Class 12 Accountancy Chapter 2 NCERT Solutions: Admission of a Partner

When a new partner enters an existing partnership firm, the change in the partnership agreement brings several accounting adjustments. Calculating the new profit-sharing ratio, determining the sacrificing ratio, treating goodwill, revaluing assets and liabilities, and adjusting reserves can make the chapter difficult to apply in numerical and theoretical questions.

Class 12 Accountancy Chapter 2 NCERT Solutions provide step-by-step answers to questions on the admission of a partner. You can use them to check calculations, understand the accounting treatment of different adjustments, and revise important concepts before attempting similar questions independently.

Class 12 Accountancy Chapter 2 NCERT Solutions

Here is the organised set of questions with their solutions and final answers.

1. Define "reconstitution of a partnership firm" and list three modes through which a firm can be reconstituted.

Answer:

Reconstitution of a partnership firm refers to a change in the existing agreement among the partners that alters their relationship. The existing agreement ends and a new agreement comes into effect, while the firm continues its business.

The three common modes of reconstitution are:

• Admission of a new partner

• Change in the profit-sharing ratio among existing partners

• Retirement or death of an existing partner

2. Explain the two main rights acquired by a newly admitted partner in a partnership firm.

Answer:

A newly admitted partner generally acquires the following rights:

• Right to share in future profits: The new partner becomes entitled to the agreed share of the firm's future profits.

• Right to share in the firm's assets: The new partner gets a right to the firm's assets according to the terms of the new partnership agreement.

3. Anil and Vishal are partners sharing profits in the ratio of 3:2. They admit Sumit as a new partner for a 1/5 share in future profits. Calculate the new profit-sharing ratio among Anil, Vishal, and Sumit.

Solution:

Sumit's share:

15\frac{1}{5}

Remaining share for Anil and Vishal:

1−15=451-\frac{1}{5}=\frac{4}{5}

Anil's new share:

45×35=1225\frac{4}{5}\times\frac{3}{5}=\frac{12}{25}

Vishal's new share:

45×25=825\frac{4}{5}\times\frac{2}{5}=\frac{8}{25}

Sumit's share:

15=525\frac{1}{5}=\frac{5}{25}

Therefore, the new profit-sharing ratio is:

12:8:512:8:5

Answer: The new profit-sharing ratio of Anil, Vishal, and Sumit is 12:8:5.

4. Define "sacrificing ratio" and state the formula used to calculate a partner's sacrifice upon the admission of a new partner.

Answer:

Sacrificing ratio is the ratio in which the existing partners surrender a portion of their profit share in favour of the newly admitted partner.

The formula is:

Sacrificing Ratio=Old Share−New Share\text{Sacrificing Ratio}=\text{Old Share}-\text{New Share}

The ratio is used to determine the share sacrificed by each existing partner when the new partner is admitted.

5. What is "goodwill" in partnership accounting, and what are four main factors that affect its value?

Answer:

Goodwill represents the reputation and other advantages associated with a business that enable it to earn higher profits compared with a newly established business.

Four factors that can affect the value of goodwill are:

• Favourable location: A suitable business location can attract more customers.

• Efficiency of management: Effective management can improve business performance and profitability.

• Age of the business: An established business may have a stronger reputation and customer base.

• Special advantages: Patents, licences, trademarks, and similar rights can contribute to goodwill.

6. The past five years' profits of a firm are: 2013: Rs. 4,00,000; 2014: Rs. 3,98,000; 2015: Rs. 4,50,000; 2016: Rs. 4,45,000; and 2017: Rs. 5,00,000. Calculate the goodwill of the firm on the basis of 4 years' purchase of 5 years' average profits.

Solution:

First, calculate the total profit for the five years:

Rs. 4,00,000+Rs. 3,98,000+Rs. 4,50,000+Rs. 4,45,000+Rs. 5,00,000Rs. 4,00,000+Rs. 3,98,000+Rs. 4,50,000+Rs. 4,45,000+Rs. 5,00,000 =Rs. 21,93,000=Rs. 21,93,000

Average profit:

Rs. 21,93,0005=Rs. 4,38,600\frac{Rs. 21,93,000}{5}=Rs. 4,38,600

Goodwill at 4 years' purchase:

Rs. 4,38,600×4=Rs. 17,54,400Rs. 4,38,600\times4=Rs. 17,54,400

Answer: The goodwill of the firm is Rs. 17,54,400.

7. Explain the steps involved in calculating goodwill under the "Super Profits Method."

Answer:

Goodwill under the Super Profits Method is calculated through the following steps:

Step 1: Calculate Average Profit

Determine the average profit earned by the firm over the relevant period.

Step 2: Calculate Normal Profit

Normal Profit=Capital Employed×Normal Rate of Return100\text{Normal Profit}=\text{Capital Employed}\times\frac{\text{Normal Rate of Return}}{100}

Step 3: Calculate Super Profit

Super Profit=Average Profit−Normal Profit\text{Super Profit}=\text{Average Profit}-\text{Normal Profit}

Step 4: Calculate Goodwill

Goodwill=Super Profit×Number of Years’ Purchase\text{Goodwill}=\text{Super Profit}\times\text{Number of Years' Purchase}

8. Describe the treatment of goodwill under Accounting Standard 26 (AS 26) regarding self-generated goodwill versus purchased goodwill.

Answer:

The treatment of goodwill differs depending on whether it is purchased or internally generated:

• Purchased Goodwill: Goodwill acquired for a consideration can be recognised in the books of account because it arises from a purchase transaction.

