CUET UG Accountancy Booster Test 2 Reconstitution Basics -

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CUET UG Accountancy Booster Test 2 Reconstitution Basics

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Accountancy Booster Test 2 Reconstitution Basics

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QUESTION 1 OF 20

Assertion (A): A partnership fundamentally requires a mutual agency relationship where business is carried on by all or any of them acting for all.
Reason (R): This mutual agency implies that the actions of one partner acting for the business bind the other partners.

Answer Review

1 Assertion (A): A partnership fundamentally requires a mutual agency relationship where business is carried on by all or any of them acting for all.
Reason (R): This mutual agency implies that the actions of one partner acting for the business bind the other partners.

A A is false, R is true.

B Both A and R are true, and R logically follows from the mutual agency aspect of the definition in A.

C Both A and R are false.

D A is true, but R is completely unrelated to partnership principles.

💡 Short Explanation

Mutual agency is essential. One partner binds others. Reason explains assertion.

✅ Correct Answer Explanation

Partnership exists because partners act for one another in business dealings. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Assertion true.
Option C → Both statements true.
Option D → Reason directly related.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Connect mutual agency with partnership definition.

Final Logic:

�� Mutual agency binds partners together.

🧠 Memory Trick

"One Acts for All"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Definition of Partnership – Page reference may vary by edition.

2 A and B operate a business sharing profits 3:1 without a formal written deed specifying admission rules. They wish to admit C, but A strongly objects. Can C legally be admitted?

A Yes, because B has a 1/4th share and can sell it to anyone.

B Yes, because a written deed is strictly required to stop admission.

C No, because C must be blood-related to A.

D No, because without contrary provisions in a deed, unanimous consent is required under the Act.

💡 Short Explanation

Admission requires consent. Deed has no contrary provision. One objection blocks admission.

✅ Correct Answer Explanation

Under the Partnership Act, unanimous consent is required unless otherwise provided in the partnership deed. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Partner cannot admit alone.
Option B → Written deed unnecessary.
Option C → Blood relation irrelevant.

🎯 Strategy

Used

Legal Rule Application

Application:

�� Apply admission rule under Partnership Act.

Final Logic:

�� All existing partners must agree.

🧠 Memory Trick

"All Must Agree"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Agreement and Profit Sharing – Page reference may vary by edition.

3 Sequence the broad impact of reconstitution on the accounting records of a firm when a new partner is admitted (select the most logical progression followed during admission):
1. Capital adjustments are made based on the new ratio (if agreed).
2. Revaluation of assets and reassessment of liabilities.
3. Distribution of accumulated profits/reserves to old partners.
4. Adjustment of goodwill.

A 2, 3, 4, 1

B 1, 2, 3, 4

C 4, 1, 2, 3

D 3, 4, 1, 2

💡 Short Explanation

Revaluation done first. Old profits distributed next. Goodwill adjusted before capitals.

✅ Correct Answer Explanation

Correct order: Revaluation Distribution of reserves Goodwill adjustment Capital adjustment Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Capital adjustment too early.
Option C → Goodwill cannot precede revaluation.
Option D → Reserves distributed before revaluation.

🎯 Strategy

Used

Sequential Accounting Logic

Application:

�� Arrange accounting adjustments properly.

Final Logic:

�� Old partners settled before new structure.

🧠 Memory Trick

"Revalue → Reserve → Goodwill → Capital"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Meaning of Reconstitution – Page reference may vary by edition.

4 If Ram, Mohan, and Sohan decide to change their profit sharing ratio from 3:2:1 to 1:1:1 due to Sohan bringing in additional capital, does this constitute a reconstitution even if no external person enters the firm?

A No, reconstitution only happens strictly upon admission or death.

B No, it is simply a basic journal entry for capital expansion.

C Yes, any change in the existing agreement amounts to a reconstitution of the partnership firm.

D Yes, but only if the firm's legal name is also changed.

