Question

Out of the following, in which situation(s) the reconstitution of a firm takes place:

Options

• At the time of change in profit sharing ratio amongst the partners.

• At the time of admission of a new partner.

• Both at the time of change in profit sharing ratio amongst the partners and at the time of admission of a new partner.

• At the time of doing past adjustments.

Answer 1

Both at the time of change in profit sharing ratio amongst the partners and at the time of admission of a new partner.

Explanation:

Reconstitution of a partnership firm takes place when there is a change in the existing agreement among partners, such as:

• Change in profit-sharing ratio among existing partners
• Admission of a new partner

Therefore, both (A) and (B) are situations where reconstitution occurs.