ADMISSION OF A PARTNER

2. INVESTMENT OF A NEW PARTNER

ILLUSTRATION: AB PARTNERSHIP has the following balance as of January 1, 2016:

PARTNERS CAPITAL
ANDY 200,000.00
BONY 100,000.00
TOTAL 300,000.00

Case 1: Investment Equals Proportion of the Partnership's book value (agreed capital)

On January 2, Cody invests P100,000.00 for 1/4 interest and 25% share on profit and lo

Investment in Partnership
Agreed Capital (300,000 + 100,000) X 25%
Difference

Journal Entry:
CASH 100,000.00
CODY, CAPITAL
To record admission of Cody for 1/4
interest upon investment of 100,000.

Case 2: Investment More than Proportion of the Partnership's book value (agreed capit

On January 2, Cody invests P110,000.00 for 1/4 interest and 25% share on profit and lo

Investment in Partnership
Agreed Capital (300,000 + 110,000) X 25%
Difference

Assume further that the partnership owns land with a book value of 40,000 but as per a
it has a market value of 70,000.
 A. REVALUATION OF ASSET METHOD

Journal Entries:
1. LAND 30,000.00
ANDY, CAPITAL
BONY, CAPITAL
To revalue the partnership land to its market value.

2. CASH 110,000.00
CODY, CAPITAL
To record admission of Cody for 1/4 interest in ABC Partnership

B. GOODWILL RECOGNITION METHOD

Estimated total resulting capital (110,000 / 25%)

Total Net Assets (300,000 + 110,000)
Goodwill

Journal Entries:
1. GOODWILL 30,000.00
ANDY, CAPITAL
BONY, CAPITAL
To record unrecognized goodwill.

2. CASH 110,000.00
CODY, CAPITAL
To record admission of Cody for 1/4 interest in ABC Partnership

C. BONUS METHOD

New Partner's investment

Agreed Capital (300,000 + 110,000) X 25%
Bonus to old partners

Journal Entry:
CASH 110,000.00
ANDY, CAPITAL
 BONY, CAPITAL
CODY, CAPITAL
To record admission of Cody with Bonus to Andy and Bony.

Case 3: Investment Less than Proportion of the Partnership's book value (agreed capital

On January 2, Cody invests P80,000 for 1/4 interest and 25% share on profit and loss.

Investment in Partnership
Agreed Capital (300,000 + 80,000) X 25%
Difference

Assume further that the inventory of Partnership is recorded at book value at 140,000
but has a FV of 80,000.

A. REVALUATION OF ASSET METHOD

Journal Entries:
1. ANDY, CAPITAL 36,000.00
BONY, CAPITAL 24,000.00
INVENTORY
To revalue the inventory to its Fair Value.

2. CASH 80,000.00
CODY, CAPITAL
To record admission of Cody.

B. GOODWILL RECOGNITION METHOD

Total resulting capital (300,000 / 75%)

Total Net Assets excluding goodwill (300,000 + 80,000)
Goodwill

Note: "Use new partner's investment to estimate goodwill to old partners,

Use old partners total capital to estimate goodwill to new partner".

Journal Entry:
CASH 80,000.00
GOODWILL 20,000.00
CODY, CAPITAL
To record admission of Cody.

C. BONUS METHOD

New Partner's investment

Agreed Capital (300,000 + 80,000) X 25%
Bonus to new partner

Journal Entry:
CASH 80,000.00
ANDY, CAPITAL 9,000.00
BONY, CAPITAL 6,000.00
CODY, CAPITAL
To record admission of Cody.
ance as of January 1, 2016:

P&L
60%
40%
100%

hip's book value (agreed capital)

est and 25% share on profit and loss.

100,000.00
100,000.00
-

100,000.00

nership's book value (agreed capital)

est and 25% share on profit and loss.

110,000.00
102,500.00
7,500.00

a book value of 40,000 but as per appraisal,

 18,000.00
12,000.00

110,000.00
C Partnership

440,000.00
410,000.00
30,000.00

18,000.00
12,000.00

110,000.00
C Partnership

110,000.00
102,500.00
7,500.00

4,500.00
 3,000.00
102,500.00
and Bony.

ership's book value (agreed capital)

and 25% share on profit and loss.

80,000.00
95,000.00
- 15,000.00

ecorded at book value at 140,000

60,000.00

80,000.00

400,000.00
380,000.00
20,000.00

dwill to old partners,

dwill to new partner".
 100,000.00

80,000.00
95,000.00
- 15,000.00

95,000.00