Reconstitution of a Partnership Firm - Admission of a Partner (12 Accountancy)
Practise chapter-wise MCQs for Class 12 Accountancy — Reconstitution of a Partnership Firm - Admission of a Partner. Every question comes with the correct
TL;DR: Practise chapter-wise MCQs for Class 12 Accountancy — Reconstitution of a Partnership Firm - Admission of a Partner. Every question comes with the cor…
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Practise chapter-wise MCQs for Class 12 Accountancy — Reconstitution of a Partnership Firm - Admission of a Partner. Every question comes with the correct
Reconstitution of a Partnership Firm - Admission of a Partner MCQs with Answers & Explanations
Q1. If the existing partners decide to maintain their old profit-sharing ratio even after the admission of a new partner, how will the new partner's share be determined?
- The new partner's share will be a fixed percentage determined by the agreement. ✓ (correct)
- The new partner's share will be determined by their capital contribution.
- The new partner's share will be calculated as the difference between total profit and the sum of old partners' shares.
- The new partner will receive an equal share of profit as each of the old partners.
Explanation: If the old partners' profit-sharing ratio remains unchanged, the new partner's share is explicitly stated in the admission agreement, typically as a fixed percentage or fraction of the total profit.
Q2. What is the primary purpose of revaluing assets and liabilities on the admission of a new partner?
- To increase the profit of the old partners.
- To ascertain the true financial position of the firm at the time of admission. ✓ (correct)
- To record the new partner's share of goodwill.
- To reduce the overall capital of the firm.
Explanation: Revaluation of assets and liabilities is done to reflect their current market values, thereby ascertaining the true and fair financial position of the firm. This ensures that profits or losses arising from these changes are attributed to the partners (old or new) as per their respective profit-sharing ratios.
Q3. When a new partner is admitted, what happens to the reserves and accumulated profits (like General Reserve, Profit and Loss Account) appearing in the balance sheet of the old firm?
- They are adjusted in the capital accounts of the old partners in their sacrificing ratio.
- They are written off to the Profit and Loss Adjustment Account.
- They are distributed among the old partners in their old profit-sharing ratio. ✓ (correct)
- They are carried forward to the new firm as they are.
Explanation: Reserves and accumulated profits are part of the undistributed profits of the old firm. Upon admission of a new partner, these are considered earned by the old partners and are therefore distributed among them in their old profit-sharing ratio before the new ratio takes effect.
Q4. The sacrificing ratio is the ratio in which:
- The remaining partners share profits after the retirement of a partner.
- The firm's goodwill is valued.
- The new partner shares profits with the old partners.
- The old partners forego their share of profit in favour of the new partner. ✓ (correct)
Explanation: Sacrificing ratio is specifically calculated to distribute the goodwill brought in by the new partner. It represents the proportion by which the old partners reduce their claim on profits to accommodate the new partner.
Q5. Goodwill of the firm is to be raised and then written off. If the new partner does not bring their share of goodwill in cash, how is the goodwill accounted for?
- Debit New Partner's Capital Account, Credit Old Partners' Capital Accounts in their sacrificing ratio. ✓ (correct)
- Debit Goodwill Account, Credit New Partner's Capital Account.
- Debit New Partner's Capital Account, Credit Goodwill Account.
- Debit Goodwill Account, Credit Old Partners' Capital Accounts in their new profit-sharing ratio.
Explanation: When the new partner's share of goodwill is not brought in cash, it is treated as a debt owed by the new partner to the old partners. The New Partner's Capital Account is debited (as it reduces their claim on the firm), and the Old Partners' Capital Accounts are credited in their sacrificing ratio, reflecting their entitlement to this goodwill.
Q6. When there is a change in the profit-sharing ratio due to the admission of a new partner, workmen's compensation reserve is treated as:
- A capital reserve to be carried forward.
- A profit to be distributed among old partners in their old P.S.R. ✓ (correct)
- A liability to be paid to workmen.
- A profit to be distributed among all partners in their new P.S.R.
Explanation: Workmen's Compensation Reserve is created to meet future claims of workmen. Any unutilized portion of this reserve at the time of admission is considered an accumulated profit and is distributed among the old partners in their old profit-sharing ratio, as it was accumulated before the new partner joined.
Q7. Goodwill of the firm is to be raised. If the new partner brings in their share of goodwill in cash, what is the correct treatment?
- Debit Goodwill Account, Credit New Partner's Capital Account.
- Debit New Partner's Capital Account, Credit Goodwill Account.
- Debit Cash Account, Credit New Partner's Capital Account. ✓ (correct)
- Debit Goodwill Account, Credit Old Partners' Capital Accounts in their sacrificing ratio.
Explanation: When the new partner brings in goodwill in cash, the Cash/Bank account is debited as cash is received. The New Partner's Capital account is credited as it represents their contribution towards goodwill and capital. The actual distribution of this goodwill to old partners happens in a subsequent step.
Q8. When a new partner is admitted, the profit-sharing ratio of the old partners is usually affected. Which of the following is generally required to calculate the new profit-sharing ratio?
- The total capital of the firm.
- The goodwill brought in by the new partner.
- The sacrificing ratio of the old partners.
- The new partner's share of profit. ✓ (correct)
Explanation: The new profit-sharing ratio is determined by considering the existing ratio of old partners and the share of profit taken by the new partner. The sacrificing ratio is calculated after the new ratio is known. Capital and goodwill are related to capitalisation and valuation, not directly the new profit-sharing ratio calculation itself.
Q9. If an unrecorded asset is discovered at the time of admission, it will be:
- Debited to the Revaluation Account and credited to the Old Partners' Capital Accounts in their old P.S.R. ✓ (correct)
- Debited to the Revaluation Account and credited to the New Partner's Capital Account.
- Debited to the Revaluation Account and credited to the concerned Asset Account.
- Debited to the Revaluation Account and credited to the General Reserve.
Explanation: An unrecorded asset represents a gain. This gain is credited to the Revaluation Account. The ultimate benefit of this gain goes to the partners at the time of admission, so it is distributed among the old partners in their old profit-sharing ratio.
Q10. If a part of the goodwill is withdrawn by the old partners, what is the entry to be passed?
- Debit Cash/Bank Account, Credit Old Partners' Capital Accounts.
- Debit Old Partners' Capital Accounts, Credit Cash/Bank Account. ✓ (correct)
- Debit Goodwill Account, Credit Old Partners' Capital Accounts.
- Debit New Partner's Capital Account, Credit Old Partners' Capital Accounts.
Explanation: When old partners withdraw their share of goodwill, their capital accounts are debited (as their capital decreases) and the Cash/Bank account is credited (as cash is paid out to them).
More 12 Accountancy MCQs
- Accounting for Partnership: Basic Concepts
- Goodwill: Nature and Valuation
- Reconstitution of a Partnership Firm - Change in Profit Sharing Ratio
- Reconstitution of a Partnership Firm - Retirement and Death of a Partner
- Dissolution of Partnership Firm
- Accounting for Share Capital
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