Dissolution is caused by any or a combination of the following:

1. Admission of a new partner

2. Withdrawal or death of a partner
3. Incorporation of the partnership

Admission of a new partner

A new partner can be admitted to the partnership by:

1. Purchase of interest - The new partner directly purchases the interest from the existing partners. This will not affect the total assets or liabilities of the p
transaction is directly between the newly admitted partner and the existing partners. Hence, the capital account of the new partner is recorded by merely
accounts of the existing partner and transferring an amount to the old partner.

2. Investment of Additional Assets - The admission of the new partner and contribution of assets may be recorded on the basis of the bonus method.

a. No bonus recognized - When an incoming partner's capital account is to be equal to the purchase price, the partnership merely debits the asset investe
account.
b. Bonus granted to old partners - When the fair market value (FMV) of the assets contributed by an incoming partner exceeds the amount of ownership i
his capital account, the old partners recognize a bonus equal to the access and the said bonus is allocated based on the existing profit or loss rato (unles
the partnership agreement). Recording of bonus involves crediting the old partners' capital accounts by the allocated amounts.
c. Bonus granted to new partner - When the FMV of the assets contributed by an incoming partner is lower than the partnership interest, a bonus is grant
through reducing the capital accounts of the existing partner based on their existing profit and loss ratio.

Kindly ignore any goodwill recognition related to admission of a new partner since goodwill is only recognized when a business is acquired.

Withdrawal of a partner

For a partner to withdraw or retire from the partnership, the total interest of a partner should be properly determined. The total interest includes the follow

1. Share in the profit and loss of the partnership.

2. Adjustments in assets and liabilities to reflect FMV.
3. Loans to and from partnership.
4. Drawing accounts.
5. Capital accounts.

Withdrawal or retirement from the partnership may either be:

1. Selling of an interest to an outside vendor. Similar to admission by purchase of interest (provided that the remaining partners agree).
2. Selling of an interest to an existing partner. Similar to admission by purchase of interest.
3. Selling of an interest to the partnership/payment of interest from the partnership fund which will be treated as follows:
a. Payment at book value - no bonus
b. Payment at less than book value - bonus to remaining partners
c. Payment at more than book balue - bonus to withdrawing or retiring partner

Incorporation of a partnership
Entails closing of the partnership equity accounts and recognition of corporation equity accounts.
 tal assets or liabilities of the partnership since the
partner is recorded by merely reducing the capital

sis of the bonus method.

merely debits the asset invested and credits the capital

ds the amount of ownership interest to be credited to

sting profit or loss rato (unless otherwise specified in
nts.
ship interest, a bonus is granted to the incoming partner

ess is acquired.

al interest includes the following:

Liquidation
Liquidation is the process of converting partnership assets into cash and distributing the cash to creditors and partners. The basic rule is that no distribut

Types of liquidation
1. Lump Sum Distribution - It is performed as follows:
a. Sell all noncash assets and allocate the gains or losses based on the profit or loss ratio
b. Pay liabilities to external creditors
c. Pay loans to partners
d. Distribute remaining cash to partners or require partners to make additional contributions (for solvent partners) to cover the deficit. If insolvement, the

2. Installment Distributions - Distributions are based on schedule of safe payments or cash priority program.
basic rule is that no distribution is made to any partner untill all possible losses and liquidation expenses have been paid or provided for.

e deficit. If insolvement, the solvement partners will absorb the loss based on profit and loss ratio.