💡 Short Explanation

Ratio change alters agreement. Reconstitution occurs internally. No new partner necessary.

✅ Correct Answer Explanation

Any change in partnership agreement causes reconstitution. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Ratio change also qualifies.
Option B → Beyond simple journal entry.
Option D → Name change unnecessary.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Identify meaning of reconstitution.

Final Logic:

�� Agreement change equals reconstitution.

🧠 Memory Trick

"Agreement Changes = Reconstitution"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Change in Agreement – Page reference may vary by edition.

5 Consider these statements about business continuity during a firm's reconstitution:
I. The old agreement is terminated.
II. The business operations of the firm must be halted until a new agreement is registered.
III. The composition of the firm changes.
Which statements are accurate?

A I and II only

B II and III only

C I only

D I and III only

💡 Short Explanation

Old agreement ends. Business continues normally. Firm composition changes.

✅ Correct Answer Explanation

Reconstitution changes relationships and agreements, but business operations continue. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Operations need not stop.
Option B → Statement II false.
Option C → Statement III also true.

🎯 Strategy

Used

Statement Verification

Application:

�� Distinguish continuity from dissolution.

Final Logic:

�� Business survives reconstitution.

🧠 Memory Trick

"Agreement Ends, Business Continues"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Continuity of Business – Page reference may vary by edition.

6 When A, B, and C change their profit sharing ratio from 8:5:3 to 5:6:5, what is the fundamental accounting effect on their relationship?

A A gains an additional share while B and C lose parts of theirs.

B A loses a share in profits while B and C gain, necessitating adjusting entries for goodwill.

C The firm must pay out A's capital entirely in cash.

D They must immediately revalue assets but skip goodwill entirely.

💡 Short Explanation

A's share decreases. B and C gain shares. Goodwill adjustment required.

✅ Correct Answer Explanation

Change in ratio creates sacrificing and gaining partners, requiring goodwill adjustment. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → A actually sacrifices.
Option C → Capital payout unnecessary.
Option D → Goodwill adjustment essential.

🎯 Strategy

Used

Ratio Comparison

Application:

�� Compare old and new shares.

Final Logic:

�� Sacrifice and gain must be adjusted.

🧠 Memory Trick

"Sacrifice Requires Goodwill"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Change in Relationships – Page reference may vary by edition.

7 Match the situation with the specific accounting treatment on the admission of a partner:

List 1	List 2
1. Unrecorded liability found	a. Debited to Revaluation A/c
2. General Reserve exists in old balance sheet	b. Transferred to old partners in their old ratio
3. Assets are overstated (reduced in value)	c. Debited to Revaluation A/c (loss)
4. New partner brings premium for goodwill in cash	d. Credited to old partners in their sacrificing ratio

A 1-b, 2-c, 3-d, 4-a

B 1-a, 2-b, 3-c, 4-d

C 1-d, 2-c, 3-a, 4-b

D 1-c, 2-a, 3-b, 4-d

💡 Short Explanation

Liability increases loss. Reserves distributed in old ratio. Premium follows sacrificing ratio.

✅ Correct Answer Explanation

Correct matching: Unrecorded liability → Debit Revaluation General Reserve → Old ratio Overstated assets → Revaluation loss Premium → Sacrificing ratio Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Liability wrongly matched.
Option B → Reserve incorrectly allocated.
Option D → Multiple mismatches.

🎯 Strategy

Used

Matching Logic

Application:

�� Match events with accounting treatment.

Final Logic:

�� Only Option C fully correct.

🧠 Memory Trick

"Premium → Sacrifice Ratio"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Admission of Partner – Page reference may vary by edition.

8 Akshay and Bharati share profits in 3:2. Dinesh is admitted for a 1/5 share, acquiring it equally from Akshay and Bharati. What is Akshay's precisely calculated new share?

A 5/10

B 4/10

C 3/10

D 2/10

💡 Short Explanation

Incoming share divided equally. Akshay sacrifices half of 1/5. New share recalculated.

