Fatima and Jaddon have capital balances of $50 000 and $80 000, respectively and use the variable capital balances method. If their profit/loss sharing ratios are Fatima 40% and Jaddon 60%, calculate Fatima's capital balance after the net loss of $60 000 is distributed.
A) $74 000
B) $26 000
C) $50 000
D) $20 000

Question

Quizplus · Accepted Answer

Using the variable capital balances method, the profit/loss will be shared according to their profit/loss sharing ratios. Jaddon will bear 60% of the loss while Fatima will bear the remaining 40%.

Fatima's share of the loss = 40% x $60 000 = $24 000

Her new capital balance will be her old capital balance minus her share of the loss:

$50 000 - $24 000 = $26 000

Therefore, Fatima's capital balance after the net loss is distributed is $26 000.

Fatima and Jaddon Have Capital Balances of $50 000 and $80