Admission of a partner to the partnership
Asked Oct 24, 2008, 03:25 PM
I have a question regarding the admission of new partner in the partnership. For example, in the partnership ABC:
Partner A has a credit balance of $390,600 in his capital account;
Partner B has a credit balance of $209,000 in his capital account;
Partner C has a credit balance of $260,400 in his capital account;
They share gains and losses in the ratio 20% to A, 40% to B and 40% to C. In the personal transaction, partner B sells his equity to Y, who pays B $200,000 for one-half of his interest.
So what I would like to clarify is that we will debit partnerís B capital account for $104,500 (50%) and credit Y for $104,500. What happens to the rest of the capital balance of partner B? Will it be a bonus to partners A and C? Is $104,500 gets split between A and C (2:4)? Would the entries below be correct in this situation?
Partner B, capital 209,000
Partner Y, capital 104,500
Partner A, capital 34,833
Partner C, capital 69,667
Now, since partner Y only has half of the interest, will he be getting 40% of gains and losses or will it be 20%? Or would the new partnership have a new agreement on allocation of gains and losses?
Thank you in advance :)