Partnerships Flashcards
Finger math for partnership interest
-Partner gets 25%
¼=4-1=You divide by 3
-Partner gets 33%
1/3=3-1=You divide by 2
Bonus allocation
B- Balance in total capital accounts
Controls the capital account allocation.
Whoever has bigger balance gets bonus.
Bonus to existing partners
30,000 A Capital
10,000 B Capital
40,000
35,000 C’s contribution
75,000 Balance Capital
divided by: 3 C’s%
25,000 C Gets
-35,000 C paid
**10,000 bonus (partners) **
Allocate accordingly to %
Bonus to new partner
30,000 A Capital
10,000 B Capital
40,000
14,000 C’s contribution
54,000 Balance Capital
divided by: 3 C’s%
18,000 C Gets
-14,000 C paid
4,000 bonus (partners)
Allocate accordingly to %
Goodwill method
Implied value= 35,000 (new partner payment)/3 (%)/$105,000
Total partners capital acct- 35,000+10,000+30,000= ($75,000)
Goodwill $30,000
Change in capital accounts
Bonus method
Under the bonus method of the withdrawl of a partner
What happens?
Any premium paid to the retiring partners accounts, is based on the profit and loss ratios of the remaining partners.
When forming a partnership, how are assets valued?
At fair market value
When forming new partnership, how is capital account determined?
Assets valued at FV, liabilities at present value.
Whatever you put it less any liabilities on it is your basis for your capital account.
Under the bonus method, what ratio is used to allocated a new partners Contribution over the amount credited to the new partners account?
The partners old profit and loss ratio
Bonus method-withdrawals
The bonus method increases (decreases) the individual accounts without changing total net assets of the partnership.
The “bonus” is allocated among the remaining partners capital accounts in accordance with their remaining profit and loss ratio.
Goodwill method-withdrawal
The amount of implied goodwill is allocated to ALL of the partners in accordance with their profit and loss ratios. After allocation of goodwill, amount should equal amount at settlement of his or her interest.
After bonus is given to a new partner, how are the existing partners new balances calculated?
By allocating their percentage ratio to the new partners bonus and subtracting it out.
