Chapter 4 Reconstruction of Partnership
Chapter 4 Reconstruction of Partnership
Accoutancy
Chapter 1 Introduction to Partnership
1. Select the correct answer for each questions :
1. At the time of the reconstruction of a partnership firm ………………. is prepared.
(A) Trading account
(B) Revaluation account
(C) Realization account
(D) Profit-loss appropriation 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.
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.
4. Revaluation account is also known as ………………… .
(A) Capital reserves account
(B) Profit-loss appropriation account
(C) Profit-loss adjustment 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
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
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.
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
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
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
Chapter 1 Introduction to Partnership
2. Answer the following questions in one sentence :
1. What is reconstruction of a partnership ?
Answer:
Reconstruction of a partnership refers to modifications made for various reasons.
2. What is revaluation account ?
Answer:
The term “Revaluation Account” refers to a unique account that is created to document the results of the revaluation of assets and liabilities.
3. What is sacrifice ratio ?
Answer:
A portion of a partner’s profit is diminished when the ratio of profit to loss sharing among current partners is altered. This decreased partner’s profit share is referred to as the “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 ?
Answer:
A portion of a partner’s profit is increased when the ratio of profit to loss sharing among current partners changes. The term “Gain Ratio” refers to this higher share of a partner’s earnings.
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 ?
Answer:
The consolidated profit was dispersed in the previous continuing partners profit and loss ratio.
6. In which account revaluation account’s profit-loss is transferred ?
Answer:
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 ?
Answer:
After being revalued, assets and liabilities are displayed on the balance sheet at their true (market) prices.
8. Which is the other name of known for the revaluation account ?
Answer:
The revaluation account is also known by the name “Profit and Loss Adjustment Account.”
Chapter 1 Introduction to Partnership
3. Answer the following questions in brief :
1. Explain the meaning of partnership reconstruction and the circumstance for reconstruction.
Answer:
Rebuilding a partnership refers to adjustments made for a variety of reasons.
The circumstances and justifications for reconstruction are as follows:
Modification in the continuing partners’ profit and loss sharing ratio.The addition of a new partner to the partnership firm that already exists. A partner in the current partnership firm retires or passes away.One or more partnership firms are associated with the current partnership firm.
2. Explain the sacrifice ratio with illustration.
Answer :
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.
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