Terms Introduced in the Chapter

Reconstitution of a partnership firm is any change in the existing agreement among the partners — such as the admission of a new partner, a retirement, a death or a change in the profit-sharing ratio — that ends the old partnership and forms …

Revaluation of assets is the process of restating the firm's assets at their current values at the time of admission, so that any increase or decrease in their worth belongs to the old partner …

Reassessment of liabilities means reviewing and restating the firm's liabilities, including any that were unrecorded, at their correct amounts on admission, so that the resulting gain or loss is adjusted among …

These are past profits kept back in the firm as reserves or credit balances and past losses not yet written off; at the time of admission they are transferred to the old partners in their old profit-sharin …

Accumulated losses are losses of earlier years still lying unadjusted in the books, such as a debit balance of the Profit and Loss Account, which are borne by the old partners in their old profit-sharing …

Goodwill is the value of a firm's reputation that enables it to earn more than the normal profit; on admission the new partner compensates the old partners for his share of it because …

The profit-sharing ratio is the ratio in which the partners agree to share the firm's profits and losses; on the admission of a new partner this ratio changes and a …

Reserves are amounts of past profit set aside and retained in the business; at the time of admission they are distributed to the old partners in their old profit-sharing ratio, as they belong to the pe …

The Revaluation Account is the account opened to record the changes in the values of assets and liabilities on admission; its net gain or loss is then transferred to the old partners i …

The sacrificing ratio is the ratio in which the old partners give up part of their share of profit in favour of the incoming partner; it is used to divide among them the g …

A change in profit-sharing ratio arises when the existing partners agree to alter the proportions in which they share future profits, so that some partners gain and others sacrifice — which calls for adjustment of goodwill, reserves and …