St.

Paul University Philippines

Tuguegarao City, Cagayan 3500
Financial Accounting and Reporting

Topic: Partnership Dissolution –Admission of a New Partner (Bonus Method)

Learning Outcome: At the end of the discussion, the student must be able to:

1. prepare the journal entries needed when there is a dissolution caused by admission of a
new partner under bonus method
2. compute the capital balance of the partners after the dissolution

Lesson Proper:

A new partner may be admitted to the partnership. The admission may be accounted under bonus
method or asset revaluation/goodwill method.

Bonus Method –Bonus is given because partners feel that the book value their capital balances
is more than or less than its actual value. There is a bonus if the incoming partner would pay
more than or less than his interest in the partnership .

 When he pays less than his capital balance/interest, he receives a bonus, the effect
is to decrease the capital balance of the old partners.
 When he pays more than his capital balance/interest, the old partners receives a
bonus, the effect is to increase the capital balance of the old partners.

Example: Rudolph, and Arnold are partners with capital balances of P400,000 and 200,000
respectively. They share profits and losses in the ratio of 60% and 40% respectively. They
decided to admit Mara in the partnership.

1. Interest is equal to her capital investment – no bonus

Total Capital Contribution (TCC) = Total agreed Capital (TAC)

Mara is to invest P200,000 for 25% interest in the partnership. Total agreed capital is P800,000.

TCC Bonus TAC

Rudolph 400,000 0 400,000
Arnold 200,000 0 200,000
Mara 200,000 0 *200,000
Total 800,000 0 800,000

* 25% X 800,000 = 200,0000

Journal entry:

Cash 200,000
Mara, Capital 200,000

To record the admission of Mara

 2. Interest is more than her capital investment –bonus to Mara

Mara is to invest P200,000 for 30% interest in the partnership. Total agreed capital is P800,000.

TCC Bonus TAC

Rudolph 400,000 (24,000) 376,000
Arnold 200,000 (16,000) 184,000
Mara 200,000 40,000 *240,000

Total 800,000 0 800,000

*30% x 800,000 = 240,000

40,000 X 60% = 24,000
40,000 x 40% =16,000

Journal entry:

Cash 200,000
Rodolph, Capital 24,000
Arnold, Capital 16,000
Mara, Capital 240,000

To record the admission of Mara

3. Interest is less than her capital investment –bonus to old partners

Mara is to invest P200,000 for 22% interest in the partnership. Total agreed capital is P800,000.

TCC Bonus TAC

Rudolph 400,000 14,400 414,400
Arnold 200,000 9,600 209,600
Mara 200,000 (24,000) 176,000

Total 800,000 0 800,000

*22% x 800,000= 176,000

24,000 X 60% = 14,400
24,000 x 40% = 9,600

Journal entry:

Cash 200,000
Mara, Capital 176,000
Rudolph, Capital 14,400
Arnold, Capital 9,600

To record the admission of Mara

END OF THE DISCUSSION

Activity 3 Partnership Dissolution – Admission of a New Partner (Bonus Method)

Example: Pamela and Sinda are partners with capital balances of P300,000 and 200,000
respectively. They share profits and losses in the ratio of equally. They decided to admit Nida in
the partnership.

Required:
1. Record the journal entries of the Admission of Nida.
2. Compute for the capital balances of the partners after the admission of Nida
under the following assumptions: (The capital balances are balances in the TAC column)

a. Nida is to invest P300, 000 for 37.5% interest. Total agreed capital is 800,000.
b. Nida is to invest P300, 000 for 40% interest. Total agreed capital is 800,000.
c. Nida is to invest P300, 000 for 30% interest. Total agreed capital is 800,000.
d. Nida is to invest P500, 000 for 60% interest. Total agreed capital is 1,000,000.
e. Nida is to invest P500, 000 for 37.5% interest. Total agreed capital is 1,000,000.

Congratulations! You have finished this module!