Answered: When a new partner is admitted to an…

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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Question

When a new partner is admitted to an existing partnership through the purchase of a portion of existing interest of incumbent partner, which of the following is correct?

a. The total capital of the old and new partnership will be the same.

b. There will be increase in the total assets of the partnership equivalent to the amount paid by newly admitted partner.

c. Goodwill may be recognized by virtue of the admission

d. The partnership will recognize gain or loss on the difference between the amount paid and capital transferred.

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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