⌘ Claim against the net assets ⌘ Determines HOW the

of the partnership as shown partner’s CAPITAL interest will

by the balance in the increase or decrease as a
partner’s CAPITAL accounts result of subsequent
operations.
 A partnership is not dissolved when a partner assigns his of her
INTEREST in the partnership to a third party.
🐱 Entitles the assignee to receive the assigning PARTNER’S INTEREST in
future partnership profits and partnership assets in the event of
liquidation.
🐯 The ASSIGNEE does not obtain the RIGHT to share in the
management of the partnership or to REVIEW transactions and
RECORDS of the partnership.
🦊 The ASSIGNEE does not become a PARTNER.
🐶 There is only a transfer of INTEREST of the ASSIGNOR PARTNER to the
ASSIGNEE.
🐣 Take Note: The AMOUNT of the CAPITAL transfer is equal to the BOOK VALUE of
ASSIGNOR PARTNER’S Capital at the time of the assignment REGARDLESS of the
CONSIDERATION received by the ASSIGNOR PARTNER.

🐥 Entry:
ASSIGNOR PARTNER, CAPITAL XXX
ASSIGNEE, CAPITAL XXX
@ Book Value of the INTEREST Assigned
🤗 ILLUSTRATION: The capital balance 🐙 The entry to record the assignment
and profit and loss ration of Sugar is as follows:
and Cream in the Sweet Partnership
is presented as follows:
Sugar, Capital 22,500
Sugar, Capital (75%) P75,000
Mocha, Capital 22,500
Cream, Capital (25%) 60,000
(30% x P75,000 = P22,500)

😺 Sugar assigns 30% of his interest to

Mocha. Mocha paid P26,000 for the 🦑 The purchase price paid by Mocha is
interest assigned. completely irrelevant to the entry
recorded on the books.
🐷 Admission of a NEW PARTNER:
🐽 Purchase of Interest
🐽 Investment
🐮 Withdrawal or Retirement of a PARTNER:
🐭 Death of Incapacity of a PARTNER:
🐼 Incorporation of a Partnership.
🐨 Usually referred to as GOODWILL
procedure.
🐨 Basis for Valuation = FAIR VALUE of
the ASSETS acquired and
LIABILITIES assumed by the newly
formed Entity.
🐼 Usually referred to as BONUS
Procedure.
🐼 Absence of Revaluation
🐼 This approach would retain the
historical cost carrying value.
 1st 2nd
Agreement Among the Partners Absence of an Agreement

🐱 If there is an AGREEMENT 🐯 Revaluation Approach of

that Revaluation is allowed, Goodwill procedure (Non–
then reflect the necessary GAAP).
adjustments before
Dissolution. 🐯 Bonus procedure (GAAP).
🐙 Or GOODWILL procedure, Non – GAAP.
🐙 ASSETS and LIABILITIES should be recorded at their FAIR
VALUES.
🐙 After a complete analysis, both TANGIBLE and INTANGIBLE
ASSETS acquired by the new entity, including GOODWILL
created by the previous partnership, should be recorded.
 Absence of Revaluation Approach, GAAP

💥 Following the principle of 🔥 This procedure prevents the

conservatism (prudence), recognition of asset appreciation,
decreases or write-downs in the which would otherwise not be
value of assets may be recognized allowed by GAAP.
even though they are not realized.
🍄 General Rule: A NEW PARTNER can be admitted with the consent of all partners in
the business.
🍄 Accounting problems in respect to the admission of a NEW PARTNER are as follows:
🍄 Recognition of accounting errors in prior periods.
🍄 Recognition of profit and loss from the beginning of the accounting period to
the date of admission.
🍄 Closing of partnership books.
🍄 Recognition of net assets revaluations subject to the rules discussed
previously.
🍎 The purchase of INTEREST from one
or more of the partnership’s
existing partners is a PERSONAL
TRANSACTION between the
INCOMING PARTNER and the
SELLING PARTNER(S).
🍎 NO ADDITIONAL money or
properties are invested in the
partnership.
🍓 An individual may obtain interest in
capital and future income by
INVESTING SOMETHING OF VALUE
TO THE PARTNERSHIP.
🍓 If ASSETS are invested, the
admission is recorded by debiting
the ASSETS invested and adjusting
the net capital interest in the
partnership by a corresponding
amount.
🍩 The purchase of INTEREST from one or more of the partnership’s existing
partners is a PERSONAL TRANSACTION between the INCOMING PARTNER
and the SELLING PARTNER(S).
🍩 NO ADDITIONAL money or properties are invested in the partnership

