Change in Profit sharing ratio of Partners Test

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Change in Profit sharing ratio of Partners Test - 1

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Question 1
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Which of the following is responsible for the Reconstitution of Partnership?

A
Change in the value of Debtors

B
Both Change in existing profit sharing ratio and Retirement/death of a partner

C
Change in existing profit sharing ratio

D
Retirement/death of a partner

Solution

Explanation:

Reconstitution of the firm can take place on the following occasions:

1.Change in the profit sharing ratio of the existing partners

2.Admission of a new partner

3.Retirement of an existing partner

4.Death of a partner
Question 2
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What is the meaning of change in the profit sharing ratio:

A
Purchase of shares of profit by one partner form another partner

B
In which all partner including the deceased partner executor partner share future profit and loss

C
In which all partner including the retired partner share future profit and loss

D
In which all partner including the new partner share future profit and loss

Solution

Explanation:

Sometimes, the partners of a firm may agree to change their existing profit sharing ratio. As a result of this, some partners will gain in future profits while others will lose. In such a situation, the partner who gains by change in profit sharing ratio must compensate the partner who has made the sacrifice. In simple words, it is also known as purchase of shares of profit by one partner form another partner.
Question 3
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The circumstances when change in profit sharing ratio is needed:

A
To distribute the revaluation profit

B
At the time of admission/retirement/death

C
Both When existing partner’s decide and At the time of admission/retirement/death

D
When existing partner’s decide

Solution

Explanation:

Change in profit sharing ratio is essential in the following circumstances:

1. When existing partners have decided to change their existing profit sharing ratio to new ratio.

2. When a new partner is admitted

3. When a partner gets retirement from the firm

4. At the time of death of a partner
Question 4
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Any change in the relations of partners without affecting the existing of partnership firm is called ____

A
Reassessment

B
Retirement

C
Reconstitution

D
Revaluation

Solution

Explanation:

Any change in the relationship of partners amounts to reconstitution of the partnership firm. A change in the partnership agreement brings to an end the existing agreement and a new Agreement comes into being. This new agreement changes the relationship among the members of the partnership firm. Hence, whenever there is a change in the partnership agreement, the firm continues but it amounts to the reconstitution of the partnership firm.
Question 5
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The partner whose share has increased as a result of change is called

A
Gaining ratio

B
Sacrificing ratio

C
Sacrificing partner

D
Gaining partner

Solution

Explanation:

The partner who is getting more because of change in profit sharing ratio is called a gainer partner. That is why gainer partner is debited and sacrificing partner is credited while adjustment is made for goodwill or reserves and profits etc.
Question 6
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What is gaining ratio:

A
In which profit sharing ratio of gaining partners decrease

B
In which profit sharing ratio of sacrificing partners decrease

C
In which profit sharing ratio of gaining partners increase

D
In which profit sharing ratio of sacrificing partners increase

Solution

Explanation:

Gaining Ratio is calculated at the time of retirement or death of partner. It is the excess of new ratio over old ratio of old partners except retired or deceased partner. Formula : Gaining Ratio = New Ratio - Old
Question 7
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How sacrificing ratio is calculated

A
Sacrificing ratio = Old share – New share

B
Sacrificing ratio = Old ratio – Gaining ratio

C
Sacrificing ratio = New ratio – Old ratio

D
Sacrificing ratio = Old ratio + New ratio

Solution

Explanation:

1. Mainly sacrificing ratio is calculated at the time of Change in existing profit sharing ratio and admission of new partner.

2. Total of each old partner's Sacrifice will be equal to new ratio of new admitted partner or a gainer partner in case of change in existing profit sharing ratio.

3. Goodwill will be adjusted at the time of admission of a partner in sacrifice ratio.

4. Formula : Old share – New share
Question 8
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Who is a sacrificing partner:

A
Whose share has increase as well as decrease as a result of change

B
Whose share has increase as a result of change

C
Whose share has decrease as a result of change

D
Whose share has does not get affected as a result of change

Solution

Explanation:

A sacrificing partner is one who has given or surrendered his share in favour of a new partner. That’s why a sacrificing partner is compensated by a new partner in the form of premium for goodwill.
Question 9
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What adjustments are required when existing partners decide to change their profit sharing ratio:

A
Both Goodwill and Reserves and Accumulated profits

B
Goodwill

C
Realisation Account

D
Reserves and Accumulated profits

Solution

Explanation:

Change in profit sharing ratio may also necessitate adjustments in the partner’s capital accounts with respect to undistributed profits and reserves, revaluation of assets and reassessment of liabilities, etc. The valuation of goodwill of a firm, its treatment, adjustment regarding undistributed profits and reserves and revaluation of assets and liabilities due to change in the profit sharing ratio of the partners.
Question 10
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What should be the amount of compensation if the partners of the firm decide to change their profit share ratio:

A
Amount of compensation = Value’s of firm goodwill x share of profit gained

B
Amount of compensation = Value’s of firm goodwill x share of loss sacrificed

C
Amount of compensation = Profit of the year x share of profit gained

D
Amount of compensation = Value’s of firm goodwill x share of profit sacrificed

Solution

Explanation:

The amount of compensation will be equal to the proportionate amount of goodwill. The valuation of goodwill of a firm, its treatment and adjustment is required at the time of change in existing profit sharing ratio among the partners.

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Change in Profit sharing ratio of Partners Test - 1

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Change in Profit sharing ratio of Partners Test - 1

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SHARING IS CARING

Question 1

Change in the value of Debtors

Both Change in existing profit sharing ratio and Retirement/death of a partner

Change in existing profit sharing ratio

Retirement/death of a partner

Solution

Question 2

Purchase of shares of profit by one partner form another partner

In which all partner including the deceased partner executor partner share future profit and loss

In which all partner including the retired partner share future profit and loss

In which all partner including the new partner share future profit and loss

Solution

Question 3

To distribute the revaluation profit

At the time of admission/retirement/death

Both When existing partner’s decide and At the time of admission/retirement/death

When existing partner’s decide

Solution

Question 4

Reassessment

Retirement

Reconstitution

Revaluation

Solution

Question 5

Gaining ratio

Sacrificing ratio

Sacrificing partner

Gaining partner

Solution

Question 6

In which profit sharing ratio of gaining partners decrease

In which profit sharing ratio of sacrificing partners decrease

In which profit sharing ratio of gaining partners increase

In which profit sharing ratio of sacrificing partners increase

Solution

Question 7

Sacrificing ratio = Old share – New share

Sacrificing ratio = Old ratio – Gaining ratio

Sacrificing ratio = New ratio – Old ratio

Sacrificing ratio = Old ratio + New ratio

Solution

Question 8

Whose share has increase as well as decrease as a result of change

Whose share has increase as a result of change

Whose share has decrease as a result of change

Whose share has does not get affected as a result of change

Solution

Question 9

Both Goodwill and Reserves and Accumulated profits

Goodwill

Realisation Account

Reserves and Accumulated profits

Solution

Question 10

Amount of compensation = Value’s of firm goodwill x share of profit gained

Amount of compensation = Value’s of firm goodwill x share of loss sacrificed

Amount of compensation = Profit of the year x share of profit gained

Amount of compensation = Value’s of firm goodwill x share of profit sacrificed

Solution

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