Partnership Accounting

Question 1

How are capital contributions with a mortgage attached recorded in a partnership for financial statement purposes?

Answer 1

“Calculating the capital balance when property contributed has a mortgage results in the FV of the Asset being netted against the Liability”

Question 2

If no goodwill is recorded upon admission of a new partner - which method is used for recording the new partner’s interest?

Answer 2

“The bonus method:

Old Partnership Equity
\+ New Partner Contribution
\: New Partnership Equity
x New Partner %
\: New Partner Equity Amount

New Partner Contribution
- New Partner Equity Amount
: Bonus to Prior Partners using same allocation as P/L”

Question 3

If goodwill is recorded upon admission of a new partner - how is the partner’s interest recorded?

Answer 3

“Using the goodwill method:

New Contribution / New Equity % : Partnership Value

Implied Value of Partnership
- Capital Accounts of all partners
: Goodwill to Old Partners

Under the Goodwill Method - the new Partner is paying an amount for a certain percentage stake in the partnership. For instance if they pay $1000 for a 25% stake - then it is assumed that the Partnership is worth $4 -000 ($1 -000/25%)”

Question 4

At what value should assets contributed to a partnership be recorded? What value for liabilities assumed by the partnership?

Answer 4

“Fair Value for assets contributed.

Present value of remaining cash flows for liabilities assumed.”