# GSEB Solutions Class 12 Accounts Part 1 Chapter 4 Reconstruction of Partnership

Gujarat Board GSEB Textbook Solutions Class 12 Commerce Accounts Part 1 Chapter 4 Reconstruction of Partnership Textbook Exercise Questions and Answers.

## Gujarat Board Textbook Solutions Class 12 Accounts Part 1 Chapter 4 Reconstruction of Partnership

### GSEB Class 12 Accounts Reconstruction of Partnership Text Book Questions and Answers

Question 1.
Select appropriate option for each question :

(1) At the time of the reconstruction of a partnership firm ………………. is prepared.
(B) Revaluation account
(C) Realization account
(D) Profit-loss appropriation account
(B) Revaluation account

(2) Where are the effects given when the value of assets increase at the time of the reconstruction of a partnership firm ?
(A) Addition in assets value and the revaluation account will be credited.
(B) Addition in assets value and the revaluation account will be debited.
(C) Subtract from assets value and the revaluation account will be credited.
(D) Subtract from assets value and the revaluation account will be debited.
(A) Addition in assets value and the revaluation account will be credited.

(3) Where are the effects given when the value of liabilities decrease at the time of the reconstruction of a partnership firm ?
(A) Subtract from such liabilities and the revaluation account will be credited.
(B) Subtract from such liabilities and the revaluation account will be debited.
(C) Addition in such liabilities and the revaluation account will be credited.
(D) Addition in such liabilities and the revaluation account will be debited.
(A) Subtract from such liabilities and the revaluation account will be credited.

(4) Revaluation account is also known as ………………… .
(A) Capital reserves account
(B) Profit-loss appropriation account
(D) Profit-loss account

(5) In which ratio profit or loss of revaluation account is distributed between the partners ?
(A) Sacrifice ratio
(B) Gain ratio
(C) New profit-loss ratio
(D) Old profit-loss ratio
(D) Old profit-loss ratio

(6) Where is the accumulated profit as per the balance sheet is shown at the time of the reconstruction of a partnership firm ?
(A) Credit side of revaluation account
(B) Credit side of profit-loss appropriation account
(C) Credit side of partners’ capital account
(D) Debit side of partners’ capital account
(C) Credit side of partners’ capital account

(7) In the reconstruction of partnership firm, sacrifice = ………………….. .
(A) New profit-loss share × Old profit-loss share
(B) New profit-loss share – Old profit-loss share
(C) Old profit-loss share – New profit-loss share
(D) Old capital share – New capital share
(C) Old profit-loss share – New profit-loss share

(8) In fhe reconstruction of a partnership firm, gain ratio =
(A) New profit-loss share – Old profit-loss share
(B) Old profit-loss share – New profit-loss share
(C) New capital ratio – Old capital ratio
(D) Old capital ratio – New capital ratio
(A) New profit-loss share – Old profit-loss share

(9) At the time of the reconstruction of a partnership firm, investments are shown at …………….. value in the balance-sheet after the revaluation.
(A) Book value – market value
(B) Cost value
(C) Market value
(D) Face value
(C) Market value

(10) Where is the worker profit sharing fund shown in balance sheet at the time of the reconstruction of a partnership firm ?
(A) Credit side of revaluation account
(B) Liabilities of balance sheet after reconstruction
(C) Credit side of partners’ capital account
(D) Debit side of partners’ capital account
(B) Liabilities of balance sheet after reconstruction

Question 2.
Answer the following questions in one sentence :
(1) What is reconstruction of a partnership ?
Reconstruction of a partnership means changes in partnership due to several reasons.

(2) What is revaluation account ?
A special account is opened to record the effects of the revaluation of assets and liabilities is known as ‘Revaluation Account’.

(3) What is sacrifice ratio ?
When there is a change in the ratio of profit and loss sharing of existing partners, a portion of profit of certain partners is reduced. This reduced share of profit of a partner is known as ‘Sacrifice Ratio’.
Sacrifice ratio of a partner = Old profit and loss ratio of a partner – New profit and loss ratio
of a partner.

(4) What is gain ratio ?
When there is a change in the ratio of profit and loss sharing of existing partners, a portion of profit of certain partners is increased. This increased portion of profit of a partner is known as ‘Gain Ratio’.
Gain ratio of a partner = New profit and loss ratio of a partner – Old profit and loss ratio of a partner.

(5) How is the consolidated profit distributed ?
In the old profit and loss ratio of continuing partners, the consolidated profit distributed.

(6) In which account revaluation account’s profit-loss is transferred ?
Profit or Loss of revaluation account is transferred to current partners’ capital/current account in their old profit and loss sharing ratio.

(7) At which value assets-liabilities are shown in the balance sheet after revaluation ?
Assets and liabilities are shown at their actual (market) values in the balance sheet after its
revaluation.

