A local partnership has assets of cash of $5,000 and a building worth $80,000.All liabilities have been paid and the partners are all insolvent.The partners capital accounts are as follows Harry $40,000,Landers $30,000 and Waters 15,000.The partners share profits and losses 4:4:2.If the building is sold for $50,000,how much cash will Waters receive in the final settlement?

Question

Quizplus · Accepted Answer

Firstly, we need to calculate the total capital of the partnership which is $85,000 ($40,000 + $30,000 + $15,000).
The partners share profits and losses 4:4:2 which means they receive 40%, 40% and 20% of the share respectively.
So, we need to distribute the $50,000 sale proceeds according to their profit distribution of 4:4:2 which means Harry and Landers receive 40% each and Waters receives 20%.
Harry’s share = 40% of $50,000 = $20,000
Lander’s share = 40% of $50,000 = $20,000
Waters’ share = 20% of $50,000 = $10,000
As Waters has no liabilities, he will receive the full $10,000 in cash.
Therefore, the final settlement in cash for Waters will be $10,000.

A Local Partnership Has Assets of Cash of $5,000 and a Building