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rat65 (IPCC student) (87 Points)

21 April 2010

From the lesson 'Admission of New Partner'....Can't get texbook answer which is (b)...

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Here in this question, it’s a game of language.. You have to understand question very carefully…

See question says C is to purchase 1/6^th share in partnership from A & B in the ratio of 3:2 for INR 25000.. It means the capital of C after all adjustments will be something which is in proportion to capital of A&B.. And question is asking for closing capital of C and not capital after admission.

Before C comes all revaluation activities will take place and here only one item is there i.e. reserve fund. It will get credited to A&B in ratio of 3:2. Now the capital of A will be 59000(50000+9000) and B will be 36000(30000+6000)..

Now the total capital of old firm (A& B) will be INR 95000(59000+36000). So now calculate total capital of the new firm after adjustments (A, B & C).

Total capital of new firm = 95000* 6/5(reciprocal of remaining share 5/6)

= INR 114000

So now C closing capital will be = 114000* 1/6

= INR 19000

Hope you have understood...

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sanjoy saha (student) (121 Points)
Replied 22 April 2010

First of all one has to know the effect of the transactions “contribution to the firm” and “purchase of share’’ .

A) In the first case the the capital of the incoming partner is in addition to that of the others and thus the assets of the are augmented.

B) In the latter case the amount brought in by the incoming partner will be paid to the partner or partners from whom he purchases the share ,thus reducing the share of that partner or partners. The total assets of the firm do not change.

Now let us come to the problem.

At the first instance the problem says C contributes to the firm Rs.25000 for 1/6^th share .

Let us ignore Rs. 25000.

Total capital of the firm is Rs.95000 before admission of C.

C is contributing for 1/6^th share.

Thus for 5/6^th share A+B capital is Rs.95000 in the new firm.

Hence,for 1/6^th share C’s capital required in the new firm is Rs.950006/51/6=19000.

Now 2^nd point: C is to purchase 1/6^th share from A and B in the ratio of 3:2 for Rs.25000.

Since C is purchasing his 1/6^th share from A and B in 3:2.

The entire amount brought in by C of Rs.25000 will be paid to A and B in the ratio 3:2.

This last point has nothing to do with C’s final balance of capital. It is given to compensate A and B.

Thus C’s capital will remain Rs.19000.

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rat65 (IPCC student) (87 Points)
Replied 24 April 2010

Thank you both for answering.......

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First of all one has to know the effect of the transactions “contribution to the firm” and “purchase of share’’ .

A) In the first case the the capital of the incoming partner is in addition to that of the others and thus the assets of the are augmented.