Reconstitution of Partnership firm, Accountancy

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CHAPTER 3 RECONSTITUTION OF PARTNERSHIP FIRM

• Meaning of Reconstitution
• Change in the profit sharing ratio of existing
  partners, admission of a new partner or
  retirement of a partner is called Reconstitution
  of a Partnership. Briefly, change in agreement
  of existing partnership firm is called
  Reconstitution

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CONDITIONS OF RECONSTITUTION OF FIRM

• A Partnership firm can be reconstituted in the
  following conditions

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Reconstitution of Partnership Firm

1. Change in Profits sharing ratio of partners
2. Admission of new partner in the firm
3. Retirement of a partner
4. Death of a partner
5. Amalgamation of two firms

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CHANGE IN PROFIT SHARING RATIO OF PARTNERS

1. Calculation of new profit sharing ratio,
   Sacrificing and gaining ratio
2. Adjustment of goodwill
3. Adjustment of accumulated profits and reserve
4. Adjustment on profit or loss on revaluation of
   assets and liabilities
5. Adjustments of capital accounts.

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Calculation of new profit sharing ratio of the
firm and sacrificing ratio and gaining ratio of
existing partners.
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Difference between Sacrificing Ratio and Gaining
Ratio
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GOODWILL

• Meaning and Definitions of Goodwill

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Characteristics of Goodwill

1. It arises in prospering business.
2. It is an intangible asset.
3. It is a saleable asset.
4. Its value is liable to constant fluctuations.
5. It is helpful in earning excess profits.
6. It is an important part of the capital of the
   firm.
7. As it is intangible, it can be written off.
8. It arises due to many factors.

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Causes of origin of Goodwill

1. Favourable location of the business.
2. Good quality and reasonable price.
3. Conduct of businessman.
4. Attraction of customers towards the business.
5. Monopolistic and other rights.
6. Good marketing and after sales service network.
7. Efficient and loyal employees.
8. Personal reputation of the businessman.

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Types of Goodwill

1. Permanent Goodwill and Locational Goodwill.
2. Personal Goodwill.
3. Commoditised Goodwill.

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Nature of Goodwill

1. Fixed Assets.
2. Intangible Assets.
3. Fictitious Assets.
4. Marketable Commodity.

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Difference between Normal Profit and Super Profit
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Difference between Average Profit and Super Profit