How are capital contributions with a mortgage attached recorded in a partnership for financial statement purposes?
Calculating the capital balance when the property contributed has a mortgage, results in the FV of the Asset being netted against the Liability.
Note: The AICPA has confirmed that Partnership Accounting, while not specifically listed in the Blueprint, is still testable on FAR.
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If no goodwill is recorded upon the admission of a new partner, which method is used for recording the new partner’s interest (Bonus Method)?
Bonus Method:
Old Partnership Equity
+ New Partner Contribution
= New Partnership Equity
x New Partner %
= New Partner Equity Amount
New Partner Contribution
- New Partner Equity Amount
= Bonus to Prior Partners using the same allocation as P/L
If goodwill is recorded upon the admission of a new partner, how is the partner’s interest recorded?
Goodwill Method:
New Contribution / New Equity % = Partnership Value
Implied Value of Partnership
- Capital Accounts of all partners
Goodwill to Old Partners
Under the Goodwill Method, the new Partner is paying an amount for a certain percentage stake in the partnership.
For instance, if they pay $1000 for a 25% stake, then it is assumed that the Partnership is worth $4,000 ($1,000/25%).
At what value should assets contributed to a partnership be recorded? What value for liabilities assumed by the partnership?
Fair Value for assets contributed.
PV of remaining cash flows for liabilities assumed.
