XII ACCOUNTING

2. MEANING OF RECONSTITUTION
• Partnership is an agreement between two
or more persons for sharing the profits of a
business carried on by all or any of them
acting for all
• Any change in the existing agreement
amounts to reconstitution of the partnership
firm
• This result in the end of the existing
agreement and a new agreement comes
into being .

3. Modes of Reconstitution of a
Partnership Firm
Admission of
a new
partner
Retirement
of an existing
partner
Change in
profit sharing
ratio
Death of a
partner

4. ADMISSION OF A NEW PARTNER
• When a firm requires additional capital or
managerial help ,a new partner may be
admitted
• A new partner can be admitted into the
firm only with the consent of all the
existing partners unless otherwise agreed
upon

5. TWO RIGHTS OF NEWLY ADMITTED
PARTNER
• Right to share the assets of the
partnership firm(brings capital)
• Right to share the profits of the partnership
firm(brings premium or goodwill)

6. IMPORTANT POINTS AT THE TIME OF
ADMISSION OF A PARTNER
• New profit sharing ratio
• Sacrificing ratio
• Valuation and adjustment of
goodwill
• Revaluation of assets and
reassessment of liabilities
• Distribution of accumulated
profits(reserves)
• Adjustment of partners’ capitals

7. New profit sharing ratio
• When a new partner is admitted, he
acquires his share in profits from the old
partners