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Chan and Hamid are partners and share equally in income or loss
Chan and Hamid are partners and share equally in income or loss. Chan's current capital balance is RM135,000 and Hamid's is RM120,000. Chan and Hamid agree to accept Flash with a 30% interest in the partnership. Flash invests RM115,000 in the partnership. The amount credited to Flash's capital account is: Select one: a. RM120,000. b. RM115,000. c. RM92,500. d. RM111,000.
Expert Solution
Calculation of amount to be credited to Flash’s Capital account
Existing Partners’ Capital = Capital balance of Charan + Capital balance of Hamid
= RM 135,000 + RM 120,000
= RM 255,000
New partner’s Investment = RM 115,000
Total paid on capital of the firm after admission of Flash = RM 255,000 + RM 115,000
= RM 370,000
Flash’s Capital contribution in the new firm for 30% share = RM 370,000 X 30%
= RM 111,000
Therefore the amount to be credited to Flash’s Capital account will be RM 111,000 and the correct option is (d).
Working Note:
Calculation of Bonus on admission of Flash
In the given case, Flash paid in capital in the new firm will be RM 111,000. Any amount over and above brought in by him will be treated as bonus and will be shared among existing partners in their profit sharing ratio.
Amount of Bonus = Amount invested by Flash – Flash’s paid in capital in the new firm
= RM 115,000 - RM 111,000
= RM 4,000
The amount of bonus, i.e. RM 4,000 will be credited to existing partners’ capital account in the ratio of their profit sharing (i.e. RM 2,000 to each partner).
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