ADMISSION OF NEW PARTNER.
the last topic is about the situation where there is no mention of AGREED CAPITALIZATION and that bonus, goodwill has to be given.
THE BONUS, GOODWILL HAS BEEN DISCUSSED ON THAT LAST LECTURE . THE REVALUATION OF ASSETS WILL BE DISCUSSED HERE.
Partners A, B ,C total capital of 80,000. D new partner contributes 14,000 for 20% share.
Assuming the revaluation of assets is to be considered , the following will be the computation.
In case of revaluation of assets to favor the incoming partner, it will assumed that the implied agreed capital is equal to CONTRIBUTION OF NEW PARTNER DIVIDE HIS SHARE to get the implied agreed capital OR THE FINAL CAPITAL . This agreed capital shall be compared to the capital after new partner is accepted ,t herefore adding the existing capital plus the new partner contribution would show you the total assets of the partnership but since the share ratio of the new partner is considered his share on the final capital hence the equivalent total final capital must be established and that is by dividing his contribution to his share ratio. In the example below, the 20% share of NEW PARTNER would result to only 70,000.00 total assets, forcing you to adjust the assets because the total assets after adding the investment of new partner is 94,000.00, that means , it is presumed that the assets is overvalued.
new partner investment 14,000 divide 20% = 70,000 as the supposed assets or capital or plus liabilities.
now since the initial capital would be :
existing capital 80,000
plus new partner investment 14,000
initial capital OR ASSETS 94,000 BEFORE REVALUATION.
now whether you like it or not , the agreed capital or final capital must be 70,000, therefore , the initially recorded capital of 94,000 must be reduced to 70,000, take note that the assets is also 94,000.00, therefore the assets must be reduced by 24,000.00 to make it 70,000.00.
IT WAS CONSIDERED IMPLIED REVALUATION BECAUSE THE RATIO OF 20% FOR new partner would result to a 70,000.00 FINAL CAPITAL WHICH IS TURN
journal entry.
cash 14000\
capital 14000
capital of D
CAPITAL OF A,B ,C 24,000
ASSETS 24,000
to reduce the assets of the firm from 94,000 to 70,000
THE FINAL CAPITAL NOW WOULD BE 70,000, AND THE ASSETS IS ALSO 70,000.
==================================================================
WITHDRAWAL OF THE PARTNER .
When a partner withdraw the following can happen.
1. to sell the assets, paid the liabilities and the remaining assets or cash are distributed to the partners.
2. if they want to continue the business, the assets are revalued .
3. the interest of the withdrawal partner may be sold AN OUTSIDER, ANOTHER PARTNER, OR THE PARTNERSHIP..
THE FOLLOWING IS THE MANNER ON HOW TO SETTLE THE INTEREST OF THE WITHDRAWAL PARTNER.
1. payment of outside funds thru sale of interest to an outsider, another partner .
2. payment thru partnership funds .
WHEN PAYMENT THRU OUTSIDE FUNDS.
the withdrawing partner sells his interest to a former co partners or to an outsider , in which case it is as if he the sales is a purchase by existing interest..
if sold to a partner or CO PARTNER the following may be used .
1. . sale of book value.
2. above book value , bonus method, revaluation, goodwill..
PROBLEM ILLUSTRATION:
A , B ,C, partners, C has withdrawn july 31. SETTLEMENT OR PAYMENT TO C equity by way of the PERSONAL FUNDS of , A, B AS CO PARTNER AS MENTIONED ABOVE.
CAPITAL BALANCE RATIO
A 20,000 20%
B 30,000 30%
C. 50,000 50%
TOTAL,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 100,000
Case no. 1. A, B paid C 50,000.000
entry:
CAPITAL C 50,000
A, CAP 20,000
B CAP 30,000
EQUITY SOLD OR PURCHASED BY present partner. at book value
A, B SIMPLY PAY C OF 50,000.00 , THE CAPITAL OF A IS NOW 40,000 , A IS NOW 60,000 OR A TOTAL OF 100,000 CAPITAL
===============================================================
CASE 2 A, B PAID 52,000, BONUS METHOD.
C CAP 50,000
A. CAP 20,000
B. CAP 30,000
to close capital of C and was credited to A, B.
A personally paid 20,800 to C, B, paid 31,200 to C or total payment of 52,000.00 .
CAP OF C BONUS TOTAL
A PAYMENT 20000 800 20,800
B pAYMENT 30,000 1,200 31,200
TOTAL 50,000 2,000 52,000
THE BONUS IS SHARED AS FF:
A ( 20% divide 50%) = 40% x 2,000= 800
B ( 30% divide 50%) = 60% x 2,000 = 1200
no entry since this personally paid .
A, B PAYS C TOTALLING 52,000.00 , C receiving more than his CAPITAL
THE CAPITALIZATION IS STILL 100,000 SHARED BY A . B.
