Admission of partnership, HSC,

Answer the following

What is a Revaluation Account?

An account opened and operated by any partnership firm for recording changes in the value of assets and liabilities and to ascertain profit or loss made on revaluation of assets and liabilities is called Revaluation Account.

What is meant by the Reconstitution of Partnership?

Reconstitution of partnership means a change in the relationship between/among partners and in the form of partnership.

Why is a new partner admitted?

A new partner is admitted to the existing partnership firm to increase the capital resources of the firm and to secure advantages of a new entrant’s skill and business connections, i.e. goodwill.

What is the sacrifice ratio?

A ratio that is surrendered or given up by the old partners in favour of a newly admitted partner is called sacrifice ratio.

What do you mean by raising the goodwill at the time of admission of a new partner?

Raising the Goodwill at the time of admission of a new partner means debiting Goodwill Account up to the value it is raised and crediting. Old partners Capital Accounts in their old ratio in the books of the firm.

What is the super profit method of calculation of goodwill?

Super profit method of calculation of Goodwill is a method in which Goodwill is valued at a certain number of years purchases of the super profit of the partnership firm.

When is the ratio of sacrifice calculated for the distribution of goodwill?

The ratio of sacrifice is calculated when the benefits of goodwill contributed by a new partner in cash is to be transferred to existing partners’ Capital/Current Account.

What is the treatment of accumulated profits at the time of admission of a partner?

Accumulated profits at the time of admission of a partner are transferred to old partners’ Capital/ Current Accounts in their old profit sharing ratio.

State the ratio in which the old partner’s Capital A/c will be credited for goodwill when the new partner does not bring his share of goodwill in cash?

When the new partner does not bring his share of goodwill in cash, Goodwill is raised up to a certain value and credited to old partners’ Capital/Current A/cs in their old profit sharing ratio.

What does the excess of debit over credits in the Profit and Loss Adjustment Account indicate?

The excess of debit over credits in Profit and Loss Adjustment Account indicates a loss on the revaluation of assets and liabilities.

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