Class 12 Accountancy Chapter 2 deals with the reconstitution of a partnership firm when a new partner is admitted. This chapter focuses on how the partnership changes with the admission of a new person, and what adjustments need to be made in terms of capital, goodwill, and profit-sharing. It includes detailed explanations of accounting treatment for revaluation of assets and liabilities, adjustment of goodwill, and change in capital balances. This topic is one of the most practical parts of the syllabus and also frequently asked in CBSE board exams.
I’m writing about this chapter because students often find the concept of reconstitution slightly confusing, especially when multiple adjustments happen at once. But understanding this chapter is essential, not only for Class 12 exams but also for further commerce studies like B.Com or CA Foundation. Admission of a partner is a common real-world situation in business. So this chapter helps students connect classroom learning with real partnership cases. By explaining it in simple language and providing access to the official NCERT PDF, my aim is to make it easier for students to grasp and practise the chapter step by step.
Key Concepts in Chapter 2 – Reconstitution of a Partnership Firm: Admission of a Partner
When a new partner is admitted into an existing partnership firm, the partnership is said to be reconstituted. The old partnership ends and a new one begins. Several financial adjustments are required to ensure a fair deal to both old and new partners.
Here are the main areas covered in this chapter:
1. Need for Reconstitution
A partnership firm is reconstituted when a new person joins. This affects:
- Profit-sharing ratios
- Goodwill
- Capital contribution
- Revaluation of assets and liabilities
2. New Profit-Sharing Ratio and Sacrificing Ratio
- New Ratio: Ratio in which all partners (including the new one) share profits in future.
- Sacrificing Ratio: The portion of profit which old partners give up in favour of the new partner.
Example: If A and B are existing partners and C is admitted, A and B need to decide how much of their share they are giving up for C.
3. Treatment of Goodwill
Goodwill is the value of the firm’s reputation. When a new partner joins, they compensate the existing partners for this.
There are two common ways to treat goodwill:
- Through premium paid in cash
- By adjusting through capital accounts (if goodwill is not brought in cash)
4. Revaluation of Assets and Liabilities
Before a new partner joins, the firm may revalue its assets or liabilities to reflect their current market value.
A Revaluation Account is prepared to:
- Record increase or decrease in asset values
- Account for outstanding liabilities or provisions
5. Adjustment of Capital
Partners may decide to adjust their capital accounts in proportion to the new profit-sharing ratio.
This can be done by:
- Bringing in additional capital
- Withdrawing excess capital
- Equalising capital through cash or current account
6. Accounting Entries
This chapter includes several journal entries like:
- For bringing in capital and goodwill
- For revaluation adjustments
- For change in profit-sharing ratio
- For adjusting reserves or accumulated profits
Download PDF – NCERT Class 12 Accountancy Chapter 2
If you want to study from the official NCERT book, downloading the Chapter 2 PDF is the best option. It contains clear explanations, solved examples, and practice questions.
