AHSEC Class 12 Accountancy Chapter 3 : Reconstitution of a Partnership Firm - Admission of a Partner Question Answer can be very Valuable & useful for the Preparation of Assam Higher Secondary Education HS 2nd Year Examination . Assam Board AHSEC HS 2nd Year ACCOUNTANCY NOTES gives you the best information of Reconstitution of a Partnership Firm - Admission of a Partner Chapter . You can find solutions to their questions at both basic and advanced levels
CLASS 12 ACCOUNTANCY
Chapter 3
PART:1
Short Answer Type Questions (carrying 2 marks each):
1. What is reconstitution of a partnership firm?
Ans. Any change in the relations of partners without affecting the existence of partnership firm is known as "Reconstitution of partnership firm " The old agree ment is replaced with the new agreement.
2.Mention two modes of reconstitution of a partnership firm.
Ans. Reconstitution of partnership firm takes place in the following modes:
(i) change in the profit sharing ratio of existing partners.
(ii) Admission of a new partner.
3.What is sacrificing ratio?
Ans. The ratio in which the partner or partners have agreed to sacrifice their shares of profit in favour of other partner or partners is known as sacrificing ratio. It is calculated as;
Sacrificing Ratio=Old Ratto-New Ratio
4. What is goodwill?
Ans. Goodwill may be defined as the value of reputation of a firm in respect of profits expected in future over and above the normal rate of profits. It is a capacity to attract more customers and to sale more of its goods or services that which can be sold normally.
5.What is meant by purchased goodwill?
Ans. It is obtained by making a payment in money or money's worth. When a business is purchased, the difference between purchase consideration and net assets is termed as "purchased goodwill".
6.what do you understand by self generated goodwill?
Ans. It is internally generated, generally over the years by a number of interval factors. As per AS-26, generated goodwill is not recorded in the books of accounts as consideration in money or money's worth is not paid for it.
7. What is meant by "Super profit" in relation to valuation of goodwill?
Ans. Super profit refers to the excess of actual profit over normal profit. Following
equations are used to calculate super profit:
Average profits=Total profits / Number of years
Normal profits=Capital Employed xNormal Rate of Return /100
Super profits= Average profits - Normal profits.
8. What is capitalisation of average profits?
Ans. The average profits are capitalised on the basis of normal rate of return. The following formula is applied to compute the capitalised value of average profit
Capitalised Value of Average profit= Average profit x 100/Normal Rate of Return
9. What is meant by capitalisation of super profits?
Ans. The super profit is capitalised on the basis on normal rate of profit. The following equation is applied to compute capitalised value of super profit.
Capitalised value of super profit= Super profit x 100/ Normal Rate of Return
10. Why is goodwill considered an intangible asset and not a fictious asset?
Ans. Intangible assets are those fixed assets which cannot be touched and seen These are usually the rights to use, produce or provide the goods or services. Fictitious assets are those assets which do not have physical form and have no realisable value. Goodwill has realisable value as it can be sold or purchased.
11. Give two factors that affect the value of goodwill of a firm.
Ans. Two factors are -
(a) Nature of business.
(b) Quality of the product or service.
12. How does the factor "efficiency of management" affects the value of goodwill.
Ans. Efficiency of management plays an important role in the valuation of goodwill If the firm is controlled and managed by the experienced and efficient people, it will certainly make optimum use of resources.
13. How does the factor "location of a business" affect the value of goodwill.
Ans. Location plays an important role in the valuation of goodwill of the firm. If the firm is situated at a centrally located place, it can attract more customers and hence its goodwill will be more.
14. Mention two situations when sacrificing ratio is applied?
Ans. The following two situations are:
(a) change in profit sharing ratio of existing partners.
(b) admission of a new partner.
15. What is the need of valuation of goodwill?
Ans. The valuation of goodwill is necessary for the following situations:
(a) when a new partner is introduced.
(b) on the retirement of a partner
(c) when a partner dies.
