To determine Wamo's equity in the partnership after being admitted as a new partner, we need to analyze the situation step by step.
Step 1: Understanding the Current Capital Accounts
The current capital accounts of the partners are as follows:
- Kayode: N40,000
- Akpan: N50,000
- Kachalla: N70,000
Step 2: Total Capital of the Partnership
To find the total capital of the partnership before Wamo joins, we add the capital accounts of all existing partners:
[
\text{Total Capital} = \text{Kayode's Capital} + \text{Akpan's Capital} + \text{Kachalla's Capital}
]
[
\text{Total Capital} = N40,000 + N50,000 + N70,000 = N160,000
]
Step 3: Wamo's Interest in the Partnership
Wamo is being admitted with a one-fifth interest in the partnership capital. This means Wamo will own 20% of the total capital after joining.
To find out how much this one-fifth interest is worth in monetary terms, we calculate:
[
\text{Wamo's Interest} = \frac{1}{5} \times \text{Total Capital}
]
[
\text{Wamo's Interest} = \frac{1}{5} \times N160,000 = N32,000
]
Step 4: Cash Contribution and Capital Adjustment
Wamo is contributing N50,000 in cash to the partnership. This cash contribution will increase the total capital of the partnership.
After Wamo's contribution, the new total capital becomes:
[
\text{New Total Capital} = \text{Old Total Capital} + \text{Wamo's Cash Contribution}
]
[
\text{New Total Capital} = N160,000 + N50,000 = N210,000
]
Step 5: Wamo's Equity Calculation
Now, Wamo's equity in the partnership is based on the total capital after his contribution. Since he has a one-fifth interest in the new total capital:
[
\text{Wamo's Equity} = \frac{1}{5} \times \text{New Total Capital}
]
[
\text{Wamo's Equity} = \frac{1}{5} \times N210,000 = N42,000
]
Conclusion
Thus, Wamo's equity in the resulting partnership is
N42,000.
Explanation of Options
- Option A (N32,000): This is incorrect because it only considers Wamo's one-fifth interest based on the original total capital before his cash contribution.
- Option B (N40,000): This is incorrect as it does not reflect the correct calculation of Wamo's equity based on the new total capital.
- Option C (N42,000): This is the correct answer, as calculated above.
- Option D (N50,000): This is incorrect because it suggests that Wamo's equity is equal to his cash contribution, which is not how partnership equity is determined.
Revision Summary
- Wamo's one-fifth interest is calculated based on the total capital after his contribution.
- The total capital of the partnership increases with Wamo's cash contribution.
- Wamo's equity is calculated as a percentage of the new total capital.
- The correct answer is N42,000, reflecting Wamo's share in the partnership after his admission.