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JAMB Principles of Accounts 1994 Question 36

Question 36

Partnership Admission, Retirement and Dissolution

Kayode, Akpan and Kachalla are in partnership. Their respective capital accounts had the following balances: ₦40 000, ₦50 000 and ₦70 000. The partners agree to admit Wamo as a new partner with a one-fifth interest in the partnership capital in exchange for ₦50 000 cash. Wamo's equity in the resulting partnership is

  1. A.₦32 000
  2. B.₦40 000
  3. C.₦42 000
  4. D.₦50 000.
Show the answer and explanation

Answer: C (₦42 000)

Explanation

New total capital = 40 000 + 50 000 + 70 000 + 50 000 = ₦210 000. Wamo's one-fifth share = 210 000 ÷ 5 = ₦42 000 (the extra ₦8 000 goes to the old partners as a bonus).