🍩 Case 1 – Purchase of Interest from One Partner.

🍩 Case 2 – Purchase of Interest from All Partners.
🍮 Purchase at BOOK VALUE.
🍮 Purchase at MORE THAN BOOK VALUE.
🍮 Purchase at LESS THAN BOOK VALUE.
🍥 ILLUSTRATION: Assume that Zodiac Partnership has a Book Value of
P100,000 and a profit and loss (P/L) percentage on January 1, 2018
as follows:

Partner Capital Balances Profit and

Loss Ratio
Aries 60,000 70
Gemini 40,000 30
Total 100,000 100

🍭 On this date, Leo is admitted to the Partnership.

🍬 Case 1 – Purchase of Interest from 🧁 Capital Balances of the Partners after
ONE PARTNER. the admission of Leo:
🍫 Leo paid P24,000 directly to Aries in
exchange for 1/3 Interest.
Aries Gemini Leo Total
🍮 To record the Admission of Leo: Before
Aries, Capital (1/3 x 60,000) 20,000 Admission 60,000 40,000 - 100,00
Leo, Capital (1/3 x 60,000) 20,000 Interest x 2/3 - - -

After ______ _______ ______ _______

Admission 40,000 40,000 20,000 100,000

Purchase Price 24,000

BV of the Interest purchase 20,000
Personal Gain of Aries 4,000
🏈 Assumption 1: Purchase at Book Value 🎾 Partners’ capital balances after the
admission of Leo:
Leo purchase ¼ interest in the firm. Leo
paid P25,000 to the partners. ¼ of each Aries Gemini Leo Total
partner’s capital is to be transferred to the Before 60,000 40,000 - 100,00
new partner. Interest x 2/3 - - -
______ _______ ______ _______
To record the admission of Leo: After 40,000 40,000 20,000 100,000
Aries, Capital (60,000 x ¼) 15,000
Gemini, Capital (60,000 x ¼) 10,000 🥎 Profit and Loss Ratio of the Partners after
Leo, Capital 25,000 the admission:

Aries (70% x ¾) 52.50%

Gemini (30% x ¾) 22.50%
Leo (interest acquired) 25.00%
Total 100.00%
🏮 Assumption 2: Purchase at More Than 🏀 Alternative 1: Book Value Approach
Book Value Same answer in Assumption 1, the positive excess
of 5,000 represents personal gain of Aries and Gemini