(d) when there is a change in profit sharing ratio among partners.
(e) when the firm is dissolved.
16. Mention two features of goodwill.
Ans. Two features of goodwill are:
(a) It is an intangible asset.
(b) Value of goodwill changes from time to time with changes in features of goodwill.
17. Mention any two methods of valuation of goodwill.
Ans. The following two methods of valuation of goodwill are:
(a) Average profits method and (b) Super profits method.
18. How is premium for goodwill brought in by a new partner shared by old by old partners?
Ans. The existing partners sacrifice a part of their share in profits in favour of new partner The amount paid by new partner to old partners through the firm is debited to cash account and credited to premium account. Then premium account is closed by transferring it to old partners capital account in their sacrifice ratio.
19. How is premium for goodwill not brought in by a new partner in cash by old partners?
Ans. When capital Accounts are fluctuating, the capital account of new partner is debited with his share of goodwill and the capital account of old partners is credited with sacrifice ratio. However, when capital Accounts are fixed, then instead of capital accounts current accounts are used.
Short Answer Type Questions (carrying 3 marks each):
A. Theory part:
1. Mention three different situations when a firm is reconstituted by a change in the composition of members.
Ans. Three situations are:
(a) When a new partner is admitted.
(b) When a partner retires from the firm.
(c) When a partner dies.
2. Explain sacrificing ratio and gaining ratio.
Ans. Sacrificing Ratio: When profit share of our partner is reduced and is given to another partner is reduced and is given to another partner, the partner is called "sacrificing ratio". The following formula is computed the sacrificing ratio:
Sacrificing ratio=Old ratio- New ratio
Gaining ratio: The ratio in which one or more partners gain some portion of other partners share of profit is called "Gaining Ratio." It is calculated by the following
formula:
Gaining ratio= New ratio-Old ratio.
3. Distinguish between sacrificing ratio and gaining ratio.
Ans:-
4. State three advantages of some years average profit method of valuation of goodwill.
Ans. Advantages of Average profit method:
(a) It is simple and easy to understand.
(b) This method is applied when a partner retires or dies.
(c) Goodwill of professional firms are to be valued through this method.
5. Explain Average profit method.
Ans. Average profit: Divide the aggregate of normal profits by the corresponding number of years.
Average profit=Total profits\Number of years
The average profits of a given number of past years is multiplied by an agreed number of years is to arrive at the value of goodwill.
Goodwill =Average profit x Number of years purchase.
Long Answer Type Questions (carrying 5 Marks):
A. Theory part:
1.What is goodwill? What is the need of valuation of goodwill?
Ans. Goodwill is the reputation, popularity, connection of the business in the market. It is the attracting force which attracts the customers and makes sales easy.
In case of partnership business, the need valuing the goodwill and its treatment in the books of account arises in the following situations:
(a) When there is a change in the existing profit-sharing ratio.
(b) When a new partner is admitted
(c) When a partner retires or dies.
(d) When the business is dissolved.
(e)When there is amalgation of two or more firms.
(f)When the partnership firm is converted into limited company.
2. Discuss simple Average profit method and weighted Average profit method.
Ans. (a) Simple Average Profit Method: The average profits of given number of a past years multiplied by an agreed number is considered to be the value of goodwill.
Average profit=Total profits\Number of years
Goodwill =Average profit x Number of years purchase
(b) Weighted Average Profit Method Each years profit is multiplied by the respective number of weights to find out value of product. The sum of the product is the divided by the total weights to get weighted Average profits. Calculated goodwill b multiplying weighted average profits with number of years purchase
3. What is super profit methods of valuation of goodwill? Compare it with some years purchase of average profit method.
Ans. Super profit is the excess of actual or average profit over normal profit Following equations are used calculate goodwill
Average profit=Total profits\Number of years
Normal profit=Capital Employed x Normal Rate of Return/100
Super profit=Average profit- Notmal profit
Goodwill=Super profit x Number of years purchase
****