The reconstitution of a partnership firm occurs when new partners are admitted, necessitating changes in the firm’s structure and profit-sharing arrangements. This process involves careful consideration of the existing partners’ rights and obligations, as well as the contributions and roles of the incoming partner. Key elements include the valuation of the partnership’s assets, adjustment of capital accounts, and the drafting of a new partnership agreement to reflect these changes. Understanding the legal and financial implications is crucial for smooth transitions and maintaining harmonious business relations among all partners involved.
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[q] What is the effect on the profit sharing ratio when a new partner is admitted?
A) It remains unchanged
B) It is equal for all partners
C) It will be determined by the agreement between partners
D) The new partner will take the share equally
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[a] It will be determined by the agreement between partners [q] Which method is commonly used to value goodwill at the time of a new partner’s admission?
A) Weighted Average Method
B) Super Profit Method
C) Net Asset Method
D) Capitalization Method [a] Super Profit Method [q] When a new partner is admitted, which account is opened to record the new partner’s capital?
A) New Partner‚’ Capital Account
B) Partner‚’ Equity Account
C) Fresh Investment Account
D) Capital Reserve Account [a] New Partner‚’ Capital Account [q] What is the typical adjustment made to the existing partners’ capital accounts when a new partner is admitted?
A) Increase in capital
B) Decrease in capital
C) No adjustment
D) Proportional adjustment based on the profit sharing ratio [a] Proportional adjustment based on the profit sharing ratio [q] If an existing partner shares profits in a new ratio of 3:2 after the admission of a new partner, what does this signify?
A) New partner’s share is 3 and existing partners’ combined share is 2
B) Old profit sharing ratio is retained
C) Only the old partners share the profits
D) Only the new partner gets a profit share [a] {answer_51]} [q] In case of admission of a partner, what is added to the partner’s capital account to compensate for the goodwill?
A) Additional Investment
B) Goodwill Account
C) Fair value adjustment
D) Adjusting Reserve Account [a] Goodwill Account [q] When a partner is admitted, which financial statement needs to be adjusted to show the new partnership dynamics?
A) Balance Sheet
B) Profit and Loss Account
C) Cash Flow Statement
D) Trial Balance [a] Balance Sheet [q] What document is crucial for determining the terms agreed upon when a new partner is admitted?
A) Partnership Deed
B) Business Plan
C) Meeting Minutes
D) Shareholder Agreement [a] Partnership Deed [q] Which of the following is NOT affected by the admission of a new partner?
A) Profit sharing ratio
B) Total capital of the firm
C) Number of partners
D) Legal status of the existing partners [a] Legal status of the existing partners [q] What is a common reason for admitting a new partner into a firm?
A) To expand the business
B) To reduce the workload
C) To introduce expertise
D) All of the above [a] All of the above [x]Click here to explore more flashcards: Accountancy Flashcards [restart] [/qdeck]
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