Question

Berns and Ruiz, partners, with capital balances of P2,000,000 and P1,500,000, share profits and losses in a 3:2 ratio, respectively. The partners agreed to admit Ola by investing P1,000,000 for a 1/5 interest. Ola's capital balance will be:

a. P1,000,000
b. P 700,000
c. P 900,000
d. P 800,000
e. None of the above

Answer 1

Ola's capital balance will be P1,000,000 as she invested that amount for a 1/5 interest in the partnership, which had a combined capital of P3,500,000 before her investment.

Step-by-step explanation:

The question asks to determine the capital balance of a new partner, Ola, who is admitted to a partnership by investing P1,000,000 for a 1/5 interest in the business. Given that the total capital of the existing partners (Berns and Ruiz) is P3,500,000 and they agreed to Ola's 1/5 interest, we first need to establish the total capital of the business after Ola's investment. Ola's investment implies that the total capital should now be P1,000,000 x 5 = P5,000,000. Since Ola is purchasing a 1/5 interest, this means that the amount paid must result in an allocation of equity equivalent to the share purchased, and Ola's capital balance will thus indeed be P1,000,000.