Partnerships – Changes in
Ownership Interests
Chapter 15
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15 - 1
Learning Objective 4
Value new partners’ investment
in an existing partnership.
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Changes in Partnership Interest
The existing legal partnership entity is
dissolved when a new partner is admitted
or an existing partner retires or dies.
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Changes in Partnership Interest
Assignment of an interest to a third party
Admission of a new partner
Purchase of an interest from existing partners
Investing in an existing partnership
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Learning Objective 5
Value partner’s share upon
retirement or death.
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Dissolution of a Continuing Partnership
Through Death or Retirement
Capital
Balances
Bonnie
Clyde
Dillinger
Total capital
$ 70,000
50,000
80,000
$200,000
Profit and
Percentage Loss
of Capital Percentage
35%
25
40
100%
40%
20
40
100%
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Dissolution of a Continuing Partnership
Through Death or Retirement
Dillinger decides to retire.
The partners agree that the business is
undervalued on the partnership books
and that Dillinger will be paid $92,000.
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Bonus to Retiring Partner
Dillinger, Capital
Bonnie, Capital
Clyde, Capital
Cash
80,000
8,000
4,000
Dillinger, Capital
Goodwill
Cash
80,000
12,000
92,000
92,000
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Reevaluation of Total
Partnership Capital
Goodwill (other assets)
Bonnie, Capital
Clyde, Capital
Dillinger, Capital
30,000
12,000
6,000
12,000
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Payment to Retiring Partner
Less than Capital Balance
Suppose that Dillinger is paid $72,000
in final settlement of his capital interest.
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Overvalued Assets Written Down
Bonnie, Capital
Clyde, Capital
Dillinger, Capital
Net assets
8,000
4,000
8,000
Dillinger, Capital
Cash
72,000
20,000
72,000
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Bonus to Continuing Partners
Dillinger, Capital
Bonnie, Capital
Clyde, Capital
Cash
80,000
5,333
2,667
72,000
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Learning Objective 6
Understand limited liability
partnership characteristics.
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Limited Partnerships
The limited partnership consists
of at least one general partner
and one or more limited partners.
The limited partner is excluded from
the management of the business.
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End of Chapter 15
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