What is Meant by ‘Reconstitution of a Partnership Firm’ - Accountancy

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What is meant by ‘Reconstitution of a partnership firm’

Give the meaning of 'Reconstitution of a partnership firm'?

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Solution

When there is a change in the existing partnership agreement which causes the termination of the agreement and a new partnership agreement comes into form it is called as ‘Reconstitution of a partnership firm’.

Concept: Accounting for Partnership Firms - Reconstitution and Dissolution
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2013-2014 (March) Delhi Set 1

RELATED QUESTIONS

Name the Act that provides for the maximum number of partners in a partnership firm. What is the maximum number of partners that a partnership firm can have?


Why should assets and liabilities be revalued on the reconstitution of a partnership firm? Explain briefly giving examples.


Rajeev, Sanjeev and Jatin were partners in a firm manufacturing blanket. They were sharing profits in the ratio of 5 : 3: 2. Their capitals on 1st April, 2012 were Rs 1,00,000, Rs 2,00,000 and Rs 4,00,000 respectively. After the flood in Uttarakhand, all partners decided to help the flood victims personally.

For this, Rajeev withdrew Rs 10,000 from the firm on 1st October 2012. Sanjeev instead of withdrawing cash from the firm took blankets amounting to Rs 14,000 from the firm and distributed those to the flood victims. On the other hand, Jatin withdrew Rs 1,50,000 from his capital on 31st December 2012 and set up a centre to provide medical facilities in the flood affected area.

The partnership deed provides for charging interest on drawings @ 6% p.a. After the final accounts were prepared it was discovered that interest on drawings had not been charged. Give the necessary adjusting journal entry and show the working notes clearly. Also, state any two values which the partners wanted to communicate to the society.


Pass necessary Journal Entires on the dissolution of a partnership firm in the following cases :  

(i) L, a partner, was appointed to look after the dissolution process for which he was given a remuneration of Rs 10,000.

(ii) Dissolution expenses Rs 8,000 were paid by the partner, M.

(iii) Dissolution expenses were Rs 5,000.

(iv) P, a partner, was appointed to look after the process of dissolution for which he was allowed a remuneration of Rs 7,000. P agreed to bear the dissolution expenses. Actual dissolution expenses Rs 4,000 were paid by P.

(v) N, a partner, was appointed to look after the process of dissolution for which he was allowed a remuneration of Rs 9,000. N agreed to bear the dissolution expenses. Actual dissolution expenses Rs 4,000 were paid by the firm.

(vi) Q a partner was appointed to look after the process of dissolution for which he was allowed a remuneration of Rs 18,000. Q agreed to take over stock worth Rs 18,000 as his remuneration. The stock had already been transferred to Realisation Account.


Pass necessary journal entries on the dissolution of a firm in the following cases:    

(i) Satish, a partner, agreed to do the dissolution work for which he was allowed a commission of Rs 18,000. He also agreed to bear the dissolution expenses. Actual dissolution expenses paid by Satish were Rs 9,000.
(ii) Suleman, a partner, paid the dissolution expenses Rs 750.
(iii) Dissolution expenses were Rs 500.
(iv) Sandhya was appointed to look after the dissolution work on a remuneration of Rs 3,000. She agreed to bear the dissolution expenses. Actual dissolution expenses Rs 2,750 were paid by Sunil, another partner on behalf of Sandhya.
(v) Seema, a partner, agreed to do the dissolution work for a commission of Rs 4,500. She also agreed to bear the dissolution expenses. Seema took away stock of the same amount as her commission. The stock had already been transferred to realisation account.
(vi) Santosh, a partner, agreed to bear the dissolution expenses for a commission of Rs 6,000. Actual dissolution expenses Rs 4,500 were paid from the firm's bank account.


 P and G were partners in a firm sharing profits in the ratio of 7:4. On 1-1-2016 their firm was dissolved. After transferring assets (other than cash) and outsiders liabilities to realization account you are given the following information:

(a) Kumar, a creditor for Rs 3,90,000 accepted building at Rs 7,00,000 and paid the balance to the firm by cheque.
(b) Karan, a second creditor for Rs 2,83,000 accepted machinery of the books value of Rs 3,00,000 at Rs 2,80,000 in full settlement of his claim.
(c) Kishor, a third creditor for Rs 5,00,000 accepted investments of Rs 4,10,000 and a bank draft of Rs 89,000 in full settlement of his claim.
(d) Loss on dissolution was Rs 2,200.

Pass necessary journal entries for the above transactions in the books of the firm.


Karam Singh and Suleman decided to start a partnership firm to manufacture low cost paper bags from the waste paper as plastic bags were creating many environmental problem. For this, they contributed capitals of Rs 2,00,000 and Rs 1,00,000 respectively on 1st April, 2012. Suleman also expressed his willingness to admit Inderjeet as a partner without capital in the firm. Inderjeet is specially abled but a very creative and intelligent friend of his. Karam Singh agreed to this. The terms of partnership were as follows:

(i) Karam Singh, Suleman and Inderjeet will share profit in the ratio of 2 : 2 : 1.
(ii) Interest on capital will be provided @6% p.a

Due to shortage of capital, Karam Singh contributed Rs 50,000 on 30th September, 2012 and Suleman contributed Rs 20,000 on 1st January 2013 as additional capital. The profit of the firm for the year ended 31st March, 2013 was Rs 2,00,300.

(a) Identify any two values which the firm wants to communicate to the society.
(b) Prepare Profit and Loss Appropriate Account of the firm for the year ending 31st March, 2013.


Choose the appropriate alternative from the given options:
Which of the following does not result into reconstitution of a firm?


Revaluation of assets at the time of reconstitution is necessary because their present value may be different from their ______.


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