NCERT Class 12 Accountancy Accountancy-I: Chapter 2 — Reconstitution of a Partnership Firm - Admission
This chapter from NCERT Class 12 Accountancy (Accountancy-I) introduces the concept of partnership firm reconstitution. It explains that any change in the existing agreement leads to reconstitution, resulting in a new agreement with altered partner relationships or composition, though the firm continues. Reconstitution can occur through the admission of a new partner, a change in profit-sharing ratio, retirement, or death of a partner. The chapter focuses on the accounting implications of admitting a new partner and changes in profit-sharing ratios. It details the learning objectives, including understanding reconstitution, identifying necessary adjustments upon a new partner's admission, calculating new profit-sharing and sacrificing ratios, defining goodwill, and methods of its valuation and treatment. It also covers adjustments for asset revaluation, liabilities reassessment, accumulated profits/losses, and partner capital adjustments.
Quick info
| Board | CBSE / NCERT |
|---|---|
| Class | Class 12 |
| Subject | Accountancy |
| Book | Accountancy-I |
| Chapter | Chapter 2 — Reconstitution of a Partnership Firm - Admission |
| Language | English |
| PDF type | NCERT Textbook |
| Session | CBSE 2026 |
| Reading time | 5 minutes |
| Word count | 874 |
Learning outcomes
- Explain the concept of reconstitution of a partnership firm.
- Identify adjustments needed when a new partner is admitted.
- Determine new profit sharing and sacrificing ratios.
- Define goodwill and factors affecting it.
- Understand methods of goodwill valuation and treatment.
- Make adjustments for asset revaluation, liabilities, and accumulated profits/losses.
Vocabulary
| Word | Meaning |
|---|---|
| Reconstitution | A change in the existing agreement of a partnership firm, leading to a new agreement. |
| Partnership Firm | A business carried on by two or more persons for sharing profits, based on an agreement. |
| Admission of a Partner | Introducing a new partner into an existing partnership firm. |
| Profit Sharing Ratio | The ratio in which partners agree to share profits and losses of the firm. |
| Sacrificing Ratio | The ratio in which old partners forgo their share of profit in favour of the new partner. |
| Goodwill | An intangible asset representing the excess earning capacity of a firm due to its reputation. |
| Revaluation of Assets | Adjusting the book value of assets to their current market value. |
| Reassessment of Liabilities | Adjusting the book value of liabilities to their current payable amount. |
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Practice questions
- What is meant by reconstitution of a partnership firm? Answer: Reconstitution of a partnership firm means that the existing agreement among the partners comes to an end and a new agreement is made.
- List any three ways by which a partnership firm can be reconstituted. Answer: A partnership firm can be reconstituted by: 1. Admission of a new partner, 2. Change in the profit sharing ratio among existing partners, 3. Retirement of an existing partner, 4. Death of a partner.
- When is a new partner usually admitted into a firm? Answer: A new partner is usually admitted when the firm needs additional capital or managerial help for the expansion of its business.
- What rights does a newly admitted partner acquire in the firm? Answer: A newly admitted partner acquires the right to share in the assets of the partnership firm and the right to share in the profits of the partnership firm.
Practice MCQs
Q1. Which of the following is NOT a mode of reconstitution of a partnership firm?
Explanation: Dissolution of the firm means the end of the partnership business, whereas reconstitution involves continuing the business with a new agreement.
Q2. A new partner can be admitted into a firm only with the consent of:
Explanation: According to the Partnership Act 1932, a new partner can be admitted only with the unanimous consent of all existing partners, unless the partnership deed states otherwise.
Q3. When a new partner is admitted, they are required to bring in:
Explanation: A new partner brings in capital for their share in assets and profits, and if the firm has goodwill, they contribute an additional amount as premium for goodwill.
Q4. Which of the following leads to the end of an existing agreement among partners?
Explanation: All the listed events (admission, retirement, change in profit sharing ratio) result in the termination of the old partnership agreement and the formation of a new one.
Q5. The firm continues to exist even after reconstitution. This means:
Explanation: Reconstitution implies that the partnership business itself does not cease to exist; rather, the terms of the partnership agreement are changed.
Frequently asked questions
What is reconstitution of a partnership firm?
Reconstitution of a partnership firm refers to any change in the existing agreement between the partners, which leads to the termination of the old agreement and the formation of a new one, while the firm continues its business.
What are the common ways a partnership firm can be reconstituted?
A partnership firm can be reconstituted through the admission of a new partner, a change in the profit-sharing ratio among existing partners, the retirement of a partner, or the death of a partner.
Why might a firm admit a new partner?
A firm typically admits a new partner to bring in additional capital or to obtain managerial expertise, often for the expansion of the business.
What rights does a new partner gain upon admission?
A newly admitted partner gains the right to share in the firm's assets and the right to share in its future profits.
What is the significance of the profit-sharing ratio in reconstitution?
The profit-sharing ratio is crucial as it changes upon reconstitution, requiring calculations for the new ratio and the sacrificing ratio of the old partners.
What is goodwill in the context of partnership reconstitution?
Goodwill is an intangible asset representing the firm's reputation and its ability to earn profits above the normal rate. A new partner often pays a premium for goodwill.
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NCERT Class 12 Accountancy — Accountancy-I — Chapter 2 — Reconstitution of a Partnership Firm - Admission. Verified by NCERT Help Editorial Team. Reviewed on 29 Jul 2026. Last updated 10 Aug 2026.