Partnerships

Question 1

Under the bonus method how are premium paid allocated to partner$

Answer 1

Under the bonus method, any premium paid to retiring partner is allocated to the remaining partners’ accounts, based on the profit and loss ratios of the remaining partners.

Question 2

Under the goodwill method how are partners accounts and total assets impacted?

Answer 2

It will increases the individual partners accounts and also changes total net assets of the partnership.

Question 3

Under the bonus method how are partners account and total assets impacted?

Answer 3

It will only changes the partners account without changing total net assets of the partnership.

Question 4

Under the bonus method how is the excess of the new partner’s contribution be treated for the old partners.

Answer 4

The excess is credited to the old’s partners account based on the old’s partner profit and loss ratio. There is no financial impact as capital will remain the same, because the new partner will reduce its capital contribution by the excess and the excess will be allocated to the old’s partners account.

Question 5

Under the goodwill method how is the new partner’s contribution be treated for the old partners.

Answer 5

The new partner account will remain the same and the old’s partner capital account will increase based on the % of profit and loss of old’s partner. The financial impact will yield an increase in equity and increase in assets from goodwill.

Question 6

In a partnership how is the contribution of a new partner using the goodwill calculated?

Answer 6

1. Calculate the implied value by dividing the contribution of the new partner by the % of ownership.
2. Calculate the excess paid (Goodwill) by new partner by subtracting the total partners capital contribution (sum of capital account of new and old’s partner) from Implied value.
3. Allocate the goodwill among the old’s partner capital account base on its profit and loss % ratio.

Question 7

In a partnership how is the contribution of a new partner using the bonus method calculated?

Answer 7

1. Calculate the total partners contribution by adding the new and old partners contribution.
2. Multiply the % of ownership of the new partners to the total partners contribution to determined the news partner capital contribution under the bonus method.
3. Calculate the bonus to be credited to the old partner by comparing the amount of cash paid and the the partners contribution in step 2 (bonus method).
4. Allocate the excess of the contribution made by the new partners based on the old’s partner profit and loss ratio.

JE to record the excess paid by the new partner
DR. New partners account
CR. Old’s partners account