FAR 2 - M8 PARTNERSHIPS Flashcards
Investments of a new partner is valued at
Market value
less mortgage attached to the investment
Under the bonus method, the new partner’s capital is computed by
the % of the toal investments by all partners; not by his capital contribution
A 45000
B 25000
C 30000
total 100000
C’s cap - 100000 * 25%
(25% SHARE IN CAPITAL & profits)
Bonus of 5000 to be allocated to the existing partners
Under the Goodwill method, the new partner’s capital is computed by
the new partner’s capital contribution
APIC calc
get the FMV of assets
less any related liabilitites
= Net assets
Common stock at par value
+ APIC (plug)
= Net assets
APIC calc
get the FMV of assets
less any related liabilities
= Net assets
Common stock at par value
+ APIC (plug)
= Net assets
What ratio is used to allocate the excess of the new partner’s contribution
p;d capital ratio OR
old P&L ratio
old Profit & loss ratio
Weighted ave cap bal sample calc
Month Weighted ave
Balance 1/1 140,000 x 6 mos 840,000
Inv 7/1 40,000
—————-
Total 180,000 x 1 mo 180,000
Draw 8/1 ( 15,000)
—————-
Bal 12/31 165,000 x 5 mos 825,000
—————–
Total 1,845,000
div 12 mos
——————–
153,750
Interest rate ex 10%
Interest to be credited to cap acct 15,375
Goodwill method sample calc
Total A 60% B 40%
Cap Asset, FV 60,000 60,000
Cap, cash 20,000 20,000
———————————————————–
80,000 60,000 20,000
Goodwill 40,000 40,000
———————————————————-
120,000 60,000 60,000
Draw (given) ( 12,000) ( 3,000) ( 9,000)
NI 60/40 25,000 15,000 10,000
———————————————————–
133,000 72,000 61,000
If a partner purchased the net assets to make it as addl investment, the amount of net assets will be
purchase price ???/ (Question used cash basis)
GAAP - use FV of assets contributed
Tax rule - use NBV of assets contributed
Effect of bonus and GW method
for partnershi[ w/drawal, dissolution, admission
BONUS = - + or - the indiv partners’ cap acct; no change in net assets of pship
GW = + indiv partners’ cap acct and changes the net assets of pship
