What are the matters that need adjustments at the time of Reconstitut…

What are the matters that need adjustments at the time of Reconstitution of partnership?

A. Preparation of Realisation A/c

B. Calculation of Sacrificing ratio

C. Distribution of accumulated profits

D. Valuation of goodwill

E. Preparation of partner's loan A/c

Choose the correct answer from the options given below.

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → B, C and D only

Any change in the partnership agreement (admission, retirement, death, change in ratio) reconstitutes the firm, but the business goes on. So the adjustments are those among the partners, not the closing of the books.

(A) Preparation of Realisation A/c — False. A Realisation Account is prepared only when the firm is dissolved.

(B) Calculation of Sacrificing ratio — True. The old partners give up part of their share, so the sacrificing ratio is worked out.

(C) Distribution of accumulated profits — True. Reserves and accumulated profits belong to the old partners and are distributed in the old ratio.

(D) Valuation of goodwill — True. Goodwill is valued and adjusted on every reconstitution.

(E) Preparation of partner's loan A/c — False. A partner’s loan is a separate debt of the firm; reconstitution does not call for opening one.

NCERT (2026-27 edition):
Admission of a New Partner – “… Following are the other important points which require attention at the time of admission of a new partner: 1. New profit sharing ratio; 2. Sacrificing ratio; 3. Valuation and adjustment of goodwill; 4. Revaluation of assets and Reassessment of liabilities; 5. Distribution of accumulated profits (reserves); and 6. Adjustment of partners’ capitals.”

NCERT (2026-27 edition):
Accounting Treatment – “When the firm is dissolved, its books of account are to be closed and the profit or loss arising on realisation of its assets and discharge of liabilities is to be computed. For this purpose, a Realisation Account is prepared to ascertain the net effect (profit or loss) of realisation of assets and payment of liabilities which may be is transferred to partner’s capital accounts in their profit sharing ratio.”