Accounting transaction for liquidating partnership Hardcore fuckchat
When all remaining capital accounts have positive balances, those amounts are the safe capital amounts that can be distributed immediately.
Goodwill of $30,000 must be recognized to increase the capital from $170,000 to the implied value of $200,000.
When revenues and expenses are closed out at the end of the year, the net profit or loss must be assigned to the partners’ Capital accounts.
A new partner may have to contribute assets worth more than the percentage being acquired of the total capital, especially if it is a profitable partnership. In this case, paying $60,000 for a 30% ownership share indicates an implied worth for the entire business of $200,000 ($60,000 divided by 30%).
Without adjustment, total capital would be $170,000 ($110,000 capital for the old partners plus the $60,000 contribution of the new partner).
When a new partner is admitted into a partnership, any contributions are recorded by partnership at market value but original book value is retained for tax purposes. The payment to the business of $30,000 increases total capital to $90,000. Yoo is entitled to 30% of this new business so his beginning capital balance is recorded as $27,000 ($90,000 times 30%).