Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Admission of a Partner

Question:

In a situation where partners agree to adjust their capitals proportionate to their profit sharing ratio during the admission of a new partner, what happens if a partner's capital falls short after all adjustments have been made?

Options:

The partner with a capital shortfall will withdraw the short amount of capital

The partner with a capital shortfall will bring in the necessary amount to cover the shortage

The partner with a capital shortfall will transfer the shortage to the new partner's capital account

The partner with a capital shortfall will transfer the excess capital to the new partner's capital account

Correct Answer:

The partner with a capital shortfall will bring in the necessary amount to cover the shortage

Explanation:

During the admission of a new partner, the partners agree to adjust their capitals proportionate to their profit-sharing ratio, and if a partner's capital falls short after all adjustments have been made, the partner will be required to bring in the necessary amount to cover the shortage. This ensures that the partners' capital accounts are adjusted to reflect the agreed-upon capital proportions.