ACCOUNTING FOR SPECIAL

TRANSACTIONS
(Advanced Accounting 1)

LECTURE AID

2018

ZEUS VERNON B. MILLAN

Chapter 3 Partnership Dissolution

Learning Objectives

• Determine the causes of partnership

dissolution.
• Account for the effects of partnership
dissolution on the partnership equity.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
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.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Causes of partnership dissolution

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

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Admission of partner

• The admission of a new partner may be effected either

through:
1. Purchase of interest in the partnership, or
2. Investment in the partnership

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Purchase of interest

• A personal transaction between and among the partners

• Any consideration paid or received is not recorded in
the partnership books
• 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).
• No gain or loss shall is recognized in the partnership
books.
ACCOUNTING FOR SPECIAL
TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Revaluation of assets

• 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.

• Any adjustment to the assets and liabilities is allocated

first to the existing partners before recording the
admission of the new partner.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Investment in the partnership

• The incoming partner invests directly to the partnership

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

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Withdrawal, retirement or death of a partner

• 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.
• 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.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Withdrawal, retirement or … (Continuation)

• 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.

• 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.
ACCOUNTING FOR SPECIAL
TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Incorporation of a partnership

• On date of incorporation:
a. The partners’ capital balances are adjusted for their
respective shares in any profit or loss and revaluation
gains or losses as at the date of incorporation. The adjusted
capital balances may be used in determining the number of
shares to be issued to each partner.
b. Normally, the books of the partnership are closed and new
books are set-up for the corporation.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
 APPLICATION OF CONCEPTS
 

PROBLEM 2: FOR CLASSROOM DISCUSSION

ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:

MILLAN)
 OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:

MILLAN)
 END
ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:
MILLAN)