Advanced Ch. 14

examples of situations that cause a liquidation

at-will partner withdraws; the death of a partner, the express will of all partners, the expiration of the term; result of an event agreed to in agreement; an event that makes it unlawful to continue

contribution of assets to existing partnership

if book value of original partnership's net assets approximates fair value, the incoming partner's contribution would be expected to be equal to his/her percentage interest in the capital of the new partnership

unsatisfied partnership creditors

if partnership does not have adequate assets to fully dismiss these creditors, the unsatisfied creditors must look to the personal assets of the individual partners

liability for debit capital balances

partners should contribute assets to the partnership to the extent of their debit capital balances; if they cannot-> other partners should cover it; remaining debit balance will typically be viewed as a realization loss and allocated according to the remaining partner's loss ratio

changes in ownership may indicate

previously unrecorded intangible assets exist that are traceable to the original partnership; intangible assets, such as goodwill, exist that are traceable to a new partner; suggests the need to both revalue net assets and recognize intangible assets

withdrawal of a partner

requires a determination of the fair value of the partnership entity and a measurement of partnership income to the date of withdrawal

lump-sum liquidations

requires that all assets be realized before a distribution is made to partners

admission of a new partner

requires the approval of the existing partners; a partner's interest may be assigned to someone outside the partnership without the consent of the other partners; assigning an interest does not dissolve the partnership; assignee receives only agreed-upon portion of the assigning partner's profit or loss

installment liquidations

since the process could take a while, it may not be possible to postpone payments to creditors and partners until all assets have been realized so payments may be made on an installment basis to creditors and partners

the selling of an interest to the partnership

the bonus or goodwill methods may be employed

total capital of new partnership under goodwill method

the book value of the net assets of the previous partnership plus unrecognized appreciation or less unrecognized depreciation on the recorded net assets of the previous partnership plus unrecognized goodwill traceable to the previous partnership plus the fair value of the consideration, both tangible and intangible, received from the new income partners

total capital of partnership when admit new partner under bonus method

the book value of the previous partnership less write-down in the value of the previous partnership's assets as recognized by GAAP plus the fair value of the consideration paid to the partnership by the incoming partner

partnership liquidation

the conversion of partnership assets into a distributable form and the distribution of these assets to creditors and owners

selling of an interest to existing partners

the equity of the withdrawing partner will be purchased with the personal assets of existing or new partners rather than with assets of the partnership

an incoming partner may acquire an interest in the partnership for a price in excess of that indicated by book value; suggests:

unrecognized appreciation on the recorded net assets of the original partnership, and/or unrecognized goodwill that also is traceable to the original partnership

acquires at the price less than

unrecognized depreciation or write-downs on the recorded net assets of the original partnership, and/or a contribution by the incoming partner of some intangible asset (goodwill) in addition to a measured contribution

goodwill method

views the admission of a new partner as an opportunity to revalue net assets as though a new entity had been created; had this happened, the assets would have been recorded at current fair value

bonus method

book-value approach; existing book values should not be adjusted to current values unless such adjustments would have otherwise been allowed by GAAP; increases should not be recorded until realized

order of distribution

creditors; profits and losses allocated to individual partner's accounts; a partner with a debit (deficit) capital balance shall make a contribution to the partnership of an amount equal to the debit balance, if partner cannot eliminate the debit balance-> all other partners shall contribute the deficiency in proportion to the manner in which those partners share losses; liquidating distributions to partners to the extent that they have surplus (capital) balances; settle partnership obligations not known at time

incoming partner's new capital balance under bonus method

equal to the value of the consideration paid by the incoming partner less the bonus or increase in capital recorded for the original partners