EFGH partnership has the following interests in capital and profits: E 40% F 30%

Question

EFGH partnership has the following interests in capital and profits:

                E    40%

                F     30%               

                G    20%

                H     10%

EFGH decides to split up and form to separate entities, EG and FH. Which statements are true regarding the division.

I. EG will be a complete new partnership and must adopt a new partnership agreement and tax year.

II. FH will be a complete new partnership and must adopt a new partnership agreement and tax year.

III. EG will be a continuation of the EFGH partnership.

I is true

I and II are true

III is true

II and III are true

I is true

I and II are true

III is true

II and III are true

Explanation / Answer

Correct Answer is OPTION - B that Both I and II are true.

When whole firm is slpitted into several firm, each splitted firm will, as a seprate entity, form its own new partnership agreement and tax year.

Hence, both EG and FH will form new partnership agreement and tax year.

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