Leo purchased ¼ of Aries’ interest for Amount paid (18,000 + 12,000) 30,000
P18,000 and ¼ of Gemini’s interest for Less: BV of Interest (100,000 x ¼) 25,000
P12,000 making payment directly to Aries Excess – Personal Gains of Aries _______
and Gemini. Leo will have a ¼ profit and and Gemini 5,000
loss and the old partners will continue to
use their old profit and loss ratio.
⚽ To Record the admission of Leo:
Aries, Capital (60,000 x ¼) 15,000
Gemini, Capital (60,000 x ¼) 10,000
Leo, Capital 25,000
 🎈 Alternative 2: Revaluation (Goodwill)
Approach.
🎀 The POSITIVE excess of the amount
paid over Book Value acquired will
be capitalized to determine the
revaluation of assets.
Amount paid (18,000 + 12,000) 30,000
Less: BV of Interest (100,000 x ¼) 25,000
Excess 5,000
Divided by interest acquired (capitalized) __ ¼__
Revaluation of Assets Upward 20,000
🧸 To record the revaluation of ASSETS
Assets (Goodwill) 20,000
Aries, Capital (70%x20,000) 14,000
Gemini, Capital (30%x20,000) 6,000
🎁 To record the Admission of New Partner
Aries, Capital (60,000+14,000) x ¼ 18,500
Gemini, Capital (40,000+6,000) x ¼ 11,500
Leo, Capital 30,000
 ☎ Capital balances of the Partners 🧰 Profit and Loss Ratio of the Partners
after the admission of Leo would be after the admission:
as follows:
Aries Gemini Leo Total Aries (70% x ¾) 52.50%
Before admission 60,000 40,000 - 100,000 Gemini (30% x ¾) 22.50%
Revaluation upward 14,000 6,000 - 20,000 Leo (interest acquired) 25.00%
Capital Balance 74,000 46,000 - 120,000 Total 100.00%
After Revaluation
Multiply by Interest ¾ ¾
Remained _____________________________
Capital Balance
After Admission 55,500 34,500 30,000 120,000
🧲 Assumption 3: Purchase at Less 🏀 Alternative 1: Book Value Approach
than Book Value Same answer in Assumption 1, the positive
excess of 5,000 represents personal gain of Aries
and Gemini

Leo purchased ¼ of partner’s interest Amount paid 22,000

Less: BV of Interest (100,000 x ¼) 25,000
by paying P22,000 directly to Aries and
Excess – Personal Loss of Aries _______
Gemini. Leo will have a ¼ profit and and Gemini (3,000)
loss ratio and the old partners will
continue to use their old profit and loss ⚽ To Record the admission of Leo:
ratio.
Aries, Capital (60,000 x ¼) 15,000
Gemini, Capital (60,000 x ¼) 10,000
Leo, Capital 25,000
 🎈 Alternative 2: Revaluation (Goodwill) 🧸 To record the revaluation of ASSETS
Approach. Aries, Capital (12,000x70%) 8,400
🎀 The NEGATIVE excess of the amount Gemini, Capital (30%x12,000) 3,600
Assets 12,000
paid over Book Value acquired will
be capitalized to determine the
revaluation of assets. 🎁 To record the Admission of New Partner
Amount paid 22,000 Aries, Capital (60,000 - 8,400) x ¼ 12,900
Less: BV of Interest (100,000 x ¼) 25,000 Gemini, Capital (40,000 - 3,600) x ¼ 9,100
Leo, Capital 22,000
Excess (3,000)
Divided by interest acquired (capitalized) __ ¼__
Revaluation of Assets Downward (12,000)
 ☎ Capital balances of the Partners 🧰 Profit and Loss Ratio of the Partners
after the admission of Leo would be after the admission:
as follows:
Aries Gemini Leo Total Aries (70% x ¾) 52.50%
Before admission 60,000 40,000 - 100,000 Gemini (30% x ¾) 22.50%
Revaluation downward 8,400 3,600 - 12,000 Leo (interest acquired) 25.00%
Capital Balance 51,600 36,400 - 88,000 Total 100.00%
After Revaluation
Multiply by Interest ¾ ¾
Remained _____________________________
Capital Balance
After Admission 38,700 27,300 22,000 88,000
🏮 The new partner obtain an interest in the partnership by investing something of
value to the partnership.
🎈 If Assets are invested, the admission is recorded by debiting the assets invested and
adjusting the net capital interest in the 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 profit and loss ration.
🧨 The incoming partner may acquire an interest in the partnership based on the
following situations:
🏺 No BONUS (absence of revaluation) or No REVALUATION (Goodwill) approach;
🧯 BONUS (absence of revaluation) approach; and
💈 REVALUATION (goodwill) approach.
💡 Total Contributed Capital (TCC) – Old Partners Capital plus the Investment of the
New Partner.
🕯 Total Agreed Capital (TAC) – Total Capital agreed capital of the partners in the new
partnership. The total amount of capital to be recorded in the books of the new
partnership.
🔦 Contributed Capital (CC) – Capital Investment of the NEW PARTNER.
🔋 Agreed Capital (AC) – Capital Interest of the NEW PARTNER and the amount
recorded in the books of the new partnership. Computed as the interest of the NEW
partner multiply by the Total Agreed Capital.
 2. BONUS Approach
(GAAP)
■ Generally follows the BOOK-VALUE
method, that is the existing book
values should NOT be adjusted to
CURRENT VALUES unless such
adjustments would have otherwise
allowed by GAAP.
3. REVALUATION Approach
(Non-GAAP)
■ Emphasizes the legal significance
of a change in the ownership
structure of a partnership. From a
legal point of view the admission of
a NEW PARTNERH creates a new
legal entity, therefore, the assets
transferred to this entity should be
recorded at their FAIR VALUES.
 2. BONUS Approach
(GAAP)
⌘ TOTAL AGREED CAPITAL (TAC)
⌗ Book Value of the PREVIOUS
partnership; LESS
⌗ Any WRITE-DOWNS in the value of
the PREVIOUS partnership’s assets
as recognized by GAAP; and
⌗ The FAIR VALUE of the
consideration paid (net asset
contributed) to the partnership by
the incoming partner.
3. REVALUATION Approach
(Non-GAAP)
⌘ TOTAL AGREED CAPITAL (TAC)
⌗ BOOK VALUE of the net assets of the
previous partnership; PLUS
⌗ Unrecognized appreciation or less
unrecognized depreciation on the
recorded net assets of the previous
partnership; PLUS
⌗ Unrecognized REVALUATION of net
assets (goodwill) traceable to the
previous partnership; PLUS
⌗ The FAIR VALUE of the consideration
paid (net assets contributed) received
from the incoming partner.
 🍎 TAC = TCC

