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Partnerships: Ownership Changes and Liquidation
Partnerships: Ownership Changes and Liquidation
9
Partnerships:
Ownership Changes
and Liquidation
Chapter 9, Slide #2
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.
Ownership Changes (continued)
Chapter 9, Slide #3
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.
Admission of a New Partner
Chapter 9, Slide #4
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.
Contribution Of Assets To An Existing
Partnership
• Gain admission to partnership by contributing
assets directly to the partnership
• If book value of partnership net assets approximates
fair value
• New partner’s contribution should be equal to
their %age interest in the new capital
• May be in excess of that suggested by the book
value of the original partnership’s net assets which
suggests that the partnership may have one of the
following:
• Unrecognized appreciation on recorded net assets
• Unrecognized goodwill
Chapter 9, Slide #5
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.
Contribution Of Assets To An Existing
Partnership (continued)
• Value of contribution may be less than that
indicated by book value of the original partnership’s
net assets
• Suggests that the partnership may have one of the
following:
– Unrecognized depreciation or write-downs on
recorded net assets of the original partnership
– Additional intangible assets being contributed by the
incoming partner
Chapter 9, Slide #6
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.
Contribution of Assets to an Existing
Partnership
• Bonus method
• Goodwill method
Chapter 9, Slide #7
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.
The Bonus Method
Chapter 9, Slide #9
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.
The Bonus Method:
Bonus to Old Partners
Facts
• A & B are original partners with a partnership net
book value of $75,000
• Profit/loss percentages: A = 50%, B = 50%
• C acquires 20% interest in capital for $27,000
cash
(... continued)
3. Calculate adjusted book value of original
partnership plus investment of new partner
4. If #1 above is greater than #3 above,
goodwill exists and is traceable to the
original partners
5. Goodwill is the difference between the value
in #1 above and the value in #3 above
Journal Entry
Cash 27,000
Goodwill 33,000
A, Capital 16,500
B, Capital 16,500
C, Capital 27,000
Facts
• A and B are original partners with a
partnership net book value of $75,000
• The $75,000 capital for A & B makes up
80% of the new capital (after C is admitted)
• $75,000 / 20% = $93750
• Profit/loss percentages: A = 50%, B = 50%
• C acquires 20% interest in capital for
$10,000 cash
Chapter 9, Slide #29
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.
Goodwill Traceable to the New Partner
(continued)
Analysis
• Value of new partnership suggested by
incoming partner: $93,750 ($75,000 80%)
• New partner should have paid: $18,750
($93,750 -$75,000)
• New partner only paid: $10,000
• The difference between what the new partner
should have paid: $18,750 and what they
actually did pay: $10,000 is goodwill
traceable to the new partner: $8,750
Chapter 9, Slide #30
Copyright 2008 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved.
Goodwill Traceable to the New Partner
(continued)
Journal Entry
Cash 10,000
Goodwill 8,750
C, Capital 18,750
Example:
The book value of A’s capital interest is $30,000.
C acquires one-half of A’s capital interest for $50,000.
A, Capital 15,000
C, Capital 15,000