Partnership Flashcards
<p>At what value should assets contributed to a partnership be recorded? What value for liabilities assumed by the partnership?</p>
<p>Fair Value for assets contributed.
Present value of remaining cash flows for liabilities assumed.</p>
<p>How are capital contributions with a mortgage attached recorded in a partnership for financial statement purposes?</p>
<p>Unlike in Regulation where the partner’s tax basis is reduced by the amount of the mortgage that the other partners absorb, calculating the capital balance when property contributed has a mortgage results in the FV of the Asset being netted against the Liability
Example: If you contribute a $100,000 building with a 20,000 loan, your capital account is increased by $80,000, instead of allocating the liability to the other partners according to their ownership %.</p>
<p class=”large” style=”text-align:center”;>If no goodwill is recorded upon admission of a new partner, which method is used for recording the new partner’s interest?</p>
<p class=”large” style=”text-align:center”;>The 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 same allocation as P/L</p>
<p>If goodwill is recorded upon admission of a new partner, how is the partner's interest recorded?</p>
<p>Using the 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%)</p>