🍄 No adjustment is made for revaluation

(Goodwill) of Net Assets.
 🍏 TAC > TCC

🍐The difference is due to either unrecorded net

assets (goodwill) or the required additional
investment in partner’s capital (this happens if there
is a specification that the old partners will continue
to use their old profit and loss ratio.
 🍑 TAC < TCC

🍋The difference is due to either (which is normally the

case) to the overstatement of the partnership assets
of the required diminution in partner’s capital which
can be effected by drawing (this happens if there is
a specification that the old partners will continue to
use their old profit and loss ratio).
 🍎 AC = CC
(of the the NEW PARTNER)

🍄 There is no transfer of capital (meaning no bonus)

between the old and the new partners. The old
partners’ capital accounts are credited for
revaluation of net assets (goodwill), if any.
 🍏 AC > CC
(of the NEW PARTNER)
🍐The additional capital credit is either share in bonus
and/or revaluation of net assets (goodwill) from the
old partners as the case maybe.
 🍑 AC < CC
(of the NEW PARTNER)
🍋The difference is a capital transfer or bonus to the
old partners.
🐚 Assume the following data for GH Partnership had the following condensed balance sheet:
Assets Liabilities and Capital
Cash 2,500 Liabilities 7,500
Noncash assets 32,500 G, Capital (60%) 20,000
G, Loan 2,500 _ H, Capital (40%) 10,000
Total 37,500 Total 37,500

The percentage in parenthesis after the partner’s capital balances represent their respective interests in profits
and losses. The partners agree to admit J as a member of the firm.
🥑 Case 1: No Bonus and No Revaluation: J invests P10,000 for a ¼ interest in the firm.
The total firm capital is to be P40,000.
TAC = TCC, No Goodwill
AC = 40,000 x ¼ = 10,000 To record the admission of J:
CC = 10,000 Cash 10,000
J, Capital 10,000

