Question

At the beginning of 2020, the statement of financial position for R & R Company showed the capital balances of the partners as follows: Rev, P24,000 and Rio, P26,000. They share profits and losses in the ratio of 3:7 to Rev and Rio, respectively. During the year, the firm incurred a loss of P40,000. The withdrawals during the year were: Rev, P10,000, and Rio, P18,000. What is the capital balance of Rev on Dec 31, 2020?

a. P 3,600
b. P 2,000
c. P12,000
d. P26,000

Answer 1

Rev's capital balance at the end of 2020 is calculated by subtracting their share of the loss (P40,000 x 0.3 = P12,000) and their withdrawals (P10,000) from their initial capital (P24,000), which yields a new capital balance of P2,000.

Step-by-step explanation:

The student has asked us to calculate the capital balance of Rev on December 31, 2020, after a loss and partner withdrawals at R & R Company. Initially, Rev's capital balance is P24,000. To find the new balance, we must adjust Rev's account for their share of the loss and the withdrawals they made during the year.

Firstly, we attribute the loss to each partner based on their profit and loss sharing ratio, which is 3:7 between Rev and Rio. Hence, Rev bears 30% (3/10) and Rio bears 70% (7/10) of the P40,000 loss. Calculations will give us Rev's share of loss as P12,000 (P40,000 x 0.3). Next, we subtract Rev's withdrawal of P10,000. The operations will look like this:

• Initial capital of Rev: P24,000
• Rev's share of loss: -P12,000
• Rev's withdrawals: -P10,000

So, Rev's capital balance at the end of 2020 is:

Capital balance = Initial capital - Share of loss - Withdrawals

Capital balance = P24,000 - P12,000 - P10,000 = P2,000

Thus, the correct answer is b. P2,000.