Reconstitution of a Partnership Firm - Change in Profit Sharing Ratio (12 Accountancy)
Practise chapter-wise MCQs for Class 12 Accountancy — Reconstitution of a Partnership Firm - Change in Profit Sharing Ratio. Every question comes with the
TL;DR: Practise chapter-wise MCQs for Class 12 Accountancy — Reconstitution of a Partnership Firm - Change in Profit Sharing Ratio. Every question comes with…
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Practise chapter-wise MCQs for Class 12 Accountancy — Reconstitution of a Partnership Firm - Change in Profit Sharing Ratio. Every question comes with the
Reconstitution of a Partnership Firm - Change in Profit Sharing Ratio MCQs with Answers & Explanations
Q1. When there is a change in the profit sharing ratio, and the goodwill is already appearing in the books, it should be:
- Written off in the new profit sharing ratio
- Distributed among partners in the sacrificing ratio
- Written off in the old profit sharing ratio ✓ (correct)
- Distributed among partners in the gaining ratio
Explanation: Goodwill appearing in the books is an asset representing past efforts. It needs to be written off completely at the time of reconstitution, and this is done in the old profit sharing ratio among all partners.
Q2. If the profit sharing ratio changes from 1:1 to 2:1, the partner who was previously sharing equally and now has a higher share has:
- Suffered a loss
- Remained neutral
- Sacrificed
- Gained ✓ (correct)
Explanation: The partner's share has increased from 1/2 to 2/3. An increase in share indicates a gain.
Q3. If a partner's share increases from 1/4 to 1/3, their gaining ratio is calculated as:
- New share - Old share ✓ (correct)
- Old share - New share
- New share + Old share
- New share / Old share
Explanation: The gaining ratio signifies the extent to which a partner's share has increased. This is found by subtracting the old share from the new share.
Q4. When there is a change in the profit sharing ratio of existing partners, it leads to:
- Dissolution of the firm
- Reconstitution of the partnership firm ✓ (correct)
- Admission of a new partner
- Retirement of a partner
Explanation: A change in the profit sharing ratio among existing partners alters the terms of the partnership agreement without dissolving the firm or bringing in/taking out a partner. This is the definition of reconstitution.
Q5. If the partners decide to maintain the revalued value of assets and liabilities without affecting their capital accounts, then the adjustment for revaluation can be made through:
- Revaluation Account only
- Partner's Capital Accounts
- Gaining Partner's Capital Account and Sacrificing Partner's Capital Account ✓ (correct)
- Cash or Bank Account
Explanation: This is the most common method. The net effect of revaluation (profit or loss) is adjusted between the gaining and sacrificing partners through their capital accounts in their gaining and sacrificing ratios respectively.
Q6. The Revaluation Account is debited with:
- Increase in the value of assets and decrease in the value of liabilities
- Profit on revaluation
- Loss on revaluation
- Decrease in the value of assets and increase in the value of liabilities ✓ (correct)
Explanation: The Revaluation Account is debited for any decrease in the value of assets or any increase in the value of liabilities, as these represent a loss to the firm.
Q7. A partner who has given up a part of their share in favour of another partner is called a:
- Sacrificing partner ✓ (correct)
- Gaining partner
- Retiring partner
- New partner
Explanation: A sacrificing partner is one whose share in the partnership decreases due to the change in the profit sharing ratio. They give up a portion of their profit share.
Q8. Reserves and accumulated profits (like General Reserve, Profit and Loss Account balance) appearing in the balance sheet at the time of change in profit sharing ratio are:
- Distributed among partners in the new profit sharing ratio
- Distributed among partners in the old profit sharing ratio ✓ (correct)
- Transferred to the gaining partner's capital account
- Transferred to the sacrificing partner's capital account
Explanation: Reserves and accumulated profits are created out of past profits. At the time of reconstitution, these are distributed to the partners in their old profit sharing ratio before the change takes effect.
Q9. Unrecorded assets at the time of change in profit sharing ratio are:
- Credited to the Capital Accounts of partners in the old ratio
- Debited to the Capital Accounts of partners in the new ratio
- Credited to the Revaluation Account ✓ (correct)
- Debited to the Revaluation Account
Explanation: Unrecorded assets discovered or brought into account are credited to the Revaluation Account as they represent a gain to the partners.
Q10. In case of a change in profit sharing ratio, goodwill is adjusted by:
- Crediting both gaining and sacrificing partners
- Debiting both gaining and sacrificing partners
- Crediting the gaining partner and debiting the sacrificing partner
- Debiting the gaining partner and crediting the sacrificing partner ✓ (correct)
Explanation: The gaining partner has to compensate the sacrificing partner for the loss of future share. Therefore, the gaining partner's capital is debited, and the sacrificing partner's capital is credited.
More 12 Accountancy MCQs
- Accounting for Partnership: Basic Concepts
- Goodwill: Nature and Valuation
- Reconstitution of a Partnership Firm - Admission of a Partner
- Reconstitution of a Partnership Firm - Retirement and Death of a Partner
- Dissolution of Partnership Firm
- Accounting for Share Capital
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