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WITHDRAWAL OF A PARTNER

WITHDRAWAL OF A PARTNER. A partner may withdraw from a partnership voluntarily by selling his or her equity in the firm or involuntarily by reaching a mandatory retirement age or by dying. The withdrawal of a partner may be accomplished by

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WITHDRAWAL OF A PARTNER

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  1. WITHDRAWAL OF A PARTNER A partner may withdraw from a partnership voluntarily by selling his or her equity in the firm or involuntarily by reaching a mandatory retirement age or by dying. The withdrawal of a partner may be accomplished by 1.payment from remaining partners’ personal assets or 2. payment from partnership assets.
  2. Partnership Assets Bye PAYMENT FROM PARTNERS’ PERSONAL ASSETS The withdrawal of a partner when payment is made from partners’ personal assets is the direct opposite of admitting a new partner who purchases a partner’s interest. Withdrawal by payment from partners’ personal assets is a personal transaction between the partners.
  3. BONUS BONUS TO RETIRING PARTNER A bonus may be paid to a retiring partner when: 1. the fair market value of partnership assets is greater than their book value, 2. there is unrecorded goodwill resulting from the partnership’s superior earnings record, or 3. the remaining partners are anxious to remove the partner from the firm.
  4. BONUS TO RETIRING PARTNER The bonus is deducted from the remaining partners’ capital balances on the basis of their income ratios at the time of the withdrawal. The procedure for determining the bonus to the retiring partner and the allocation of the bonus to the remaining partners is: 1.Determine the amount of the bonus by subtracting the retiring partner’s capital balance from the cash paid by the partnership. 2.Allocate the bonus to the remaining partners on the basis of their income ratios.
  5. BONUS BONUS TO REMAINING PARTNERS The retiring partner may pay a bonus to the remaining partners when: 1. recorded assets are overvalued, 2. the partnership has a poor earnings record, or 3. the partner is anxious to leave the partnership.
  6. BONUS TO REMAINING PARTNERS The bonus is added to the remaining partners’ capital balances on the basis of their income ratios at the time of the withdrawal. The procedure for determining the bonus to the remaining partners is: 1.Determine the amount of the bonus by subtracting the retiring partner’s capital balance from the cash paid by the partnership. 2.Allocate the bonus to the remaining partners on the basis of their income ratios.
  7. LIQUIDATION OF A PARTNERSHIP The liquidation of a partnership terminates the business. To liquidate a partnership, follow these steps: 1. Sell noncash assets for cash and recognize any gain or loss on realization. 2. Allocate any gain or loss on realization to the partners based on their income ratios. 3. Pay partnership liabilities in cash. 4. Distribute remaining cash to partners based on their capital balances.
  8. LIQUIDATION OF PARTNERSHIP No capital deficiency Capital deficiency Partner with deficiency pays partnership Partners with credit capital balances absorb deficiency in income sharing proportion
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