PARTNERSHIP DISSOLUTION

 Admission of new partner

 Investment or asset contribution to the partnership
 Withdrawal and retirement of a partner
 Death or incapacity of a partner
 Incorporation of a partnership

ADMISSION OF NEW PARTNERS

Case 1: Purchase Price = Book Value of Interest Acquired (Personal transaction to 1 partner)

A, capital XXX
D, capital XXX

Note:
 No cash is received by the partnership hence total partnership capital is still the same
 The selling partner’s P/L ratio will be decreased; others will not
Case 2: Purchase Price = Book Value of Interest Acquired (Personal transaction to 2 or more partners)

A, capital XXX
B, capital XXX
C, capital XXX
D, capital XXX
Note:
 No cash is received by the partnership hence total partnership capital is still the same
 The selling partner’s P/L ratio will be decreased
 New partner’s capital apportioned to old partners according to their old P/L ratio
Case 3: Purchase Price < Book Value of Interest Acquired (Personal transaction to 2 or more partners)
A, capital XXX
B, capital XXX
C, capital XXX
D, capital XXX

Note:
 No cash is received by the partnership hence total partnership capital is still the same
 The selling partner’s P/L ratio will be decreased
 D, capital will be credited with the book value of interest acquired (% of total partnership capital)
and be apportioned to old partners according to their old P/L ratio
 Loss is a personal loss of the selling partners and not a partnership loss
Case 4: Purchase Price > Book Value of Interest Acquired (Personal transaction to 2 or more p artners)

A, capital XXX
B, capital XXX
C, capital XXX
D, capital XXX
 Note:
 No cash is received by the partnership hence total partnership capital is still the same
 The selling partner’s P/L ratio will be decreased
 D, capital will be credited with the book value of interest acquired (% of total partnership capital)
and be apportioned to old partners according to their old P/L ratio
 Gain is a personal gain of the selling partners and not a partnership gain
Case 5: Purchase Price < Book Value of Interest Acquired (with express revaluation of assets)
Computation: Cash to be paid by new partner XXX
DIVIDED BY: % of interest acquired X%
Implied total Capitalization XXX
LESS: Total capitalization of partnership before revaluation XXX
Decrease in asset/decrease in capitalization* (XXX)

Entry No 1:
A, capital XXX
B, capital XXX
C, capital XXX
Assets* XXX
Note: Decrease in assets/capitalization will be apportioned to the old partners according to their old ratio
Entry No 2:
A, capital XXX
B, capital XXX
C, capital XXX
D, capital XXX

Note:
 Total partnership capital will decrease due to [loss on] revaluation
 D, capital will be credited with the book value of interest acquired (% of the new total partnership
capital) and be apportioned to old partners according to their old P/L ratio
Case 6: Purchase Price > Book Value of Interest Acquired (with express revaluation of assets)

Computation: Cash to be paid by new partner XXX

DIVIDED BY: % of interest acquired X%
Implied total Capitalization XXX
LESS: Total capitalization of partnership before revaluation XXX
Increase in asset/Increase in capitalization* XXX

Entry No 1:
Assets* XXX
A, capital XXX
B, capital XXX
C, capital XXX

Entry No 2:
A, capital XXX
B, capital XXX
C, capital XXX
 D, capital XXX

Note:
 Total partnership capital will increase due to [gain on] revaluation
 D, capital will be credited with the book value of interest acquired (% of the new total partnership
capital) and be apportioned to old partners according to their old P/L ratio

Case 7: Purchase Price > Book Value of Interest Acquired (with express revaluation of assets and express
recognition of goodwill)

Computation: Cash to be paid by new partner XXX

DIVIDED BY: % of interest acquired X%
Implied total Capitalization XXX
LESS: Total capitalization of partnership before revaluation XXX
Goodwill* XXX

Entry No 1:
Goodwill* XXX
A, capital XXX
B, capital XXX
C, capital XXX

Entry No 2:
A, capital XXX
B, capital XXX
C, capital XXX
D, capital XXX

Note:
 Total partnership capital will increase due to [gain on] revaluation
 D, capital will be credited with the book value of interest acquired (% of the new total partnership
capital) and be apportioned to old partners according to their old P/L ratio

