Partnership Dissolution

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Dissolution Major Considerations in Dissolution

One of the characteristics of a partnership is 1. Admission of a partner
“limited life” – can be easily dissolved 2. Withdrawal, retirement or death of a partner
3. Incorporation of a partnership
Change in the relation of the partners

Different from Liquidation (termination of business

operations)

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 Admission of a partner

◉ Requires consent of all existing partners

◉ May be effected either through:
◉ Purchase of interest in the partnership, or
◉ Investment in the partnership

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 Admission of a partner

Purchase of interest
- A new partner may be admitted when he purchases part or all of the interest of one or more
of the existing partners
- Is a personal transaction
- Any consideration paid or received by a partner is not recorded in the books
- Only the transfer of equity is recorded, a new capital account is established
- No gain or loss

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 Admission of a partner

Purchase of interest

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 Admission of a partner

Purchase of interest

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 Admission of a partner

Purchase of interest

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 Admission of a partner

Purchase of interest

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 Admission of a partner

Purchase of interest

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 Admission of a partner

Purchase of interest

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 Admission of a partner

Revaluation of assets
- Assets and liabilities carried over to the new partnership should be restated to Fair Values
- Adjustment to the asset and liabilities is allocated first to the existing partners
- After revaluation, record the admission of the new partner

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 Admission of a partner

Revaluation of assets

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 Admission of a partner

Revaluation of assets

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 Admission of a partner

Revaluation of assets

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 Admission of a partner

Investment in the partnership

- A transaction between the new partner and the partnership
- Consideration paid by the incoming partner is recorded
- Following scenarios may occur:
- Investment = Capital Credit
- Investment > Capital Credit (bonus to old partners)
- Investment < Capital Credit (bonus to new partner)

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 YouPurchase
can also vs
split
Investment
your content

Purchase Investment
- Incoming partner’s contribution, - Incoming partner’s contribution,
not recorded recorded
- Partnership capital remains the - Partnership capital increases
same
- No gain or loss - No gain or loss

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 Admission of a partner

Investment in the partnership

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 Admission of a partner

Investment in the partnership

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 Admission of a partner

Investment in the partnership

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 Admission of a partner

Investment in the partnership

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 Admission of a partner

Investment in the partnership

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 Admission of a partner

Investment in the partnership

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 Admission of a partner

Investment in the partnership

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 Admission of a partner

Investment in the partnership

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 Withdrawal, retirement, or death of a partner

◉ Interest may be:

◉ Purchased by one or all of the remaining partners
◉ Settled by the partnership
◉ Interest of the WRD partner is adjusted for:
◉ His share of any profit or loss during the period up to the
date of his WRD
◉ His share of any revaluation gains or losses as at the
date of his WRD
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 Withdrawal, retirement, or death of a partner

Purchase
- A transaction between and among partners
- Settlement amount is not recorded in the books, only transfer within equity

Settlement by the partnership

- Transaction between WRD and the partnership
- Settlement amount is recorded

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 Withdrawal, retirement, or death of a partner

Withdrawal – Purchase by remaining partners

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 Withdrawal, retirement, or death of a partner

Withdrawal – Purchase by remaining partners

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 Withdrawal, retirement, or death of a partner

Withdrawal – Purchase by remaining partners

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 Withdrawal, retirement, or death of a partner

Retirement – Settlement of int. by partnership

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 Withdrawal, retirement, or death of a partner

Retirement – Settlement of int. by partnership

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 Withdrawal, retirement, or death of a partner

Retirement – Settlement of int. by partnership

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 Withdrawal, retirement, or death of a partner

Retirement – Payment in the form of profit and non-cash asset

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 Withdrawal, retirement, or death of a partner

Retirement – Payment in the form of profit and non-cash asset

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 Withdrawal, retirement, or death of a partner

Retirement – Payment in the form of profit and non-cash asset

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 Withdrawal, retirement, or death of a partner

Retirement – Payment in the form of profit and non-cash asset

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 Withdrawal, retirement, or death of a partner

Death – Settlement of interest by partnership

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 Salamuch!

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