On January 1, 2021, A and B, both sole proprietors, decided to form a partnership to expand both of their businesses. According to their agreement, they will split profits and losses 75:25 and their initial capital ratio will also reflect that ratio. The following are A and B’s Statements of Financial Position (Attached in the photo): The values reflected in the Statement of Financial Position are already at fair values, except for the following accounts: - A's Accounts Receivable is now 20,000 less than what is stated in his Statement of Financial Position. - Both Inventories of A and B are now 90,000 and 70,000 respectively. - Equipment for B has an assessed value of 275,000, appraised value of 250,000 and book value of 200,000. - Additional accrued expenses are to be established in the amount of 10,000 for B only while additional accounts payable in the amount of 5,000 for A - It is also agreed that all liabilities will be assumed by the partnership, except for the notes payable of B which will be personally paid by him. Answer the question based on the above: How much should A invest as additional cash to be in conformity with their initial capital agreement?
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
On January 1, 2021, A and B, both sole proprietors, decided to form a
The following are A and B’s Statements of Financial Position (Attached in the photo):
The values reflected in the Statement of Financial Position are already at fair values, except for the following accounts:
- A's Accounts Receivable is now 20,000 less than what is stated in his Statement of Financial Position.
- Both Inventories of A and B are now 90,000 and 70,000 respectively.
- Equipment for B has an assessed value of 275,000, appraised value of 250,000 and book value of 200,000.
- Additional accrued expenses are to be established in the amount of 10,000 for B only while additional accounts payable in the amount of 5,000 for A
- It is also agreed that all liabilities will be assumed by the partnership, except for the notes payable of B which will be personally paid by him.
Answer the question based on the above:
How much should A invest as additional cash to be in conformity with their initial capital agreement?
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