admission of a new partner?
Answer
A person cannot be admitted as a partner into a firm without the consent of all existing partners, subject to any contract between them. The partnership law also states that a newly admitted partner i…
Who is a new partner?
Answer
A new partner is the person admitted into the firm during reconstitution. This partner gets the right to share future profits and also gets a share in the firm's assets by bringing capital. Premium fo…
Who are sacrificing partners?
Answer
Sacrificing partners are the old partners who give up part of their profit share in favour of the incoming partner. They are entitled to the premium for goodwill in the sacrificing ratio. If a partner…
What is a new profit sharing ratio?
Answer
The new profit sharing ratio is the ratio in which all partners, including the incoming partner, share future profits and losses. It is calculated from the old share minus the sacrifice share.
State the formula for new profit sharing ratio.
Answer
New share = Old share - Sacrifice share. Here, old share means the partner's share before admission, and sacrifice share means the share given up in favour of the incoming partner.
What is the sacrificing ratio and how is it calculated?
Answer
The sacrificing ratio is the ratio in which old partners give up their share of profit in favour of the incoming partner. It is calculated as Sacrificing ratio = Old ratio - New ratio. This ratio is u…
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