ICANBusiness LawPartnership Law2023

Ade, Bello, and Chika are general partners in a firm sharing profits and losses in the ratio of 3:2:1. Upon dissolution of the firm, total realized assets amount to ₦25,000,000. Liabilities owed to external creditors equal ₦8,000,000. Partner Bello had previously advanced a loan of ₦3,000,000 to the firm beyond his agreed capital. Capital account balances stand at Ade: ₦6,000,000; Bello: ₦4,000,000; and Chika: ₦2,000,000. Applying the statutory order of asset distribution upon dissolution, how much will Ade receive in total?

A₦6,000,000
B₦7,000,000CORRECT
C₦7,500,000
D₦8,000,000
AI
Toaster Teacher
Why the answer is B, and why the others tempt you.
Assets realized are ₦25,000,000. First, pay external creditors: ₦25,000,000 - ₦8,000,000 = ₦17,000,000 remaining. Second, repay partner advance/loan: ₦17,000,000 - ₦3,000,000 = ₦14,000,000. Third, return capital contributions totaling ₦12,000,000 (Ade ₦6m + Bello ₦4m + Chika ₦2m), leaving a profit surplus of ₦2,000,000 (₦14m - ₦12m). This surplus is distributed in profit ratio (3:2:1). Ade receives his capital return of ₦6,000,000 plus 3/6 of ₦2,000,000 (₦1,000,000), totaling ₦7,000,000.
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