Examkin

Question

Difficulty: MediumAdmission of a New Partner

Ade and Ngozi are partners in an engineering firm sharing profits and losses in the ratio of 3:23:2. Their capital account balances prior to the admission of a new partner, Emeka, are ₦120,000\text{₦}120,000 and ₦80,000\text{₦}80,000 respectively. Upon Emeka's admission, the partnership assets are revalued, yielding a net revaluation profit of ₦30,000\text{₦}30,000. What is the adjusted capital balance of Ade in Naira after crediting his share of the revaluation profit?

Answer: 138000 Naira

Answer

Ade's adjusted capital balance after crediting the revaluation profit is 138,000 Naira.
When a new partner is admitted, any gain resulting from the revaluation of existing assets and liabilities belongs strictly to the existing partners and must be shared in their old profit and loss sharing ratio (3:23:2). Ade's fraction of the profit is 35×₦30,000=₦18,000\frac{3}{5} \times \text{₦}30,000 = \text{₦}18,000. Adding this profit to Ade's initial capital balance of ₦120,000\text{₦}120,000 yields an adjusted balance of ₦138,000\text{₦}138,000.

Step-by-Step Solution

1
Calculate the total parts in the old profit-sharing ratio
3 + 2 = 5 parts
Revaluation gains and losses occurring prior to the admission of a new partner belong entirely to existing partners in their old profit-sharing ratio.
2
Calculate Ade's share of the net revaluation profit
(3 / 5) * 30,000 = 18,000 Naira
Ade receives 3 out of the 5 total ratio parts of the 30,000 Naira revaluation profit.
3
Calculate Ade's new capital account balance
120,000 + 18,000 = 138,000 Naira
A revaluation profit increases the existing partner's capital balance and is credited to their capital account.

Key Concept

Allocation of Revaluation Gain on Admission of a Partner
Rate this question

Topics

Admission of a New Partner

More questions from this topic