CBSE Class 12 Accountancy Chapter 2 Notes for Change In Profit Sharing Ratio & Goodwill Valuation plays an important role in your CUET preparation 2026. These revision notes are developed in accordance with the most recent CBSE rules and are required by all Class 12 students. Accountancy is more than just crunching numbers; it teaches you how to understand financial activities, analyze statements, and make informed company decisions.
CBSE Class 12 Accountancy Chapter 2 Notes
Our notes are meant to provide a thorough understanding of accounting principles, financial statements, and corporate accounting, preparing you to take the CBSE Class 12 board exams. Gaining proficiency in this area provides a solid basis for understanding more complicated subjects including computerized accounting systems, bank reconciliation, trial balance, depreciation, provisions, reserves, and error correction.
Download Class 12 Accountancy Chapter 2 Notes PDF for Quick Revision
Download and review the experts’ Class 12 Accountancy Notes. Understand and recall facts more rapidly to perform well on tests. These study materials are designed to ensure that students achieve the highest possible exam result.
Accountancy Notes for Chapter 2 –
CBSE Class 12 Accountancy Notes 2024-25 are designed to completely fit with the most recent CBSE curriculum requirements. Check the highlights of the notes below:
RECONSTITUTION OF PARTNERSHIP FIRM
1. Definition of Partnership: Partnership is fundamentally the result of an agreement among persons to share the profits of
a business.
2. Definition of Reconstitution: Any alteration to the existing partnership agreement terminates the old agreement and
initiates a new one. Although the firm continues its business operations, this change in the relationship among partners
constitutes the reconstitution of the partnership firm.
3. Required Adjustments: When reconstitution occurs, it necessitates various adjustments to maintain equity among the
partners, including adjustments for goodwill, revaluation of assets and liabilities, reserves, and accumulated profits and
losses.
III. NUMERICAL EXAMPLE (CHANGE IN PROFIT SHARING RATIO)
The change in the Profit-Sharing Ratio (PSR) is a classic example of reconstitution.
Scenario: A and B are partners sharing profits in the ratio of 2:1. They decide to change their future PSR to 3:1.
ADJUSTMENTS REQUIRED AT THE TIME OF CHANGE IN PSR
A change in PSR often results in some partners gaining an extra share of future profits at the expense of others. To compensate
the sacrificing partner(s) and ensure equitable treatment, the following adjustments are required:
1. Determination of Sacrificing Ratio and Gaining Ratio.
2. Accounting for Goodwill: Compensation must be paid by the gaining partner(s) to the sacrificing partner(s) based on the
value of goodwill.
3. Accounting Treatment of Reserves and Accumulated Profits/Losses.
4. Accounting for Revaluation of Assets and Liabilities.
5. Adjustment of Capitals (if agreed upon).
SACRIFICING RATIO AND GAINING RATIO
When the PSR changes, one or more partners must surrender a portion of their old share, while others acquire a larger share.
A. Sacrificing Ratio
• Definition: The ratio representing the proportion of profit share surrendered by one or more existing partners in favor of
other partners.
• Formula: Sacrificing Ratio = Old Ratio − New Ratio
• Purpose: To determine the amount of compensation (based on goodwill) that must be paid by the gaining partner to the
sacrificing partner.
B. Gaining Ratio
• Definition: The ratio representing the portion of profit share acquired (gained) by one or more existing partners as a result
of the change in PSR.
• Formula: Gaining Ratio = New Ratio − Old Ratio
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