Question

A= The amount of tangible assets contributed by the new partner into the partnership

B= The amount of capital credited to the new partner
C= Total Capital of the partnership before the admission of a new partner
D= Total capital of the partnership after the admission of the new partner

Refer to the above information. Which statement below is correct if a new partner's goodwill is recognized upon contributing assets into the partnership?
A. B = A and D > C + A
B. B < A and D < C + A
C. B > A and D = C + A
D. B > A and D > C + A

Answer 1

A. B = A and D > C + A

Step-by-step explanation:

This will be explain better with an example

If there is 2 partners with 65,000 each

An a partner acquired 10% of a partnership for 20,000

Then the partnership worth will be: 20,000/0.1 = 200,000

But the capital will be 65,000 + 65,000 + 20,000 = 150,000

Then, there is a goodwill that will be recognize and increase the other partners capital accounts.

So, the amount credited for the new partner will be equal to his investment. (20,000 cash debit, partner 20,000 credit)

but the company's total capital will be higher than the sum of the capital before admission (130,000+20,000 = 150,000 while the capital is 200,000)