Question

On April 30, 2020, Azon, Apin and Bern formed a partnership by combining their assets. Azon contributed cash of P50,000. Apin invested property with a book value of P36,000, a P40,000 original cost, and a fair value of P80,000. The partnership assumed the P35,000 mortgage liability attached to the property. Bern contributed equipment with a book or carrying value of P30,000, original cost of P75,000, and a fair value of P55,000. Who among the partners will be credited with the highest amount to his/her capital account?

a. Azon
b. Apin
c. Bern
d. All partners' capital account balances are equal.

Answer 1

Bern contributed equipment with a fair value of P55,000 and will be credited with the highest amount to his/her capital account, followed by Azon who contributed P50,000 in cash, and Apin with a net contribution of P45,000.

Step-by-step explanation:

The question concerns the calculation of capital accounts for partners in a business based on their initial contributions. Evaluating the contributions involves considering the fair value of the assets contributed and any liabilities that the partnership assumes.

Azon contributed P50,000 in cash. Apin invested in a property with a fair value of P80,000, but the partnership assumed a P35,000 mortgage on that property, which implies that Apin's net contribution is P45,000 (P80,000 fair value - P35,000 mortgage). Bern's contribution was equipment with a fair value of P55,000, with no liabilities attached. Therefore, Bern will be credited with the highest amount to his/her capital account at P55,000, followed by Azon at P50,000, and then Apin at P45,000.