✅ Correct Answer Explanation

Akshay's Old Share: 3/5 Sacrifice: 1/5 × 1/2 = 1/10 New Share: 3/5 − 1/10 = 5/10 Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Incorrect deduction.
Option C → Excess sacrifice assumed.
Option D → Too small.

🎯 Strategy

Used

Share Adjustment Method

Application:

�� Deduct equal sacrifice.

Final Logic:

�� Akshay's new share equals 5/10.

🧠 Memory Trick

"Old Share − Sacrifice"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Admission of Partner – Page reference may vary by edition.

9 When a partner retires, the remaining partners often gain a portion of the retiring partner's share. The formula to calculate this gaining ratio is:

A Old Share - New Share

B New Share - Old Share

C Old Share / New Share

D Old Share + New Share

💡 Short Explanation

Gain means increase in share. Compare new and old share. Difference shows gain.

✅ Correct Answer Explanation

Gaining Ratio Formula: \text{Gain}=\text{New Share}-\text{Old Share} Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Sacrifice formula.
Option C → Division unnecessary.
Option D → Addition incorrect.

🎯 Strategy

Used

Formula Recall

Application:

�� Apply gaining ratio formula.

Final Logic:

�� Gain measured by increase.

🧠 Memory Trick

"New Minus Old = Gain"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Retirement of Partner – Page reference may vary by edition.

10 X, Y, and Z share profits 3:2:1. X dies. Y and Z continue sharing equally. Which ratio must be fundamentally calculated to adjust the deceased partner's share of goodwill among Y and Z?

A The sacrificing ratio of X only.

B The old ratio of Y and Z.

C The gaining ratio of Y and Z.

D The new profit ratio of X.

💡 Short Explanation

Remaining partners gain share. Goodwill adjustment based on gain. Gaining ratio required.

✅ Correct Answer Explanation

After death, remaining partners gain the deceased partner's share and compensate accordingly. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → X no longer partner.
Option B → Old ratio insufficient.
Option D → X has no new ratio.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Identify ratio for compensation.

Final Logic:

�� Gaining partners compensate deceased partner.

🧠 Memory Trick

"Death → Gaining Ratio"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Death of Partner – Page reference may vary by edition.

11 Assertion (A): A new partner can never be admitted without unanimous consent, even if the partnership deed explicitly states majority rule is sufficient.
Reason (R): The Partnership Act 1932 strictly overrides any internal partnership deed regarding admission rules.

A Both A and R are true.

B A is true, R is false.

C A is false, R is true.

D Both A and R are false.

💡 Short Explanation

Deed may allow majority admission. Partnership Act permits flexibility. Both statements false.

✅ Correct Answer Explanation

The partnership deed can modify admission rules, so unanimous consent is not always mandatory. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Both not true.
Option B → Assertion false.
Option C → Reason false.

🎯 Strategy

Used

Legal Interpretation

Application:

�� Compare Act with deed provisions.

Final Logic:

�� Deed can override default rule.

🧠 Memory Trick

"Deed Can Modify Rules"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Consent of Partners – Page reference may vary by edition.

12 Under the Partnership Act 1932, if the partnership is defined as "at will," what specific provision applies to a partner's retirement?

A A partner can retire at any time.

B A partner must give exactly 5 years' notice.

C A partner can only retire if permanently disabled.

D A partner cannot retire without supreme court approval.

💡 Short Explanation

Partnership at will flexible. Retirement unrestricted. Notice generally sufficient.

✅ Correct Answer Explanation

A partner in a partnership at will may retire at any time. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → No fixed period.
Option C → Disability unnecessary.
Option D → Court approval unnecessary.

🎯 Strategy

Used

Legal Rule Recall

Application:

�� Apply partnership-at-will principle.

Final Logic:

�� Flexible retirement allowed.

🧠 Memory Trick

"At Will = Anytime"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Partnership Act Rules – Page reference may vary by edition.

