ELE02-Special Topics in Accounting

CHAPTER 8 PARTNERSHIP DISSOLUTION

Learning Objectives
 State the causes of partnership dissolution.
 Account for the effects of partnership dissolution on the
partnership equity.

 Dissolution
Dissolution is the change in the relation of the partners caused by any partner
ceasing to be associated in the carrying on of the business.

 Causes of partnership dissolution

1. Admission of a partner
2. Withdrawal, retirement or death of a partner
3. Incorporation of a partnership

 Admission of partner
The admission of a new partner may be effected either through:
a. Purchase of interest in the partnership, or
b. Investment in the partnership

 Purchase of interest
1. A personal transaction between and among the partners
2. Any consideration paid or received is not recorded in the partnership
books
3. Only a transfer within equity is made to establish the capital account of the
new partner and decrease the capital account(s) of the selling partner(s).
4. No gain or loss shall is recognized in the partnership books.
ELE02-Special Topics in Accounting

 Revaluation of assets

1. When a partnership is dissolved but not liquidated, a new partnership is

created. The assets and liabilities carried over to the new partnership are
restated to fair values.

2. Any adjustment to the assets and liabilities is allocated first to the existing
partners before recording the admission of the new partner.

 Investment in the partnership

1. The incoming partner invests directly to the partnership instead of
purchasing interest from an existing partner(s).
2. This is a transaction between the new partner and the partnership. Any
consideration paid by the incoming partner is recorded in the partnership
books.
3. No gain or loss shall be recognized

 Withdrawal, retirement or death of a partner

1. When a partner withdraws, retires or dies, his interest may be purchased
(a) by one or all of the remaining partners or (b) by the partnership.
2. The interest of the withdrawing, retiring, or deceased partner shall be
adjusted for the following:
a. his share of any profit or loss during the period up to the date of his
withdrawal, retirement or death; and
b. his share of any revaluation gains or losses as at the date of his
withdrawal, retirement, or death.
3. Purchase by one or all of the remaining partners This is a transaction
between and among the partners (or deceased partner’s estate). As such,
the settlement amount is not recorded in the books. The only entry to be
made in the partnership books is a transfer within equity.
4. Purchase by the partnership This is a transaction between the retiring or
withdrawing partner (or deceased partner’s estate) and the partnership. As
such, the settlement amount is recorded in the books.

Reference

FINANCIAL ACCOUNTING AND REPORTING (Fundamentals)

Zeus Vernon B. Millan, CPA
Lecture Notes of Compilation of Dean Rene Boy R. Bacay, CPA, CrFA, CMC, MBA, FRIAcc

For further discussion please refer to the link provided:

Chapter 8- Partnership Dissolution( Purchase of interest with no

revaluation)-https://youtu.be/WQstMjTPcy8

Chapter 8- Partnership Dissolution(Purchase of interest with revaluation)-

https://youtu.be/CUh0KB3DqEA

Chapter 8- Partnership Dissolution (Investment in the partnership)-

https://youtu.be/USCl4Q5tU6c