What is meant by Reconstitution of a Partnership firm? State the different ways in which a partnership firm can be reconstituted.

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Reconstitution of a Partnership firm means any change in the existing agreement among the partners that alters their mutual rights and obligations, while the firm itself continues its business without being dissolved. In other words, the OLD partnership comes to an end in the legal sense, but the FIRM carries on, uninterrupted, under a fresh arrangement.

A partnership firm can be reconstituted in any of the following ways:

1. **Admission of a new partner** — a new person is admitted into the firm with the consent of all existing partners, and becomes entitled to a share in future profits and in the firm's assets from the date of his admission.
2. **Retirement of a partner** — an existing partner withdraws from the firm (voluntarily, or on completion of an agreed term), and the remaining partners continue the business, settling the retiring partner's dues.
3. **Death of a partner** — a partner's membership of the firm ends automatically on his death, and his legal representatives become entitled to whatever is due to him from the firm up to the date of death.
4. **Change in the profit-sharing ratio of the existing partners** — no partner joins or leaves the firm, but the continuing partners mutually agree to share future profits and losses in a proportion different from before (for example, because one partner is now devoting more time to the business than another). …

Balance Sheet as on 31st March 2019
Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Account:		Land and Building	32,000
Mr. Deepak	1,20,000	Plant and Machinery	60,000
Mr. Abhishek	40,000	Furniture	22,000
General Reserve	16,000	Stock	40,000
Sundry Creditors	80,000	Sundry Debtors	64,000
Bank Overdraft	42,000	Cash	80,000
	2,98,000		2,98,000
They admitted Adinath into partnership on 1st April 2019 on the terms being that-
He shall have to bring in ₹ 40,000 as his capital for 1/5 share in future profits and ₹ 20,000 as his share of goodwill.
Furniture to be depreciated by 20%.
Stock should be appreciated by 10%.
Building should be appreciated by 5%.
A provision for 5% R.D.D. to be created on sundry debtors.
Capital account of all partners be adjusted in their new profit sharing ratio through cash account.
Prepare:
Revaluation Account
Partners' Capital Account
New Balance Sheet of the firm.

Particulars	Amount (₹)	Particulars	Amount (₹)
To Furniture A/c (20% of 22,000)	4,400	By Stock A/c (10% of 40,000)	4,000
To R.D.D. A/c (5% of 64,000)	3,200	By Building A/c (5% of 32,000)	1,600
		By Loss on revaluation:
		Deepak (3/4)	1,500
		Abhishek (1/4)	500
Total	7,600	Total	7,600

Particulars	Deepak (₹)	Abhishek (₹)	Adinath (₹)	Particulars	Deepak (₹)	Abhishek (₹)	Adinath (₹)
To Revaluation A/c (loss)	1,500	500	—	By Balance b/d	1,20,000	40,000	—
To Cash A/c (withdrawn)	25,500	8,500	—	By Cash A/c (capital)	—	—	40,000
To Balance c/d	1,20,000	40,000	40,000	By Cash A/c (goodwill)	—	—	—
				By General Reserve A/c	12,000	4,000	—
				By Premium (Goodwill) A/c	15,000	5,000	—
Total	1,47,000	49,000	40,000	Total	1,47,000	49,000	40,000

Balance Sheet as on 31st March, 2020
Liabilities	Amount (₹)	Assets	Amount (₹)
Sundry Creditors		80,000	Cash	80,000
Bills Payable		42,000	Sundry Debtors	64,000
Capital Accounts:			Land and Building	32,000
Ram	1,20,000	1,60,000	Stock	40,000
Shyam	40,000	Plant and Machinery	60,000
General Reserve		16,000	Furniture	22,000
		2,98,000		2,98,000
They admit Bharat into partnership on 1
st
April 2020. The term is that
He shall have to bring in cash ₹ 40,000 as his Capital for 1/5
th
share in future profit and ₹ 20,000 as his share of Goodwill.
A provision for 5% doubtful debts to be created on sundry debtors.
Stock should be appreciated by 5% and Land and Building be appreciated by 20%.
Furniture to be depreciated by 20%.
Capital Accounts of all partners be adjusted in their new profit-sharing ratio through Cash Account.
Prepare:
Profit and Loss Adjustment Account
Partners' Capital Account
Balance Sheet of the new firm.

Dr. Particulars	Amount (₹)	Cr. Particulars	Amount (₹)
To R.D.D. (5% on Debtors)	3,200	By Stock A/c (5% appreciation)	2,000
To Furniture A/c (20% dep.)	4,400	By Land & Building A/c (20% app.)	6,400
To Profit t/f to Capital A/cs — Ram 600, Shyam 200	800
Total	8,400	Total	8,400

Q.What is meant by Reconstitution of a Partnership firm? State the different ways in which a partnership firm can be reconstituted.

Concept understanding — Reconstitution and Admission of a Partner

Dr. Particulars	Ram	Shyam	Bharat	Cr. Particulars	Ram	Shyam	Bharat
To Cash A/c (withdrawn)	27,600	9,200	—	By Balance b/d	1,20,000	40,000	—
To Balance c/d	1,20,000	40,000	40,000	By Cash A/c	—	—	40,000
				By General Reserve	12,000	4,000	—
				By Revaluation A/c	600	200	—
				By Cash A/c (Goodwill)	15,000	5,000	—
Total	1,47,600	49,200	40,000	Total	1,47,600	49,200	40,000
…

Q.What is meant by Reconstitution of a Partnership firm? State the different ways in which a partnership firm can be reconstituted.

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