Question

On June 30, 2019, the balance sheet for the partnership of CC, MM, and PP, together with their respective profit and loss ratios, were as follows: Assets (at cost) P180,000 CC, Loan 9,000 CC, Capital (20%) 42,000 MM, Capital (20%) 39,000 PP, Capital (60%) 90,000 CC decided to retire from the Partnership. By mutual agreement, the assets are to be adjusted to their fair value of P216,000 at June 30, 2019. It was agreed that the partnership would pay CC P61,200 cash for CC's interest, including CC's loan which is to be repaid in full. No goodwill is to be recorded. Question: After CC's retirement, what is the balance of MM's capital account?

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Answer 1

Answers Balance of MM, capital account is $ 45,450 Solution:- The Revaluation Profit = Fair value of asset - cost of the asset = $216,000 - $180,000 = $36,000 Share of Revaluation Profit CC: 36,000*20% = $ 7200 MM: 36,000*20% = $ 7200 36,000*60% = $ 21,600 PP : Then CC Capital and Loan = ($ 42,000 + $ 7,200 ) + $ 9000 = $58,200 Settlement amount to CC = $ 61,200 Difference amount is = $ 61,200 - $58,200 = $ 3000 This amount has to be borne by remaining partners in their profit sharing ratio after retirement. Share of loss MM: 3,000*20/80 = $ 750 3,000*60/80 = $ 2250 PP : Therefore MM's Adjusted Capital = capital +revaluation profit - share of loss = $ 39,000 + $ 7,200 - $750 = $45,450 Note: Comment down if anything wrong or you need any assistance. I can help you. Please do positive ratings (thumps up/like). Thankyou