Day: July 28, 2024

AMW is a partnership in which the profits are shared between, A M and W in the ratio 3:2:1.

The partners wish to incorporate by issuing shares in a new company to the partners and the new company is to take over the assets and liabilities of the partnership.

There will be no cash movements between the business and the partners, or between the partners.

No loan accounts will be created between the business and its shareholders or directors.

Which of the following statements must be true?

Select ONE answer:

1. Shares will be issued in the ratio 3:2:1 to A M and W
2. Shares will be issued to match the partners’ capital
3. Creditors of the business will be in a stronger position after incorporation
4. Dividends will be paid in the ratio 3:2:1 to A M and W

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Notcorrect
2. Correct  –>  Partners’ capital represents partners’ stakes, or ownership, of a business. So do shares. in the absence of cash changing hands, the shares must therefore match the partners’ capital amounts, which are unlikely to be in the profit-sharing ratio 3:2:1
3. Not correct
4. Not correct

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