++++++++++======================================================
CASE 3 REVALUATION OF ASSET FAVORING D, paid by A, B amount to 52,000. IN THIS CASE A, B WILL ONLY PAY THE BOOK VALUE OF C OF 50,000 , THE 2,000 ADDITIONAL CREDIT TO D WILL NOT COME FROM THE PERSONAL FUND OF A, B BUT WILL COME FROM THE INCREASE IN ASSETS DUE TO REVALUATION OF ASSETS. THAT ASSETS MAY BE A FIXED ASSETS OR ANY APPROPRIATE ASSETS. LAND MAY HAVE INCREASED ITS MARKET VALUE COMPARED TO THE ACQUISITION COST,
Take note that the captial of C is only 50,000 .but he will be favored by 52,000.00 , so there is a difference of 2000 , since his share is 50% , therefore this 2000 is 50% of the total of the undervaluation of assets or 4,000.00 which shalll be credited to their capital accounts based on share ratio THEREFORE LAND IS UNDERVALUED BY 4,000.00 SO THEY WILL SHARE TO EACH THIS 4000.
TAKE NOTE THAT EVEN A, B IS FAVORED BY THE INCREASE IN ASSETS BASED ON THEIR RATIO.
ASSETS 4,000
A CAPT 800
B. CAPT 1200
C capt 2000
TO distribute the undervaluation of assets to all partners.
______________________________________________
CAPT D 52000
A CAP 20800
B CAPT 31,200
to close D CAPITAL 50,000 PLUS 2000, AND CREDIT THE 52,000 TO A, B. based on their ratio.
D received cash payment from A, B TOTAL 50,000, THE 2000 ADDITIONAL OF HIS CAPITAL WILL NOT COME FROM A, B BUT WILL COME FROM THE INCREASE IN VALUE OF LAND OF 4,000.00
THE CAPITAL OF TH PARTNERSHIP .. A B.... TOTAL. :
ORIGINAL 20,000 30,000 50,000
PLUS ASSETS REVALUE 800 1,200 2000
SHARE ON CAP SOLD 20800 31,200 52,000
TOTAL 41,600 62400 104,000
======================================================================
CASE 4 GOODWILL IN FAVOR OF C. A, B PAYING 50,000, 2,000 came from goodwill
Since the payment made is worth 52,000 , it is presumed that the capital of D of 50,000 has increased by 2,000, presumed to be a GOODWILL given to him , since his share ratio is 50% , therefore dividing 2000 by 50% would result to 4,000.00 gross goodwill, where A , B should also share.
THIS METHOD IS SIMILAR TO REVALUATION , ONLY IN THIS CASE , INSTEAD OF INCREASING AN EXISTING ASSETS ( LAND OR BUILDING OR VEHICLE) AN INTANGIBLE ASSET in the form of GOODWILL HAS TO BE RECOGNIZED BY THE PARTNERSHIP.
entry
GOODWILL 4,000
A 800
B 1200
C 2000
to recognize the goodwill .
C CAPITAL 52,000
A CAP 20800
B 31200
to close C CAPITAL due to his withdrawal and A, B paid his capital
=============================================================
ON THE OTHER HAND , The purchase of A, B is below book value at 47,000 BY WAY OF BONUS TO A , B , that means A, B WILL PAY LESS THE 50,000 CAP OF D.
.
CASE 1 BONUS BUT BELOW BOOK VALUE.
D CAPITAL 50,000
A CAP 20,000
B CAP 30,000
to close capital of D and credit to A, B who purchased his capital.
D will receive cash payment from A, B total 47,000.00 , the 3,000 difference dropped in his capital was shared by A , B. as : that means A B will not pay C the total of 50,000, they will deduct this 3000.
A 3,000 X (20%DIVIde 50%) = 1,200 less 20,000 = 18800
B 3,000 X ( 30% divide 50%) = 1,800 less 30,000 =28200
total received cash by D 47,000
TAKE NOTE THAT EVEN IF THEY PAID LESS THAN THE CAPITAL OF D, THEY WERE CREDITED THE WHOLE D CAPITAL BECAUSE A BONUS IS GIVEN TO THEM.
===============================================================
CASE 2, REVALUATION OF ASSETS. in this case , A , B will not be favored money wise because their capital will be reduced by way of reduction of the a certain assets , so instead of them paying less amount to C unlike in BONUS METHOD.
IF THE VALUE OF CAPITAL OF C WILL BECOME 47,000 FROM THE 50,000 BECAUSE OF REVALUATION OF ASSETS, THERFORE 3,000 IS HIS EQUIVALENT SHARE ON THE REVALUATION THEREFORE 3,000 divide 50% is 6000 worth of revalued assets. this 6000 shall be debited to the A, B C CAPITAL ACCOUNTS ,
A, CAPITAL 20% X 6,000= 1,200
B CAPITAL 30% X 6,000 1,800
C CAPITAL 50% 3,000
ASSETS REVALUED OR ALLOWANCE FOR REVALUATION 6,000
to reduce the assets due to overvaluation and charged that to the partners.
C CAPITAL ( 50,000 LESS 3,000 ) 47,000
A CAPITAL ( 47,000 X ( 20%div 50%) 18,800
B. CAPT X ( 30%DIV50% 28,200
TO CLOSE CAPITAL OF C AND CREDIT TO A, B .
NEW CAPITAL STRUCTURE:
A B TOT
ORIGINAL 20,000 30,000 50000
ASSETS DECREASE 1,200 1,800 3000
PURCHASE FROM C 18,800 28,200 47,000
TOTAL 94000
THEIR CAPITAL DECREASE BY 6000 due to assets decrease.
No comments:
Post a Comment