13 Beyond immediate capital and managerial help, why might an established firm conceptually admit a highly reputable individual as a partner?

A To avoid paying corporate taxes.

B To force dissolution of the current firm.

C To leverage their good name and reputation, which enhances the firm's goodwill and connections.

D To seamlessly transfer accumulated losses to them.

💡 Short Explanation

Reputation improves goodwill. Connections benefit business. Prestige attracts opportunities.

✅ Correct Answer Explanation

A reputed partner strengthens goodwill and market reputation. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Tax avoidance unrelated.
Option B → Admission does not dissolve firm.
Option D → Loss transfer not objective.

🎯 Strategy

Used

Business Logic Analysis

Application:

�� Identify strategic admission purpose.

Final Logic:

�� Reputation creates goodwill advantage.

🧠 Memory Trick

"Good Name = Goodwill"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Need for New Partner – Page reference may vary by edition.

14 Hem and Nem have capitals of Rs. 80,000 and Rs. 50,000 respectively. Sam brings Rs. 60,000 for a 1/5 share. If the total capital of the new firm based on Sam's share is Rs. 3,00,000, what is the calculated value of the firm's hidden goodwill?

A Rs. 1,10,000

B Rs. 90,000

C Rs. 60,000

D Rs. 1,50,000

💡 Short Explanation

Total implied capital determined. Existing capitals compared. Difference equals hidden goodwill.

✅ Correct Answer Explanation

Total Capital: 60000 × 5 = 300000 Existing Capitals + Sam's Capital: 80000 + 50000 + 60000 = 190000 Hidden Goodwill: 300000 − 190000 = 110000 Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Incorrect subtraction.
Option C → Sam's capital only.
Option D → Excess amount.

🎯 Strategy

Used

Hidden Goodwill Method

Application:

�� Compare implied and actual capital.

Final Logic:

�� Difference equals goodwill.

🧠 Memory Trick

"Implied Capital − Actual Capital"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Capital Requirement – Page reference may vary by edition.

📄 Passage

If nothing is specified as to how does the new partner acquire his share from the old partners; it may be assumed that he gets it from them in their profit sharing ratio. In any case, on admission of a new partner, the profit sharing ratio among the old partners will change keeping in view their respective contribution to the profit sharing ratio of the incoming partner.

Based on the passage, if A and B share profits in 3:2 and admit C for a 1/5 share without specifying the acquisition method, how do A and B contribute to C's share?

A Equally.

B In their old ratio of 3:2.

C A contributes the entirety.

D B contributes the entirety.

💡 Short Explanation

No agreement specified. Default old ratio applied. Contribution proportional.

✅ Correct Answer Explanation

If unspecified, the new partner acquires share from old partners in their old ratio. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Equal assumption incorrect.
Option C → A alone not specified.
Option D → B alone not specified.

🎯 Strategy

Used

Default Rule Application

Application:

�� Apply old ratio assumption.

Final Logic:

�� Contribution follows old ratio.

🧠 Memory Trick

"No Agreement → Old Ratio"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Share in Assets – Page reference may vary by edition.

📄 Passage

What is the mathematical implication of the old partners contributing to the new partner's share as described in the passage?

A Their new profit sharing ratio increases.

B Their capital accounts are strictly reduced by 50%.

C They must buy more physical assets immediately.

D Their profit sharing ratio will change (reduce) based on their respective contributions to the new partner.

💡 Short Explanation

Old partners sacrifice shares. New ratio reduced accordingly. Contribution changes relationship.

✅ Correct Answer Explanation

Old partners reduce their profit shares to accommodate the new partner. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Shares reduce, not increase.
Option B → No fixed 50% reduction.
Option C → Assets purchase unnecessary.

🎯 Strategy

Used

Passage Interpretation

Application:

�� Identify effect of contribution.

Final Logic:

�� Sacrifice reduces old ratio.

🧠 Memory Trick

"Contribution Means Sacrifice"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Share in Profits – Page reference may vary by edition.

