Partnership Essay

507 Words3 Pages
Main Post: In partnership firm, when one or more of the partners contributes such as established clientele or a particular expertise. There could be two methods by which the above transaction could be recorded. One is bonus method and the other is goodwill method. The bonus method of recording this transaction is to value and record only the identifiable assets such as land and buildings. The capital accounts are then aligned to recognize the proportionate interest being assigned to each partner's investment. If, for example, the capital balances are to be equal, they are set at identical amounts that correspond in total to the value of the identifiable assets. In Bonus Method, goodwill is not recognized, and each partner's capital account is credited for his capital interest which is then multiplied by the recorded value of the net assets of the partnership (the difference between the recorded value of the net assets contributed by each partner and his capital account balance is a bonus payment. In Goodwill Method, goodwill is recognized for the amount of the bonus payment calculated before divided by the capital interest of the partner or partners making the bonus payment and is allocated entirely to the partner receiving the bonus payment, and each partner's capital account is credited for the recorded value of the assets, other than goodwill, that he contributed to the partnership. This goodwill is recognized at the time that the partnership is created so that the amount can be credited to the appropriate partner. Reply 1: I would some also someway agree with you. In the bonus method, total capital of new partnership is calculated by adding the value of the consideration paid to the partnership by the incoming partner to the book value of the previous partnership and

More about Partnership Essay

Open Document