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7 April, 22:26

Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000, respectively. The partners share profits and losses 20%, 40%, and 40% respectively. Roberts retires and is paid $160,000 based on an independent appraisal of the business. If the goodwill method is used, what is the capital balance of Peter?

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  1. 7 April, 22:38
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    The capital balance of Peter is $110,000

    Explanation:

    This is a situation of dissolution of a partnership, It can happen due to following reasons

    Accomplishment of a specific objective. Admission of new partner Deat or retirement of any partner

    The given situation is the retirement of Partner.

    Robert has capital balance of $100,000. He will receive $60,000 in addition to his capital balance as a goodwill.

    As he has 40% share in the partnership, so the total goodwill will be

    Total Goodwill = $60,000 / 40% = $150,000

    Peter's Share in Goodwill = $150,000 x 20% = $30,000

    Peter Capital balance = $80,000 + $30,000 = $110,000
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