IMPORTANT QUESTIONS OF "ADMISSION OF A PARTNER" CLASS XII ACCOUNTANCY

Q.1. What do you understand by admission of a new partner? 

Ans. When a new partner is admitted into the firm, it is known as admission of a new partner. On admission of a new partner, old partnership comes to an end and new partnership comes into existence.

Q.2 State with reason whether at the time of Admission of a Partner, partnership is dissolved or partnership firm is dissolved. 

Ans. Partnership is dissolved not the partnership firm since the firm continues to carry on its business.

Q.3. State the rights acquired by a newly admitted partner.

Ans. When a partner is admitted in the firm, he gets following two rights:

(1) Right to share future profits of the firm, and 

(ii) Right to share in the assets of the firm 

Q.4. Why should a new partner contribute towards goodwill on his admission? 

Ans. A new partner should contribute towards goodwill in order to compensate the existing partners for sacrificing their shares of profit in his or her favour.

Q.5. Give the name of the compensation which is paid by the new partner to sacrificing partners for sacrificing their share of profits. 

Ans. Compensation paid to the sacrificing partners by the new partner is termed as Goodwill or Premium for Goodwill.

Q6. What is meant by New Profit-sharing Ratio in case of admission of a partner?

Ans. The ratio in which all partners, including the incoming partner, will share the profits and losses in future is known as New Profit-sharing Ratio

Q.7. How is Sacrificing Ratio calculated?

Ans. Sacrificing Ratio is sacrificed share in profit of two or more partners in terms of ratio. Sacrificed share of each partner is calculated as follows:

Sacrificed Share =Old Profit Share-New Profit Share

Q.8. Reena and Raman are partners in a firm sharing profits in the ratio of 4: 3. They admitted Roma as a new partner. The new profit-sharing betwe Reena, Raman and Roma was 3:2:2. Raman surrendered 1/3rd of his share in favour of Roma. Calculate Reena's sacrifice.

Ans. Raman's Sacrifice = 3/7 × 1/3 = 1/7

                      

Roma's Share = 2/7

Therefore Reena's Sacrifice= 

Roma's Share - Raman's Sacrifice = 2/7 - 1/7 = 1/7

Q.9. List any two items that need adjustments in books of account of a firm at the time of admission of a partner. Ans. (i) Adjustment of Accumulated Profits, Losses and Reserves.

(ii) Adjustment of Goodwill 

Q.10. Why is it necessary to revalue assets and liabilities of a firm in case of admission of a partner?

Ans. It is necessary to revalue assets and liabilities of a firm in case of admission of a partner so that the incoming partner is neither put to an advantage nor to disadvantage due to change in the market value of assets and liabilities.

Q. 11. Which account shows the net result of revaluation of assets and reassessment of liabilities? 

Ans. Revaluation Account shows the net result of revaluation of assets and reassessment of liabilities.

Q. 12. State any two reasons for the preparation of 'Revaluation Account in case of admission of a partner?

Ans. Two reasons for preparation of Revaluation Account at time of admission of a partner are:

(i) To record the effect of revaluation of assets and liabilities

(ii) To ensure that the profits or losses on revaluation of assets and liabilities may be divided amongst the old partners. 

Q 13. A and B share profits and losses in the ratio of 4:3 They admit C with 3/7th share, which he gets 2/7th from A and 1/7th from B. What is the new profit-sharing ratio? 

Ans. A's New Share 4/7 - 2/7 = 2/7; B's New Share 3/7 - 1/7 = 2/7, C's Share=3/7

Thus, New Profit sharing Ratio of A, B and C is 2:2:3

Q. 14. Amit and Beena were partners in a firm sharing profits and losses in the ratio of 3:1. Chaman was admitted as a new partner for 1/6th share in the profits. Chaman acquired 2/5th of his share from Amit. 

How much share did Chaman acquire from Beena?

Ans. Chaman's Share of Profit = 1/6

Share of Profit acquired by Chaman from Amit = 1/6 × 2/5 = 2/30 

Therefore, share of profit acquired by Chaman from Beena

1/6 -2/30 = 5-2/30 = 3/30 or 1/10.

Q.15. What is meant by 'Hidden Goodwill? Ans. Hidden Goodwill is the excess of desired total capital of the firm over the actual combined capital of all partners. In other words, when the value of goodwill of the firm is not specifically

given, the value of goodwill has to be calculated on the basis of net worth of the firm.

Q.16. Under what circumstances premium for Goodwill paid by the incoming partner is not recorded in the books of account? Ans. Premium for Goodwill is not recorded in the books of account when the incoming partner pays it privately to the sacrificing partners.

Q.17 Vinay and Naman are partners sharing profits in the ratio of 4:1. Their capitals were rs.90,000 and rs.70,000 respectively. They admitted Prateek for 1/3 share in the profits. Prateek brought rs.1,00,000 as his capital. Calculate the value of firm's goodwill. 

Ans. Prateek's share=1/3, Prateek's Capital = rs.1,00.000.

A. Based on Prateek's Capital, Total Capital of the firm will be

=1,00,000×3/1= rs.3,00,000

B. Total existing capital of Vinay. Naman and Prateek

= 90.000 + 70,000 + 1,00.000= 2,60,000 

C. Value of Firm's Goodwill (A-B)=rs.3.00.000-2.60.000=40,000.

Q.18. A, B, C and D were partners in a firm sharing profits in the ratio of 4: 3:2:1. On 1st January, 2015, they admitted E as a new partner for 1/10 share in the profits. E brought 10,000 for his share of goodwill premium which was correctly recorded in the books by the accountant. The accountant showed goodwill at 1,00,000 in the books. Was the accountant correct in doing so? Give reason in support of your answer. (Delhi 2015)

Ans. No, the accountant was not correct in doing so.

Reason: Since the new partner has brought his share of goodwill in cash against self

generated goodwill, it cannot be recorded in the books of account. Only purchased

goodwill can be recorded in the books of account as per AS-26,

Q.19. Geeta, Sunita and Anita were partners in a firm sharing profits in the ratio of 5:3:2. On 1st January, 2015, they admitted Yogita as a new partner for 1/10th share in the profits. On Yogita's admission, the Profit and Loss Account of the firm was showing a debit balance of 20,000 which was credited by the accountant of the firm to the Capital Accounts of Geeta. Sunita and Anita in their profit-sharing ratio. Did the accountant give correct treatment?

Give reason for support of your answer.

Ans. No, the accountant did not give correct treatment as the debit balance of Profit and Loss Account shows loss, it should be debited to the Partners Capital Accounts.

Q.20. Why is the General Reserve distributed among the old partners before new partner is admitted?

Ans. General Reserve represents accumulated profits relating to the period prior to the admission of a new partner. It belongs to old partners and, therefore, is distributed among old partners.