Neco Model Questions Vol1 2017 Financial Accounting Question 25

Partners M, N and O share profits in the ratio 2:3:5 and have capital balances of \(\text{₦}150,000\), \(\text{₦}225,000\) and \(\text{₦}375,000\) respectively. Partner O retires. The firm values goodwill at three years' average profit; the profits for the last three years were \(\text{₦}100,000\), \(\text{₦}120,000\) and \(\text{₦}140,000\). A piece of equipment is re‑valued from a carrying amount of \(\text{₦}200,000\) to a market value of \(\text{₦}260,000\). Goodwill and the re‑valuation surplus are to be shared between the remaining partners M and N in their profit‑sharing ratio (2:3). O is to be paid his original capital plus his share of goodwill. Calculate (a) the cash amount payable to O, and (b) the revised capital balances of M and N after accounting for goodwill and the re‑valuation surplus.