Take note:
AC CC Difference - The ¼ interest acquired by J is presumed to be
OLD 30,000 30,000 0 the capital interest and profit and loss interest
ownership.
NEW (¼) 10,000 10,000 0 - Any loans to/from any existing partners should
Total 40,000 40,000 0 not be included in cases of admission because
(TAC) (TCC) it’s only the capital interest that is being acquired
not total interest.
🍱 Case 2: Bonus to NEW Partner: J invests P10,000 for 35% interest in the firm. The total
firm capital after admission is P40,000.
TAC = TCC, No Goodwill
AC = 40,000 x 35% =14,000
CC = 10,000
To record the admission of J:
Cash 10,000
J, Capital 10,000
AC CC Difference
OLD 26,000 30,000 (4,000) To record the Bonus to J:
G, Capital (4,000 x 60%) 2,400
NEW (35%) 14,000 10,000 4,000 H, Capital (4,000 x 40%) 1,600
Total 40,000 40,000 0 J, Capital 4,000
(TAC) (TCC)
🍔 Case 3: Revaluation (Goodwill) to New Partner: J invests P10,000 for a 1/3 interest in
the firm and is allowed a total credit of 15,000 for his capital
TAC > TCC = Goodwill 15,000 divided
AC = 45,000 x 1/3 =15,000 by 1/3 equals
CC = 10,000 45,000
To record the admission of J:
Cash 10,000
AC CC Difference J, Capital 10,000
OLD 30,000 30,000 0 To record the Goodwill to J:
NEW (1/3) 15,000 10,000 5,000 Assets (Goodwill) 5,000
J, Capital 5,000
Total 45,000 40,000 5,000
(TAC) (TCC)
🍩 Case 4: Bonus to OLD Partners: J invests conveyed a tangible assets with a fair value of
25,000 with an assumed mortgage of 5,000 in exchange for 30% interest in a capital with a
bonus to be recognized, keeping in mind that J would be acquiring a ¼ interest in profits. Before
the admission of J, GH Partnership had an equipment of 4,00 with a Fair Value of 7,000

TAC = TCC, No Goodwill

AC = 50,000 x 30% =15,000
CC = 20,000 (25,000-5,000) To record the admission of J:
Tangible Assets 25,000
Mortgage Payable 5,000
AC CC Difference J, Capital 20,000
OLD 35,000 30,000 5,000
To record the Bonus to Old Partner:
NEW (30%) 15,000 20,000 (5,000) J, Capital (20,000– 15,000) 5,000
Total 50,000 50,000 0 G, Capital (5,000 x 60%) 3,000
(TAC) (TCC) H, Capital (5,000 x 40%) 2,000
🍭 Case 5: Revaluation (Goodwill) to OLD Partners: J must invest or contribute cash of 24,000
equivalent to 37.5% interest in a total agreed capital of 64,000. Included in the noncash assets is
an equipment undervalued by 7,000.
TAC > TCC = Goodwill To record the increase in the value of equipment:
CC of the Old
Equipment 7,000
AC = 64,000 x 37.5%=24,000 partners
30,000 + 7,000 G, Capital (7,000 x 60%) 4,200
CC = 24,000
= 37,000 H, Capital (7,000 x 40%) 2,800

AC CC Difference To record the admission of J:

Cash 24,000
OLD 40,000 37,000 3,000 J, Capital 24,000
NEW (37.5%) 24,000 24,000 0
To record the Revaluation (Goodwill) to OLD partners:
Total 64,000 61,000 3,000 Other Assets (Goodwill) 3,000
(TAC) (TCC) G, Capital (3,000 x 60%) 1,800
H, Capital (3,000 x 40%) 1,200
🍿 Case 6: Bonus and Revaluation (Goodwill) to the NEW Partner: J invests 10,000 for a 45%
interest in the firm. The total agreed capital after admission is 50,000.

