FAR 28 - Partnership Accounting Flashcards
How are capital contributions with a mortgage attached recorded in a partnership for financial statement purposes?
Calculating the capital balance when property contributed has a mortgage results in the FV of the Asset being netted against the Liability
At what value should assets contributed to a partnership be recorded? What value for liabilities assumed by the partnership?
Fair Value for assets contributed. Present value of remaining cash flows for liabilities assumed.
Allocation of Equity (Operation of P/S) Income is allocated in 3 Steps
Partners are credited for contributions, debited for distributions directly
- Allocated interest - on capital balance maintained during the year.
- Fixed salary - for services rendered to the partnership
- Remaining income or loss - divided based on agreement
Admission of a new partner (3 Methods)
- Bonus method
- Goodwill method
- Exact method
Bonus method
“Adjust the right” - BAR - Bonus Adjust to the Right
+Previous Capital
+Contribution (from new partner)
=Subtotal (New Total Capital)
*Percentage of interest for new Partner
=New partner’s Capital
NOTE: Remaining capital distributed to previous partners BASED ON PROFIT/LOSS RATIO
Goodwill method
“Adjust the Left” - GAL - Goodwill Adjust the Left Goodwill is recognized based on the total value of the partnership implied by the new partner’s contribution.
+New Partner’s Payment
% Percentage to be Owned
= New Total Capital
Goodwill = New total Capital - (Previous Capital+New partner’s contribution)
Goodwill to be divided to previous partners via profit/loss ratio.
Exact Method
No Goodwill or Bonus Recorded. New partner’s capital amount is equal to the assets contributed.
Allocation of Equity (Operation of P/S) (How to Allocate)
+ Income (To Allocate)
- Allocated Interest % (Avg Capital * % Interest)
= Subtotal
- Salary
= Subtotal
- Profit/Loss Sharing
=Allocation