• Self-Generated Goodwill: Internally generated goodwill is not recognised as an asset in the books because its cost cannot be measured reliably through a specific purchase transaction.

9. How is "hidden goodwill" calculated when a new partner brings in a specified capital for their share of profit, but goodwill is not explicitly stated in the agreement?

Answer:

Hidden goodwill can be determined by comparing the implied total capital of the firm with the actual combined capital.

Step 1: Calculate the estimated total capital

Estimated Total Capital=Incoming Partner’s Capital×1Incoming Partner’s Share\text{Estimated Total Capital} = \text{Incoming Partner's Capital} \times \frac{1}{\text{Incoming Partner's Share}}

Step 2: Calculate the combined actual capital

Add the capital of all partners, including the incoming partner, after considering the relevant adjustments.

Step 3: Calculate hidden goodwill

Hidden Goodwill=Estimated Total Capital−Combined Actual Capital\text{Hidden Goodwill} = \text{Estimated Total Capital} - \text{Combined Actual Capital}

The resulting difference represents the implied goodwill of the firm.

10. Pass the necessary journal entries to distribute a General Reserve balance of Rs. 20,000 and a debit balance of Rs. 10,000 in the Profit and Loss Account between old partners Rajinder and Surinder, sharing profits in a 4:1 ratio, upon Narender's admission.

Solution:

Distribution of General Reserve

General Reserve of Rs. 20,000 is distributed between Rajinder and Surinder in their old profit-sharing ratio of 4:1.

Rajinder's share:

Rs. 20,000×45=Rs. 16,000Rs. 20,000\times\frac{4}{5}=Rs. 16,000

Surinder's share:

Rs. 20,000×15=Rs. 4,000Rs. 20,000\times\frac{1}{5}=Rs. 4,000

Journal Entry:

Being General Reserve transferred to the old partners' capital accounts in their old profit-sharing ratio.

Writing off Debit Balance of Profit and Loss Account

The debit balance of Rs. 10,000 is also distributed between Rajinder and Surinder in the 4:1 ratio.

Rajinder's share:

Rs. 10,000×45=Rs. 8,000Rs. 10,000\times\frac{4}{5}=Rs. 8,000

Surinder's share:

Rs. 10,000×15=Rs. 2,000Rs. 10,000\times\frac{1}{5}=Rs. 2,000

Journal Entry:

Being debit balance of the Profit and Loss Account transferred to the old partners' capital accounts in their old profit-sharing ratio.

11. Why is a Revaluation Account prepared at the time of a new partner's admission, and how are gains or losses on revaluation distributed among existing partners?

Answer:

A Revaluation Account is prepared to record changes in the values of assets and liabilities at the time of admission of a new partner. It ensures that any gain or loss arising from these changes is accounted for before the new partner joins the firm.

• Gain on revaluation: Credited to the old partners' capital accounts.

• Loss on revaluation: Debited to the old partners' capital accounts.

• Distribution: The gain or loss is transferred among the existing partners in their old profit-sharing ratio.

12. Explain the procedure for adjusting the old partners' capital accounts to be proportionate to the new profit-sharing ratio when the incoming partner's capital is used as the base.

Answer:

The capital accounts can be adjusted through the following steps:

Step 1: Calculate the total capital of the new firm

Total Capital=New Partner’s Capital×1New Partner’s Share\text{Total Capital} = \text{New Partner's Capital} \times \frac{1}{\text{New Partner's Share}}

Step 2: Calculate the required capital of each partner

Distribute the total capital among all partners according to their new profit-sharing ratio.

Step 3: Determine the adjusted capital of existing partners

Consider the existing partners' capital after accounting for relevant adjustments such as reserves, revaluation gains or losses, and goodwill.

Step 4: Compare required and adjusted capital

• If the existing capital is less than the required amount, the partner brings in additional cash.

• If the existing capital is more than the required amount, the excess amount may be withdrawn.

This process ensures that the partners' capitals correspond with their agreed profit-sharing proportions.

Class 12 Accountancy Chapter 2 NCERT Solutions PDF

Study the Class 12 Accountancy Chapter 2 NCERT Solutions PDF to revise questions on admission of a partner, profit-sharing ratios, goodwill, revaluation, reserves, and capital adjustments.

How Can Class 12 Accountancy Chapter 2 NCERT Solutions Help You?

Along with this chapter, you can also explore Class 12 Accountancy  to access chapter-wise NCERT solutions and revise the complete Class 12 Accountancy syllabus in one place.

• Check Your Calculations: Compare your working with the step-by-step solutions after attempting each question.

• Revise Core Concepts: Revisit reconstitution, profit-sharing ratios, sacrificing ratio, goodwill, and revaluation.

• Understand Journal Entries: See how reserves, accumulated losses, and other adjustments are recorded.

• Practise Numerical Questions: Follow the calculation process for goodwill, new ratios, and capital adjustments.

• Identify Mistakes: Compare each step of your solution to find calculation or conceptual errors.

• Improve Answer Writing: Observe how theoretical questions and numerical problems can be presented clearly.

• Strengthen Revision: Use the solved questions to revisit important concepts before school examinations.

The admission of a new partner brings changes to the existing partnership arrangement and requires careful accounting treatment. Revisiting solved questions can help you recognise the correct method for different adjustments, improve accuracy in calculations, and recall the important principles covered in Class 12 Accountancy Chapter 2: Admission of a Partner.