(8) WTiich is the other name of known for the revaluation account ?
‘Profit and Loss Adjustment Account’ is the other name known for the revaluation account.

Question 3.
(1) Explain the meaning of partnership reconstruction and the circumstance for reconstruction.
“Changes in the partnership due to several reasons’ is known as reconstruction of
partnership.
Following are the circumstances / reasons for reconstruction :

1. Change in the profit and loss sharing ratio between the continuing partners.
2. Admission of a new partner in the existing partnership firm.
3. Retirement or death of a partner of the existing partnership firm.
4. Current partnership firm is connected with one or more than one partnership firm.

(2) Explain the sacrifice ratio with illustration.
When there is a change in the ratio of profit and loss sharing of existing partners, a portion of profit of certain partners is reduced. This reduced share of profit of a partner is known as ‘Sacrifice Ratio’.
(i) Sacrificing ratio depends on the changes in the old profit and loss sharing ratio of the partners.
(ii) Sacrificing ratio is a difference between the old share and the new share of profit of one or more partners.
(iii) Sacrificing ratio of a partner = Old share of profit – New share of profit Illustration : Jyoti, Vina and Kiran are the partners of a firm sharing profit and loss equally. They decided of change their profit and loss ratio to 1 : 2 : 3. Calculate the sacrifice done by each parnters.

Here, Jyoti will sacrifice while Kiran will gain.

(3) Explain the gain ratio with illustration.
When there is a change in the ratio of profit and loss sharing of existing partners, a portion of profit of certain partners is increased. This increased portion of profit of a partner is known as ‘Gain Ratio’.
– Gain ratio is depend upon the change in old profit and loss sharing ratio of partners.
– If the new share of profit of partner is more than old share of profit then that partner will get gain.
– Gaining ratio of a partner = New share of profit – Old share of profit.
Illustration : Heena, Beena and Leena are the partners of a firm sharing profit and loss equally. They decided to change their profit and loss sharing ratio to 2 : 2 : 1. Calculate the gaining ratio of partners.

Here, partners Heena and Beena will gain and partner Leena will sacrifice.

(4) What is the revaluation of assets and liabilities ? Prepare specimen of revaluation account.
The book value of assets and liabilities recorded in the books of a partnership firm, when brought at present value, it is known as revaluation of assets and liabilities.

(5) Write specimen journal entries for revaluation in following circumstances :
(A) When assets’ value are increased and decreased.
(B) When liabilities’ value are increased and decreased.

(6) Write specimen journal entry for the distribution of reserve fund and accumulated profit of a partnership firm.
Specimen journal entry for the distribution of reserve fund and accumulated profit :

(7) Write journal entries for the following assets-liabilities revaluation :

 Assets and Liabilities Book Value Revaluation Value Machinery 1,00,000 80,000 Land 3,00,000 5,00,000 Creditors 1,00,000 95,000 Outstanding expenses – 3,000 Income receivables – 2,000

(8) Difference between Sacrifice Ratio and Gain Ratio.
Following are the points of difference for Sacrifice Ratio and Gain Ratio :

 Points Sacrifice Ratio Gain Ratio 1. Meaning Changes in existing partners profit- loss ratio due to the reconstruction of a partnership firm where any partners gives its profit share in favour of other partners is called sacrifice. Changes in existing partners profit- loss sharing ratio, where some partners sacrifice is received by existing partners is called gain ratio. 2. When is it computed ? At the time of admission of new partner and reconstruction of partnership firm, sacrifice ratio of old partner is computed. At the time of retirement of a partner and at the time of the reconstruction of partnership, gaining ratio of existing partner is found. 3. Formula Sacrifice of a partner = Old Share – New Share Gain of a partner = New share – Old share 4. Why is it found ? Sacrifice ratio is found to distribute the goodwill which is brought in by a new partner for his share and to give adjustments of goodwill at the time of the reconstruction of a partnership firm. Gaining ratio is found for the share of goodwill to the retiring partner by the existing partners in their gain ratio and to give adjustment of goodwill due to the reconstruction of a partnership firm.

Question 4.
Amar and Akbar are the partners of a firm distributing profit-losses of the firm in equal proportion. They decided to change their profit-loss sharing proportion to 3 : 2 for future. Under this circumstances, calculate what sacrifice has been made by which parter.

Question 5.
Komal, Krupa and Karishma are the partners’ of a partnership firm. They distribute profit-loss in the ratio of 3 : 2 : 1. All the partners have decided to change the profit-loss sharing ratio to 5:3:2 for future. From this information calculate the sacrifice ratio.

Here, Sacrifice of Krupa = $$\frac {1}{30}$$ and Gain of Karishma = $$\frac {1}{30}$$

Question 6.
Sachin, Rahul and Rohit are the partners of a partnership firm. Profit-loss sharing ratio is 1 : 2 : 2 between them. All partners have decided to change profit-loss sharing ratio to 3 : 2 : 1. Calculate the sacrifice ratio of partners.