TAC > TCC = Goodwill Bonus to To record the admission of J:

AC = 50,000 x 45%=22,500 New Partner
= 2,500
Cash 10,000
CC = 10,000 J, Capital 10,000

To record the Bonus to New Partner:

AC CC Difference G, Capital (2,500 x 60%) 1,500
OLD 27,500 30,000 (2,500) H, Capital (2,500 x 40%) 1,000
J, Capital 2,500
NEW (45%) 22,500 10,000 12,500
Total 50,000 40,000 10,000 To record the Revaluation (Goodwill) to New partner:
(TAC) (TCC) Other Assets (Goodwill) 10,000
J, Capital 10,000
Goodwill to
New Partner
= 10,000
🍖 Case 7: Bonus and Revaluation (Goodwill) to the OLD Partners: J invests 15,000 for a 20%
interest in the firm. The total agreed capital after the admission is 60,000.

To record the admission of J:

TAC > TCC = Goodwill Bonus to Old
Partners = Cash 15,000
AC = 50,000 x 20%=12,000
3,000 J, Capital 15,000
CC = 15,000
To record the Bonus to Old Partners:
AC CC Difference J, Capital 3,000
G, Capital (3,000 x 60%) 1,800
OLD 48,000 30,000 18,000 H, Capital (3,000 x 40% 1,200
NEW (20%) 12,000 15,000 (3,000)
To record the Revaluation (Goodwill) to the Old partners:
Total 60,000 45,000 15,000 Other Assets (Goodwill) 15,000
(TAC) (TCC) G, Capital (15,000 x 60%) 9,000
H, Capital (15,000 x 40%) 6,000
Goodwill to
Old Partners
= 15,000
🍕 Case 8: Revaluation (Goodwill) to tNew and OLD Partners: J invests 15,000 for a 30%
interest in the firm. The total agreed capital after the admission is 60,000.

To record the admission of J:

TAC > TCC = Goodwill Goodwill to
Old Partners Cash 15,000
AC = 60,000 x 30%=22,500
= 12,000 J, Capital 15,000
CC = 10,000
To record the Goodwill to Old Partners:
AC CC Difference Assets (Goodwill) 12,000
G, Capital (12,000 x 60%) 7,200
OLD 42,000 30,000 12,000 H, Capital (12,000 x 40% 4,800
NEW (30%) 18,000 15,000 3,000
To record the Goodwill to the New partner:
Total 60,000 45,000 15,000 Assets (Goodwill) 3,000
(TAC) (TCC) J, Capital 3,000

Goodwill to
New Partner
= 3,000
🥐 Case 9: Bonus to OLD Partners with Bonus amount given: J invests 20,000 in the firm.
50,000 is considered a bonus to partners G and H. The book values of partnership assets and
liabilities are equal to fair values, except for a machinery with a book value of 3,000 and a fair
value of 7,000.

TAC = TCC, No Goodwill

AC = 15,000 (squeeze)
CC = 20,000 To record the admission of J:
Tangible Assets 20,000
AC CC Difference J, Capital 20,000

OLD 35,000 30,000 5,000 To record the Bonus to Old Partner:

NEW 15,000 20,000 (5,000) J, Capital (given) 5,000
G, Capital (5,000 x 60%) 3,000
Total 50,000 50,000 0 H, Capital (5,000 x 40%) 2,000
(TAC) (TCC)
🍤 Case 10: Bonus to NEW Partner with an indication of Bonuse: J invests 6,000 for 30%
interest in the firm. G and H transfer part of their capitals to that of J as a bonus. An equipment
used in the business with a BV of 5,000 and a FV of 3,000.

TAC = TCC, No Goodwill CC of the Old

partners
AC = 34,000 x 30% =10,200
30,000 - 2,000
CC = 6,000 = 28,000 To record the admission of J:
Cash 10,000
AC CC Difference J, Capital 10,000
OLD 23,800 28,000 (4,200)
To record the Bonus to J:
NEW (30%) 10,200 6,000 4,200 G, Capital (4,200 x 60%) 2,520
H, Capital (4,200 x 40%) 1,680
Total 34,000 34,000 0 J, Capital 4,200
(TAC) (TCC)
 IT’S FUN TO
STUDY
ACCOUNTING