Answered: How much is the capital interest of A…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On January 1, 20x1, A and B formed a partnership the AB partnership. A and B share profits and losses in a 40:60 ratio, respectively. The following are information available on the date of formation:

	A	B
Cash	100,000	25,000
Inventory		300,000
Land		500,000
Building	300,000
Accounts payable	50,000

The accounts payable of A will be paid by partner A using his personal assets. The land contributed by B has a mortgage liability of P150,000 which was assumed by the partnership.

How much is the capital interest of A and B after formation? 400,000 and 675,000.
Assuming the partners agree to revalue the assets, so that their capital interest will agree to their profit and loss sharing ratio, which of the following statements is incorrect? The total capital contribution of the partners is P1,125,000.

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Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement 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, and drawings of a partner.

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