Question 7.
Dipak, nilesh and Pratik are the partners of a partnership firm. Their profit-loss sharing ratio is 1 : 2 : 3, which is decided to change to 2 : 2: 1 respectively for future. Under these circumstances, calculate what gain is received by which partners ?

Question 8.
Raju, Hasu and Sanju are the partners of a partnership firm. Their profit-loss sharing ratio is 5:4:3. All the partners have decided to change their profit-loss sharing ratio to 2 : 2 : 1. From this information find out the gain ratio.

Question 9.
Pravin, Mahendra and Arvind are the partners of a partnership firm. Their profit-loss sharing ratio is 5 : 2 : 2. All the partners have decided to change the profit-loss sharing ratio to $$\frac {2}{9}$$ $$\frac {3}{9}$$ and $$\frac {4}{9}$$ as new ratio. From this information find out what sacrifice has been made by which partner by using sacrifice formula.
From above information, by using gain formula find out what sacrifice has been made by which partner.
By Sacrifice Formula :

By Gain Formula :

Question 10.
Rajesh, Pushpa and Pratibha are the partners of a “Shreenathji Traders” partnership firm. Their profit-loss sharing ratio is 2 : 3 : 1. Their firms’ balance-sheet as on 31-3-2017 is as under :

As on above date of the balance sheet, partners decided to change profit-loss sharing ratio to 1 : 1 : 1. On this date they decided to revalue the assets and liabilities for which information is as under :

(1) The value of land is to be increased upto ₹ 2,50,000 and building value is to be increased by ₹ 50,000. (2) The value of machinery is to be decreased upto ₹ 80,000. (3) The value of investments is to be reduced 30%. (4) Provision for bad debt reserve at 20% and discount reserve of 5% is to be made on debtors. (5) The stock value of ₹ 15,000 is to be reduced by 20%. (6) An amount of ₹ 20,000 is not to be paid to creditors. (7) ₹ 3,000 for outstanding expenses and ₹ 2,000 for income receivable are not recorded in the books.

From the above information, write journal entries in the books of the partnership firm and also prepare the revaluation account.

Note :
(1) Value of land is ₹ 1,80,000, which is to be increased upto ₹ 2,50,000. It means ₹ 2,50,000 – ₹ 1,80,000 = ₹ 70,000 is credited to Revaluation Account.
(2) Value of machinery is ₹ 1,20,000 which is to be decreased upto ? 80,000. It means that ₹ 1,20,000 – ₹ 80,000 = ₹ 40,000 is debited to Revaluation Account.

Question 11.
Manju, Prabha and Meena are the partners of a partnership firm. Their profit-loss sharing ratio is 5 : 3 : 2. They want to change their profit-loss sharing ratio to 3 : 2 : 1. Therefore, they decided to revalue the assets-liabilities of the firm. From the following information prepare revaluation account and balance sheet after revaluation.

(1) The value of land-building is to be increased by 25%. (2) The value of furniture is to be reduced by 10%. (3) The value of machinery is to be kept 80%. (4) The book value of closing stock is ₹ 5,000 more than its market value. (5) Total amount of ₹2,500 is to be kept for bad debts reserve on debtors. (6) An amount of ₹ 3,000 among the creditors is now not to be paid. (7) Interest on bank loan for last three month is outstanding.

Note :
(1) The value of machinery is to be kept 80%. It means at 20% ( 50,000 × $$\frac {20}{100}$$) = ? 10,000 is decreased.
(2) Interest of bank loan = 30,000 × $$\frac {12}{100}$$ × $$\frac {3}{12}$$ = ? 900

Question 12.
Alay and Sanket are the partners of a partnership firm. Profit-loss sharing ratio among them is 2 : 1. As on 31-3-2017, the following are the balance in the books of firm.

On the above date, Alay and Sanket decided to change their profit-loss sharing ratio to 1: 1. A claim of ₹ 6,000 is outstanding payable to workers against workers accident compensation fund. Pass journal entries showing distribution of accumulated profit-loss in the books of firm.

Question 13.
From the following information, pass necessary journal entries and prepare a revaluation account and a balance sheet after revaluation in the books of Sajan and Nirmi.
Sajan and Nirmi are the partners sharing profit-loss in the ratio of 5 : 3. Their firm’s balance sheet as on 31-3-2017 is as under :

Partners decided to revalue the assets and liabilities of the firm and to distribute profit in the ratio of 1 : 1 for future.

(1) The value of land-building is to be increased by 10%. (2) The value of machinery and furniture is to be reduced by 40%. (3) ? 1,000 bad debts reserve on debtors is not required.
(4) ? 1,500 repairing expense is required for stock. (5) ? 1,500 out of creditors is now not to be paid which is to be recorded in the books. (6) Outstanding expenses is ? 10,000 and income receivable is ? 2,000. (7) Investment is to be shown at its market value.