Question

ABC Partnership decided to admit D who purchased a 20% interest from A whose capital balance was P400,000. D paid her P100,000. The effect of this transaction in the partnership is a/an a) increase in total partnership assets and total partners' equity. b) increase in total partnership assets, no effect in total partners' equity. c) Increase in D, Capital and decrease in A, Capital. d) Increase in A, Capital and decrease in D, Capital.

Answer 1

Explanation: The effect of this transaction in the partnership is a) increase in total partnership assets and total partners' equity. When D purchases a 20% interest from A, the total partnership assets increase by P400,000 (the amount paid by D) and the total partners' equity increases by P400,000 (since D's capital balance increases by the same amount). This results in a higher net worth for the partnership overall.