Partnerships

Question 1

How do you calculate partnership interest?

Answer 1

• Calculate how much the cost of the partnership should be
• See if the difference is a bonus or a deficit
• If bonus, then the difference will be shared by the other partners according to their share of the partnership
• Same if deficit, just they will lose some to give it to the person joining.

Example:

Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May 1, their respective capital accounts were as follows:

Blau

60,000

Rubi

50,000

On that date, Lind was admitted as a partner with a one- third interest in capital and profits for an investment of $40,000. The new partnership began with total capital of $150,000. Immediately after Lind’s admission, Blau’s capital should be:

Explanation
Choice “D” is correct. $54,000.

How? The total of Lind’s 1/3 should be $50,000, but since she invests only $40,000, need to bring her UP to $50,000. To do this, the $10,000 gap needs to be funded by Rubi and Blau based on their respective capital account balances.