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AUCISE Case-Study-2

The document discusses a legal and ethical issue regarding the admission of a new partner, Bert, to an existing partnership between Joey and Frank. Bert wants to invest additional capital but change the profit sharing ratio to 2:1:1 and be excluded from prior liabilities. The accounting issue section poses additional questions about the financial impacts of admitting Bert based on different potential profit amounts the firm could earn. It asks how profit would be shared if income was P600,000, who would benefit least from the proposal, and if the investment would be attractive to Joey if income was only P450,000 without Bert's capital.

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101 views1 page

AUCISE Case-Study-2

The document discusses a legal and ethical issue regarding the admission of a new partner, Bert, to an existing partnership between Joey and Frank. Bert wants to invest additional capital but change the profit sharing ratio to 2:1:1 and be excluded from prior liabilities. The accounting issue section poses additional questions about the financial impacts of admitting Bert based on different potential profit amounts the firm could earn. It asks how profit would be shared if income was P600,000, who would benefit least from the proposal, and if the investment would be attractive to Joey if income was only P450,000 without Bert's capital.

Uploaded by

sharielles /
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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L EG AL AND E TH IC AL IS SU ES

Joey and Frank are partners with capital balances of P1,000,000 each, sharing income or
loss in a 3:2 ratio. Both are skilled in the trade they are engaged in. Business is good bu: they need
additional capital so branches can be set up in other strategic places. Bert, a frien who is rich but
not as well skilled as the current partners. knows their predicament and offere to invest
P1,000,000 cash. Bert wants the profit ratio changed to 2:1:1 respectively. Likewise. he wants the
partners to exclude him from liabilities incurred prior to admission. Joey is withholding his
consent in admitting the new partner.
Question 1: Give 3 valid reasons for Joey's refusal to recognize the new partner.
Question 2: Will the revised profit and loss ratio be valid? Explain.
Question 3: Will there be a violation in the legal provision if the partners agree to the second wish
of Bert? Explain

ACCOUNTING ISSUE
To continue with the above case, the following questions were brought up by the original
partners who sought your advice on whether to admit Bert in the partnership:
a) If a net income of P600,000 will be earned by the firm after a year, what would be their profit
shares including the new partner?
b) The firm could earn P600,000 even without the additional investment. Who would benefit
least with the proposal?
c) The firm could earn only P450,000 without the additional investment. Will the additional
investment be attractive to Joey?

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