INVESTMENT OR ASSET CONTRIBUTION TO THE PARTNERSHIP

 Transaction is in between the partnership and the partner; hence recorded in partnership books
 Partnership receives cash or other asset = total assets = total equity of partnership

A. TOTAL AGRREED CAPITALIZATION IS GIVEN

Case 1: No goodwill, asset revaluation, bonus
Cash XXX
Q, Capital XXX
 Increase in total partnership assets and capitalization
 TAC = TCC; NPAC = NPCC
 P/L ratio will be revised accordingly
Case 2: Bonus to old partner
Cash (NPCC) XXX
R, capital [(NPCC-NPAC) * old P/L ratio] XXX
S, capital [(NPCC-NPAC) * old P/L ratio] XXX
T, capital [(NPCC-NPAC) * old P/L ratio] XXX
Q, capital (NPAC) XXX
  TAC = TCC; NPAC < NPCC
 P/L ratio will be revised accordingly
Case 3: Bonus to new partner
Cash (NPCC) XXX
R, capital [(NPAC-NPCC) * old P/L ratio] XXX
S, capital [(NPAC-NPCC) * old P/L ratio] XXX
T, capital [(NPAC-NPCC) * old P/L ratio] XXX
Q, capital (NPAC) XXX
 TAC = T CC; NPAC > NPCC
 P/L ratio will be revised accordingly
Case 4: Asset revaluation
Assets (TAC-TCC) XXX
R, capital [TAC-TCC) * old P/L ratio] XXX
S, capital [(TAC-TCC) * old P/L ratio] XXX
T, capital [(TAC-TCC) * old P/L ratio] XXX

Cash XXX
Q, capital XXX

 TAC > TCC; NPAC = NPCC

 P/L ratio will be revised accordingly
Case 5: Asset revaluation and bonus to old partners
Assets (TAC-TCC) XXX
R, capital [TAC-TCC) * old P/L ratio] XXX
S, capital [(TAC-TCC) * old P/L ratio] XXX
T, capital [(TAC-TCC) * old P/L ratio] XXX

Cash (NPCC) XXX

R, capital [NPAC-NPCC) * old P/L ratio] XXX
S, capital [(NPAC-NPCC) * old P/L ratio] XXX
T, capital [(NPAC-NPCC) * old P/L ratio] XXX
Q, capital (NPAC) XXX

 TAC > TCC; NPAC < NPCC

 P/L ratio will be revised accordingly
Case 6: Negative asset revaluation
R, capital [TCC-TAC) * old P/L ratio] XXX
S, capital [(TCC-TAC) * old P/L ratio] XXX
T, capital [(TCC-TAC) * old P/L ratio] XXX
Assets (TCC-TAC) XXX

Cash XXX
Q, capital XXX

 TAC < TCC; NPAC = NPCC

 P/L ratio will be revised accordingly
 Case 7: Goodwill to all partners
Goodwill (TAC-TCC) XXX
R, capital [TAC-TCC) * old P/L ratio] XXX
S, capital [(TAC-TCC) * old P/L ratio] XXX
T, capital [(TAC-TCC) * old P/L ratio] XXX

Cash XXX
Q, capital (NPAC) XXX

 TAC > TCC; NPAC = NPCC

 P/L ratio will be revised accordingly
Case 8: Goodwill to new partners
Goodwill (TAC-TCC) XXX
Cash (NPCC) XXX
Q, capital (NPAC) XXX

 TAC > TCC; NPAC > NPCC

 NPAC = [(TAC – TCC) + NPCC)
 P/L ratio will be revised accordingly
B. TOTAL AGREED CAPITALIZATION IS NOT GIVEN (IMPLIED)
Case 9: Bonus to old partners
Cash (NPCC) XXX
R, capital [NPCC-NPAC) * old P/L ratio] XXX
S, capital [(NPCC-NPAC) * old P/L ratio] XXX
T, capital [(NPCC-NPAC) * old P/L ratio] XXX
Q, capital (NPAC) XXX

 BONUS METHOD = TAC will always be equal to TCC

 TAC = TCC; NPAC < NPCC
 P/L ratio will be revised accordingly
Case 10: Bonus to new partners
Cash (NPCC) XXX
R, capital [NPAC-NPCC) * old P/L ratio] XXX
S, capital [(NPAC-NPCC) * old P/L ratio] XXX
T, capital [(NPAC-NPCC) * old P/L ratio] XXX
Q, capital (NPAC) XXX

