Question

Adams, Everett, and Chapman each have a​ $75,000 Capital balance. They share profits and losses as​ follows: 25 percent to​ Adams, 50 percent to​ Everett, and 25 percent to Chapman. Suppose Chapman is withdrawing from the​ business, and the partners agree that no appraisal of assets is needed. How much in assets can Chapman take from the​ partnership? Give the reason for your answer. What role does the​ profit-and-loss ratio play in this​ situation?

Answer 1

Chapman may take away assets to the extent of his capital which is $75000. The total assets of the partnership would be equal to the total capital which is $225000. As there is no appraisal of assets being done, the assets would realise $225000. Each partner would be entitled to the amount of his capital. The profit and loss ratio would have played a role in case the assets would realise more or less than what was shown in the books. This profit/loss would have credited/debited to/from the capitals in the profit and loss ratio. Suppose the assets could have realised $229000 then the $4000 notional profit would be divided in the profit and loss ratio and Chapman would be entitled to $76000