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Partnership

Partnership

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basics

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Published by: mustafa_33 on Jun 05, 2010
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10/27/2011

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Account for a partner’s withdrawal
from the firm

Copyright © 2007 Prentice-Hall. All rights reserved

36

Withdrawal of a Partner

Withdrawal of a Partner
Withdrawal of a Partner

Withdrawal of a Partner

•Assets may be revalued
•Any gain or loss is allocated among the
partners based on their profit- and-loss
ratios

Copyright © 2007 Prentice-Hall. All rights reserved

37

Partner Sells Interest to Existing

Partner Sells Interest to Existing
Partner

Partner

Partner Sells Interest to Existing

Partner Sells Interest to Existing
Partner

Partner

•Transfer equity from the withdrawing
partner to the purchaser
•No assets flows through the partnership
•Debit withdrawing partner’s capital
•Credit purchaser’s capital

Copyright © 2007 Prentice-Hall. All rights reserved

38

Withdrawal at Book Value

Withdrawal at Book Value
Withdrawal at Book Value

Withdrawal at Book Value

•Partner takes assets with value equal to
his capital account (equal to book value)
•Debit withdrawing partner’s capital
•Credit assets taken

Copyright © 2007 Prentice-Hall. All rights reserved

39

Withdrawal at

Withdrawal at
Less Than Book Value

Less Than Book Value

Withdrawal at

Withdrawal at
Less Than Book Value

Less Than Book Value

•Remaining partners share the difference
(bonus) based on their profit-and loss-
sharing ratio.
•Debit withdrawing partner’s capital
•Credit assets and remaining partners’
capital

Copyright © 2007 Prentice-Hall. All rights reserved

40

Withdrawal at

Withdrawal at
More Than Book Value

More Than Book Value

Withdrawal at

Withdrawal at
More Than Book Value

More Than Book Value

•Bonus to the withdrawing partner reduces
the remaining partners’ capital balances
based on their profit-and-loss ratio
•Debit withdrawing partner’s capital
•Debit remaining partners’ capital
•Credit assets

Copyright © 2007 Prentice-Hall. All rights reserved

41

E12-21

E12-21
E12-21

E12-21

Distribute gain on land to partners based on
profit-loss ratio
Sam (32,000 x 4/10)

$12,800

Bob (32,000 x 3/10)

9,600

Tim (32,000 x 3/10)

9,600

Copyright © 2007 Prentice-Hall. All rights reserved

42

E12-21

E12-21
E12-21

E12-21

GENERAL JOURNAL

DATE

DESCRIPTION

REF DEBIT CREDIT

May31 Land

32,000

Sam, Capital

12,800

Bob, Capital

9,600

Tim, Capital

9,600

Copyright © 2007 Prentice-Hall. All rights reserved

43

E12-21

E12-21
E12-21

E12-21

Distribute loss on inventory to partners
based on profit-loss ratio
Sam (12,000 x 4/10)

$4,800

Bob (12,000 x 3/10)

3,600

Tim (12,000 x 3/10)

3,600

Copyright © 2007 Prentice-Hall. All rights reserved

44

E12-21

E12-21
E12-21

E12-21

GENERAL JOURNAL

DATE

DESCRIPTION

REF DEBIT CREDIT

May31 Sam, Capital

4,800

Bob, Capital

3,600

Tim, Capital

3,600

Inventory

12,000

Copyright © 2007 Prentice-Hall. All rights reserved

45

E12-21

E12-21
E12-21

E12-21

Sam, Capital

Tim, Capital

Bob, Capital

36,000

22,000

51,000

12,800

9,600

9,600

44,000

57,000

28,000

4,800

3,600

3,600

Sam receives a bonus of $16,000 ($60,000 - $44,000)

Copyright © 2007 Prentice-Hall. All rights reserved

46

E12-21

E12-21
E12-21

E12-21

Distribute bonus to withdrawing partner
based on profit-loss ratio
Bob (16,000 x 3/6)

$8,000

Tim (16,000 x 3/6)

8,000

Copyright © 2007 Prentice-Hall. All rights reserved

47

E12-21

E12-21
E12-21

E12-21

GENERAL JOURNAL

DATE

DESCRIPTION

REF DEBIT CREDIT

May31 Sam, Capital

44,000

Bob, Capital

8,000

Tim, Capital

8,000

Cash

60,000

Copyright © 2007 Prentice-Hall. All rights reserved

48

Objective 6

Objective 6
Objective 6

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