To determine Wamo's equity in the resulting partnership after being admitted as a new partner, we need to analyze the situation step by step.
Step 1: Understand the Current Capital Structure
The current capital accounts of the partners are as follows:
- Kayode: N40,000
- Akpan: N50,000
- Kachalla: N70,000
To find the total capital of the partnership before Wamo joins, we add these amounts together:
[
\text{Total Capital} = N40,000 + N50,000 + N70,000 = N160,000
]
Step 2: Determine Wamo's Interest
Wamo is being admitted to the partnership with a one-fifth interest in the total capital. This means Wamo will own 20% of the total capital of the partnership after he joins.
Step 3: Calculate Wamo's Share of the Total Capital
To find out how much Wamo's one-fifth interest is worth, we calculate:
[
\text{Wamo's Interest} = \frac{1}{5} \times \text{Total Capital} = \frac{1}{5} \times N160,000 = N32,000
]
Step 4: Analyze the Cash Contribution
Wamo is contributing N50,000 in cash to the partnership. This cash contribution will increase the total capital of the partnership. After Wamo's admission, the new total capital will be:
[
\text{New Total Capital} = \text{Old Total Capital} + \text{Wamo's Cash Contribution} = N160,000 + N50,000 = N210,000
]
Step 5: Recalculate Wamo's Equity
Now, we need to determine Wamo's equity in the partnership after his admission. Since he is entitled to a one-fifth interest in the new total capital:
[
\text{Wamo's New Interest} = \frac{1}{5} \times \text{New Total Capital} = \frac{1}{5} \times N210,000 = N42,000
]
Conclusion
Wamo's equity in the resulting partnership is N42,000. Therefore, the correct answer is:
C. N42,000
Explanation of Other Options
-
A. N32,000: This option reflects Wamo's initial calculated interest based on the old total capital before his cash contribution was considered. It does not account for the increase in total capital due to his cash investment.
-
B. N40,000: This option does not accurately reflect Wamo's calculated share based on the new total capital. It is less than what he is entitled to after his contribution.
-
D. N50,000: This option suggests that Wamo's equity is equal to his cash contribution, which is incorrect. His equity is based on the partnership's total capital, not just his cash input.
Revision Summary
- Wamo's one-fifth interest is calculated based on the total capital of the partnership.
- After his admission, the total capital increases due to his cash contribution.
- Wamo's equity is recalculated based on the new total capital, resulting in N42,000.
- Understanding the impact of cash contributions on partnership equity is crucial in partnership accounting.