17 If the new partner brings capital but fails to bring their share of goodwill in cash:
I. The amount not brought is debited to the new partner's current account.
II. The sacrificing partners' capital accounts are still credited for their respective shares.
III. The admission is legally cancelled automatically.

A I and II only

B II and III only

C I and III only

D I, II, and III

💡 Short Explanation

Deficiency debited to current account. Sacrificing partners credited. Admission still valid.

✅ Correct Answer Explanation

Unpaid goodwill is adjusted through current account while sacrificing partners receive due credit. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Statement III false.
Option C → Statement II true.
Option D → Admission not cancelled.

🎯 Strategy

Used

Statement Verification

Application:

�� Evaluate goodwill adjustment process.

Final Logic:

�� Deficiency adjusted, not cancelled.

🧠 Memory Trick

"No Cash → Current Account"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Capital Contribution – Page reference may vary by edition.

18 A firm earns average profits of Rs. 1,00,000. Normal rate of return is 10%. Net assets are Rs. 8,20,000. Using the capitalization of average profits method formula, what is the firm's calculated goodwill?

A Rs. 1,00,000

B Rs. 82,000

C Rs. 1,80,000

D Rs. 10,00,000

💡 Short Explanation

Capitalized value determined first. Net assets deducted. Difference equals goodwill.

✅ Correct Answer Explanation

Capitalized Value: (100000 × 100) ÷ 10 = 1000000 Goodwill: 1000000 − 820000 = 180000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Average profit only.
Option B → Incorrect subtraction.
Option D → Capitalized value only.

🎯 Strategy

Used

Capitalization Method

Application:

�� Compare business value with net assets.

Final Logic:

�� Excess equals goodwill.

🧠 Memory Trick

"Capitalized Value − Net Assets"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Goodwill Contribution – Page reference may vary by edition.

19 Rohit and Mohit share profits in 5:3. Bijoy is admitted for 1/7 share. The new ratio is 4:2:1. What is the calculated sacrificing ratio of Rohit and Mohit?

A 5:3

B 1:1

C 4:2

D 3:5

💡 Short Explanation

Sacrifice equals old minus new. Compare individual changes. Ratio formed from sacrifice.

✅ Correct Answer Explanation

Rohit's Sacrifice: 5/8 − 4/7 = 3/56 Mohit's Sacrifice: 3/8 − 2/7 = 5/56 Sacrificing Ratio: 3: 5 Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Old ratio only.
Option B → Sacrifice unequal.
Option C → New ratio partial only.

🎯 Strategy

Used

Sacrifice Formula

Application:

�� Old Share − New Share.

Final Logic:

�� Sacrificing ratio becomes 3:5.

🧠 Memory Trick

"Old Minus New = Sacrifice"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Sacrifice of Old Partners – Page reference may vary by edition.

20 If the new partner pays the premium for goodwill directly (privately) to the old partners, what is the correct formulaic journal entry applied in the books of the firm?

A Debit Cash, Credit Premium for Goodwill

B No entry is passed in the books of the firm

C Debit Goodwill, Credit Partners Capital

D Debit Partners Capital, Credit Cash

💡 Short Explanation

Payment occurs privately. Firm books unaffected. No accounting entry needed.

✅ Correct Answer Explanation

Private settlement outside the business requires no journal entry in firm books. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Cash not received by firm.
Option C → Goodwill account unnecessary.
Option D → Partners' capital unaffected in books.

🎯 Strategy

Used

Journal Entry Logic

Application:

�� Identify treatment of private payment.

Final Logic:

�� Outside settlement bypasses books.

🧠 Memory Trick

"Private Payment = No Entry"

📚 Class XII – Accountancy Part 1 – Chapter: Reconstitution of a Partnership Firm – Admission of a Partner – Topic: Premium for Goodwill – Page reference may vary by edition.

CUET UG Accountancy Booster Test 2 Reconstitution Basics

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