Question

In an admission by purchase, payment is personally made to the partner from whom the interest is obtained resulting in mere transfers among capital accounts. True or False?

Answer 1

The statement is false; in an admission by purchase, the new partner's payment is made to the partnership, increasing the total capital rather than constituting a mere transfer between capital accounts.

Step-by-step explanation:

The statement is false. In an admission by purchase, a new partner is admitted to a partnership by buying an interest in the partnership either from the existing partners directly or from the partnership itself. When a new partner pays for this interest, the payment is made to the partnership, and the capital of the new partner is recorded in the partnership's books. It is not a simple transfer among capital accounts as it increases the total capital of the partnership, and often the new partner's capital account starts with the amount they invested.

n an admission by purchase, an individual purchases a partnership interest directly from a partner. The payment is made to the partner from whom the interest is obtained, resulting in a transfer of funds from the buyer's personal account to the selling partner's capital account. This transaction does not involve other partners' capital accounts and only affects the buyer's and seller's capital accounts.