Dayag Notes Partnership Dissolution
Dayag Notes Partnership Dissolution
b,capital 60k
RULES TO BE OBSERVED IN RELATION TO VALUATION OF ASSETS AND LIABILITIES ON
DISSOLUTION PROBLEMS:
1. If there is an agreement among the partners that revaluation is allowed, then
reflect the necessary adjustments before dissolution
2. In the absence of agreement:
a. Revaluation approach(goodwill procedure)
Assets and liab are recorded at FV
Both tangible and intangible assets acquired by
the new entity, including goodwill created by the
previous partnership, should be recorded
b. Absence of revaluation approach
Existing book values should not be adjusted to FV
unless such adjustments would have otherwise
been allowed by GAAP:
B1. recognition of decreases in net asset revaluation - decreases or write-
downs in the value of assets may be recognized even though they are not
realized. Unrealized losses suggested by economic events should be
recognized
B2. non- recognition of increases in net assets revaluations
No GAAP standards that provide for increases in the value
of nonfinancial assets or recognition of new goodwill
Use of absence of revaluation approach does not prevent
the recognition of asset appreciation, w/c would otherwise
not be allowed by GAAP.
ADMISSION OF PARTNER
Brings about a new association of individuals and represents the formation of
new partnership.
A new agreement should be drawn up that specifies the partner's interests
upon formation of the partnership, the distribution of profits and losses
among partners and all of the other considerations relative to the new
association
Accounting problems with respect to this:
Recognition of accounting errors in prior periods
Recognition of profit or loss from the beginning of the
accounting period to the date of admission
Closing of partnership books
Recognition of net asset revaluation subject to the rules
discussed previously
Admission by purchase of interest
Considered as a personal transaction between the incoming
partner and the selling partner
No additional money or properties are invested in the
partnership
BV and Revaluation approach will yield the same result if two conditions related to new profit and
loss agreement are met:
1.the new partner's P%L ratio must be EQUAL to his capital interest
2.The old partner's continue to share profits and losses between themselves in the original
ratio
1.PREFER BOOK VALUE (BOUNUS ) if P&L > Capital interest
2. PREFER REVALUATION (GOODWILL) if P&L < Capital interest
Admission by investment
Recorded by DR assets invested and adjusting the net
capital interest in thr partnership by a corresponding
amount
Any gain or loss recognized on sales subsequent to
recording the admission will be allocated on the basis of
the new P%L ratio
TCC= TAC: no adjustment is made for the revaluation of net assets
TCC> TAC: difference is may due to OVERSTATEMENT of the Partnership assets
TCC< TAC: difference is due to unrecorded net assets of the required addt'l investment in
partner's capital
CC=AC : no transfer of capital between old and new partners. The old partner's capital
accounts are credited for revaluation of net assets (GW if any)
CC>AC= a capital transfer or bonus to the old partners
CC<AC : addt'l capital credit is either share in bonus or revaluation of net assets from the old
partners as the case maybe.
WITHDRAWAL OF A PARTNER
The interest of the retiring partner may not be equal to the partner's capital balance as result of:
1. Capital balance( withdrawals and additional investment)
2. Recognition of accounting error in prior periods
3. Recognition of P/L from the beginning of the accounting period to the date of
retirement
4. Loans and advances to and from the partnership
5. Recognition of the net assets revaluations subject to the rules
If there is VIOLATION: entitled only to his interst w/o consideration of revaluation plus liable for
damages if any as a result of breach of contract
If FORCED: entitled to compensation for his full interest including revaluation (GW) as determined
DEATH OF A PARTNER
P%L should be summarized
Partnership assets should be appraised
Descendant's interest in the partnership should be established as of the date of death
SETTlement for the interest of the deceased partner
1. Payment from partnership assets
2. By payment from partnership insurance proceeds w/ surviving partners
acquiring the deceased partner's interest
INCORPORATION OF A PARTNERSHIP
Assets must be djusted to current FV before being transferred to the corporation including
intangible asset and GW developed by the partnership
PARTNERSHIP BOOKS RETAINED: entries necessary are
1. Changes in assets and liabs balues in partner's interest prior to incorporation
2. Change in the form of proprietorship: Revaluation amount may be DR w/ losses and
CR w/ gains from revaluatio and the balance in this account is subsequently be
closed into the capital accounts in the P%L ratio