 TAC = TCC; NPAC > NPCC

 P/L ratio will be revised accordingly

Case 11: Asset Revaluation to old partners

Asset (TAC-TCC) XXX
R, capital [TAC-TCC) * old P/L ratio] XXX
S, capital [(TAC-TCC) * old P/L ratio] XXX
T, capital [(TAC-TCC) * old P/L ratio] XXX

Cash (NPCC) XXX

 Q, capital (NPAC) XXX

 TAC is computed as (WHICHEVER IS HIGHER):

o TCC of old partners ÷ total agreed interest for old partners; or
o NPCC ÷ agreed interest for the new partner
 TAC > TCC; NPAC = NPCC
 P/L ratio will be revised accordingly

Case 12: Good will to old partners – to be used when there is no express agreement as to revaluation
Good will (TAC-TCC) XXX
R, capital [TAC-TCC) * old P/L ratio] XXX
S, capital [(TAC-TCC) * old P/L ratio] XXX
T, capital [(TAC-TCC) * old P/L ratio] XXX

Cash (NPCC) XXX

Q, capital (NPAC) XXX

 TAC is computed as (WHICHEVER IS HIGHER):

o TCC of old partners ÷ total agreed interest for old partners; or
o NPCC ÷ agreed interest for the new partner
 TAC > TCC; NPAC = NPCC
 P/L ratio will be revised accordingly

WITHDRAWAL AND RETIREMENT OF A PARTNER

Preliminary consideration:

1. Interest of the withdrawing or retiring partner is established as of the date of withdrawal or retirement; this is
affected by some adjustments
A. Sale of interest to a partner or to an outsider (new partner)

- T reated in the same manner as that of the admission of anew partner by purchase of interest of an
existing partner
- Partnership asset is not affected
- No gain or loss is recorded by the partner
- Entry would be (equal to the amount of interest transferred):
Old partner, capital XXX
New partner, capital XXX
B. Sale of interest to the partnership
Case 1: Settlement in equal to the withdrawing partner’s interest

W, capital XXX
Cash XXX
Case 2: Settlement is more than the withdrawing partner’s interest
2.a. Bonus to retiring partner
 W, capital XXX
S, capital (S%/(S%+H%)*remainder] XXX
H, capital (H%/(S%+H%)*remainder] XXX
Cash XXX
2.b. Asset revaluation – increases the capital accounts of the partners

Assets [(Interest – Consideration) ÷ Interest(%)] XXX

S, capital [Assets *S%] XXX
H, capital [Assets *H%] XXX
W, capital [Assets *W%] XXX

W, capital XXX
Cash XXX
2.c. Goodwill – increases the capital accounts of the partners

Goodwill [(Interest – Consideration) ÷ Interest(%)] XXX

S, capital [Assets *S%] XXX
H, capital [Assets *H%] XXX
W, capital [Assets *W%] XXX
W, capital XXX
Cash XXX
Case 3: Settlement is less than the withdrawing partner’s interest
3.a. Bonus to remaining partners

W, capital XXX
S, capital (S%/(S%+H%)*remainder] XXX
H, capital (H%/(S%+H%)*remainder] XXX
Cash XXX
3.b. Asset revaluation or Asset Impairment – decreases the capital accounts of the partners

S, capital [Assets *S%] XXX

H, capital [Assets *H%] XXX
W, capital [Assets *W%] XXX
Assets [(Interest – Consideration) ÷ Interest(%)] XXX
W, capital XXX
Cash XXX

DEATH OR INCAPACITY OF A PARTNER

Case 1: Be paid put immediately

W, capital XXX
Cash XXX

Case 2: Payment to the estate

W, capital XXX
Payable to W, capital XXX
 Interest expense XXX
Payable to W, capital XXX

Interest expense XXX

Payable to W, capital XXX
Cash XXX

INCORPORATION OF PARTNERSHIP

1. Adjust account balances

2. Closing/Transfer of accounts to corporation

Shares in AB Corporation XXX

Credit Accounts in Partnership FS XXX
Debit accounts in Partnership FS XXX
A, capital XXX
B, capital XXX
Shares in AB Corporation XXX

Debit accounts in Partnership FS XXX

Credit accounts in Partnership FS XXX
Shares Capital XXX