Question

Which of the following situations lead to reconstitution of a partnership firm?
(A) Death of a partner
(B) Retirement of a partner
(C) Admission of a partner
(D) Change in Profit sharing ratio among existing partners

• A. (A), (B) and (D) only
• B. (A), (B) and (C) only
• C. (A), (B), (C) and (D)
• D. (B), (C) and (D) only

Answer 1

The Correct Option is C

Reconstitution of a partnership firm occurs when there is a change in the partnership structure, which may involve changes in the partners, profit-sharing ratios, or other significant changes in the partnership agreement. Let’s analyze each situation to see if it leads to reconstitution:

• Death of a partner (A):
  The death of a partner leads to the reconstitution of the partnership because the firm must adjust to the loss of that partner. The remaining partners may have to decide how to divide the deceased partner’s share, and new arrangements may be made.
  Therefore, (A) leads to reconstitution.
• Retirement of a partner (B):
  When a partner retires, the partnership undergoes reconstitution. The retiring partner’s share of the partnership must be settled, and the remaining partners may revise their agreement, which could include changes in the profit-sharing ratio or other terms.
  Therefore, (B) leads to reconstitution.
• Admission of a partner (C):
  The admission of a new partner into the firm always leads to the reconstitution of the partnership. The new partner brings in fresh capital and may alter the profit-sharing ratio among existing partners.
  Therefore, (C) leads to reconstitution.
• Change in profit-sharing ratio among existing partners (D):
  A change in the profit-sharing ratio among the existing partners also results in reconstitution, as the new profit-sharing arrangement affects the distribution of the firm's profits.
  Therefore, (D) leads to reconstitution.

All of the situations (A), (B), (C), and (D) lead to the reconstitution of a partnership firm.

Thus, the correct answer is (C): (A), (B), (C) and (D).

Answer 2

Death of a partner, retirement of a partner, admission of a partner, and change in profit sharing ratio among existing partners are all situations that result in the reconstitution of a partnership firm.
Reconstitution occurs when there is a change in the existing structure of the partnership, whether by the entry or exit of a partner or by altering the rights and liabilities among partners.