Ali and Fatima are partners whose capital balances are $400,000 and $300,000 and who share profits 3:2. Due to a shortage of cash, Ali and Fatima agree to admit Ahmed to the firm. Instructions: Prepare the journal entries required to record Ahmed’s admission under each of the following independent assumptions: Ahmed invests $200,000 for a 1/4 interest. The total firm capital is to be $900,000. Ahmed invests $300,000 for a 1/4 interest. Goodwill is to be recorded. Ahmed purchases a 1/4 interest in the firm, with 1/4 of the capital of each old partner transferred to the account of the new partner. Ahmed pays the partners cash of $250,000, which they divide between themselves
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
Ali and Fatima are partners whose capital balances are $400,000 and $300,000 and who share profits 3:2. Due to a shortage of cash, Ali and Fatima agree to admit Ahmed to the firm.
Instructions:
Prepare the
- Ahmed invests $200,000 for a 1/4 interest. The total firm capital is to be $900,000.
- Ahmed invests $300,000 for a 1/4 interest.
Goodwill is to be recorded.
Ahmed purchases a 1/4 interest in the firm, with 1/4 of the capital of each old partner transferred to the account of the new partner. Ahmed pays the partners cash of $250,000, which they divide between themselves
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
