This GSEB Class 12 Commerce Accounts Notes Part 1 Chapter 4 Reconstruction of Partnership covers all the important topics and concepts as mentioned in the chapter.
Reconstruction of Partnership Class 12 GSEB Notes
Partnership is a relation or contract between persons in which they are agreed to share profit of business run by them or any one of them for all. Because of any reason, changes occured in relation or contract of partnership, recontruction of partnership taken place. Because of following reasons, reconstruction of partnership taken place :
- Necessity for the change in profit and loss ratio.
- Admission of a partner in a firm.
- Retirement or death of a partner of a firm.
Generally profit and loss sharing ratio between partners is not changed. Hence if it necessary then with the consent of all partners they can change in it.
In this chapter we will study about revaluation account for recording accounting effects of revaluation of assets and liabilities of partnership firm and sacrifice given by partner or gain of a partner due to change in profit and loss sharing ratio of partners.
Reconstruction of Pratnership:
Reconstruction of partnership means changes in partnership due to several reasons.
Reasons for change in partnership:
- Change in profit and loss sharing ratio amongst continuing partners.
- Admission of a new partner in a firm.
- Retirement or Death of a partner of a firm.
Change in Profit and Loss sharing ratio between Continuing Partners:
When there is a change in the profit and loss sharing ratio of exiting partners, a protion of profit of certain partners is reduced, which is known as sacrifice of profit and the partners share of profit increase which is known as gain of profit. Where,
- Sacrifice of partner in profit = Old ratio of profit – New ratio of profit
- Gain of partner in profit = New ratio of profit – Old ratio of profit
At the time of calculation of sacrifice, if the answer is negative then it will be considered as a gain of concern partner and same as at the time of calculation of gain, if the answer is negative then it will be considered as a sacrifice of concern partner.
Revaluation of Assets and Liabilities of a Partnership Firm and Its Accounting Effects:
- Generally whenever there is reconstruction of a partnership firm, assets and liabilities of the firm are
- revalued.
- A special account is opened in the books of a partnership firm to record the accounting effects of the revaluation of assets and liabilities. This accounts is known as Revaluation or Profit and Loss Adjustment Account.
- Increase in value of assets, decrease in value of liabilities, unrecorded asset, income receivable or prepaid expenses increases the profit of the firm, which is debited to Respective accounts and credited to Revaluation account.
- Decrease in value assets, increase in value of liabilities increase in bad debts reserve or in debtors discount reserve, unrecorded debts, unpaid expenses or income received in advance decreases the profit of the firm, which is debited to revaluation account and credited to respective accounts.
- Profit or loss of revaluation account is transfered to current partner’s capital account in , their old profit and loss sharing ratio.
Distribution of Reserves and Accumulated Profit or Loss among Partners:
Following entry has been passed in the books of firm for distribution of reserves and accumulated profit.
| Profit and Loss A/c Dr. | ……….. | |
| General Reserve A/c Dr. | ……….. | |
| Capital Reserve A/c Dr. | ……….. | |
| Contigency Reserve A/c Dr. | ……….. | |
| Workers Accident Compensation Fund A/c Dr. | ……….. | |
| Investment Fluctuations Fund A/c Dr. | ……….. | |
| To Partner’s Capital/Current A/c | ……….. |
Following entry has been passed in the books of firm for accumulated loss and other deferred revenue expenditure:
| Partners’ Capital/Current A/c Dr. | ……….. | |
| To Profit and Loss A/c | ……….. | |
| To Advt. Campaign Exp. A/c | ……….. | |
| To Research and Dev. Exp. Ac. | ……….. | |
| To Not written off other Rev. Exp. A/c | ……….. |