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    Partnership Formation

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    romerodriguez32
    The document discusses various aspects of partnership formation accounting. It describes how capital accounts are recorded for initial partner investments and changes from additional investments, withdrawals, and profit/loss allocations. Non-cash assets contributed by partners should be recorded at agreed, fair market, book, or cost value depending on priority. The formation accounting entries depend on how the partnership is formed through new formation, conversion from sole proprietorship, or admission of new partners. The document also describes different methods for equalizing partner capital accounts like the net investment, bonus, and goodwill methods.

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    Partnership Formation

    Uploaded by

    romerodriguez32
    11 views3 pages
    The document discusses various aspects of partnership formation accounting. It describes how capital accounts are recorded for initial partner investments and changes from additional investments, withdrawals, and profit/loss allocations. Non-cash assets contributed by partners should be recorded at agreed, fair market, book, or cost value depending on priority. The formation accounting entries depend on how the partnership is formed through new formation, conversion from sole proprietorship, or admission of new partners. The document also describes different methods for equalizing partner capital accounts like the net investment, bonus, and goodwill methods.

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    PARTNERSHIP-FORMATION

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    The document discusses various aspects of partnership formation accounting. It describes how capital accounts are recorded for initial partner investments and changes from additional investments, withdrawals, and profit/loss allocations. Non-cash assets contributed by partners should be recorded at agreed, fair market, book, or cost value depending on priority. The formation accounting entries depend on how the partnership is formed through new formation, conversion from sole proprietorship, or admission of new partners. The document also describes different methods for equalizing partner capital accounts like the net investment, bonus, and goodwill methods.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    11 views3 pages

    Partnership Formation

    Uploaded by

    romerodriguez32
    The document discusses various aspects of partnership formation accounting. It describes how capital accounts are recorded for initial partner investments and changes from additional investments, withdrawals, and profit/loss allocations. Non-cash assets contributed by partners should be recorded at agreed, fair market, book, or cost value depending on priority. The formation accounting entries depend on how the partnership is formed through new formation, conversion from sole proprietorship, or admission of new partners. The document also describes different methods for equalizing partner capital accounts like the net investment, bonus, and goodwill methods.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    2/11/2024

    FORMATION
    Capital Accounts
    The initial investments by each partner is recorded be debiting the assets
    PARTNERSHIP contributed, crediting any liabilities assumed by the firm, and crediting

    FORMATION the partner’s capital account at the fair value of the net assets
    contributed.
    Partner’s equity is increased by additional investments at fair value at the
    time of investment and any share of net income.
    Partner’s equity is decreased by withdrawal of cash or other assets and
    share of net losses. Withdrawals of large and irregular accounts are
    ordinarily charged directly to the withdrawing partner’s capital account.

    DEFINITION NONCASH ASSETS


    ◦ Partnership is a contract whereby two or more persons bind ◦ If noncash assets are invested, the following should be the basis
    themselves to contribute money, property, or industry to a common for valuation according to level of priority:
    fund, with the intention of dividing the profits among themselves or 1. Agreed Value.
    in order to exercise of a profession.
    2. Fair Market Value.
    3. Book Value or Carrying Value.
    4. Cost.

    1
    2/11/2024

    ◦ Accounting entries to record the formation will depend upon how the
    partnership is formed. A partnership may be formed in several ways:
    BONUS METHOD
    1. Formation of a partnership for the first time
    ◦ This method provides that there is transfer of capital from one partner to
    2. Conversion of a sole proprietorship to a partnership another. Moreover, there is no need for additional investment or
    a. A sole proprietor allows another individual, who has no business if his own to withdrawal in order to conform with the agreed capital ratio. The total
    join the business contributed capital is also equal to the total agreed capital but the
    b. Two or more sole proprietorship form a partnership amount contributed by a partner shall not be equal to his capital
    3. Admission of a new partner credit.

    METHODS IN ACCOUNTING FOR THE


    CAPITAL ACCOUNTS OF THE PARTNERS GOODWILL METHOD
    Net Investment Method. Under this method, the capital accounts of
    ◦ Under this method, the equalization of capital balance to agree
    each partner shall be equivalent to the amount contributed by them. In
    with capital interests will require the recognition of goodwill as an
    case a partner is required to either invest or withdraw in order to
    asset. Thus, the total contributed capital shall not be equal to the
    conform with the agreed capital ratio, there is change in the original
    total agreed capital of the partners.
    contribution in order to comply with the agreement.
    ◦ Thus, under this method the total contributed capital is always equal to
    the agreed capital since the amount contributed by a partner is
    always equal to his capital credit.

    2
    2/11/2024

    A decision to use one method over the other is dependent on the


    agreement of the partners. In the absence of any agreement, the bonus
    method is preferred. The bonus method is preferred because the goodwill
    method differs from the accepted accounting treatment of PAS 38 and
    PFRS 3 which prohibits entities from recognizing goodwill that has not
    been acquired by purchase or what is termed as “internally generated
    goodwill.”

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