FORMATIO DISSOLUTIO

Formula
AFAR - Partnership Concepts &
1) Admission of a new partner 2) Retirement/Death of a partner
a. Direct purchase from Beg.
old partners Capit
al
Valuati b. Direct investment by new Partner’s +/- share in P&L
on partner Interest +/- loan balance
=
1) BONUS METHOD (if
Asset silent)
s
Ca TCC - TAC = +/- share in revaluation
@ Face Value
sh @ Gross of P1 xx
Balanc B Partner’s Interest vs
A/ ADA
e
before
xx
R
xx
Invento @ P2 xx admission Gain or Actual Payment to
ry LCNRV xx xx Loss =
Land 1) Agreed xx Amount to xx xx retiring partner
2) value
Fair
value
Depreciable Asset 3) Appraised Pnew xx be invested xx
Non-current Asset value xx ZER 3) Incorporation
4) Book value xx = O
xx
2) Liabilities TCC = Total Contributed Excess of total par OVER total capital
- if problem is silent: ignored / not Capital TAC = Total Agreed balance of all partners: share
assumed Capital premiums
= the new capital balances
3)Capital - excess goes to capital of Asset Revaluation? Adjust all
partner Net Investment Method assets needed to be revalued before
FV of admission/retirement of a partner
Capital CreditPnew =
Net Income Assets
OPERATION
Net Loss - PV of
Liabilities
Salaries Given
GOODWILL METHOD
LIQUIDATIO - not used anymore
Interest* priority
Bonus**
Remaining*** X Share in NI/NL X -a with total
*Beg.
End. Cap. Bal X l partner’s
Cap. Bal interest for
w
Permanent Temporary
a problem solving
X - ‘drawings’ account
regardless what
Addt’l inv
- consider only if net loss is incurred Other wise, ignored.. y
s method (safe
s payment
X method or CPP
Withdrawal t
a method)
CASH PRIORITY PROGRAM
rt
 Partner’s balance UTION

interest =
Capital SAFE PAYMENT METHOD
balance
+/- Loan DISTRIB
(CPP) METHOD
Total
1) Distribute realized gains/losses P1 P2
P1 P2
** Only given when base computation for bonus is from asset dispositions Total Interest X
positive X
2) Distribute share in liquidation / P&L ratio % % 1
*** Following order of priority shall be expenses
Loss Absorption Balance
followed for allocation of remaining 3) Distribute share in maximum possible XA X - X
Profit
balance: Loss losses X1 B 2
X2
Maximum
Possib =assetsBook Value of unsold X = X X - 3 X
Agreed Agreed le
sharing sharing + Anticipated liquidation
Losse expenses
s
Original capital Profit sharing XA = partner with the highest If cash to be distributed is in
excess of this amount,
Original capital 4) Determine capital balances. If there is a LAB
balance Equal partners will share via P&L

negative balance, let others partners = also the least vulnerable %

sharing balance Equal
absorb deficiency. If in case this is the partner
sharing
last payment/ installment, let the XB = partner with the lowest LAB
deficient partner invest = also the most vulnerable
partner X1 = XA - XB
assets if he is solvent.. = difference bet ween who has the highest LAB
Otherwise, let other and the next highest (or lowest LAB for t wo
partners absorb.. partners)
X2 = X1 multiplied by XA’s P&L %