Partnership Mergers & Capital System Summary
Key Takeaways: Partnership Mergers & Capital Calculations
1. Revaluation & Capital Transfer:
- When a sole trader joins a partnership, if assets are revalued, the gain/loss is usually added to the capital.
- Revaluation gains go to the capital account or current account (depending on system used).
- If capital is fixed, revaluation surplus goes into the current account.
2. Goodwill Treatment:
- If goodwill is created and then written off, it affects partner capital accounts as per the profit-sharing ratio.
- If the question says goodwill will not be maintained in the books, create goodwill and immediately write it
off.
3. Initial Capital in Partnership:
- If the question provides the opening capital value of the sole trader in the partnership (e.g., $100,000), use
that directly.
- Revaluation gain may not be added if the capital is already fixed.
4. Current Account in Fixed Capital System:
- Fixed capital system maintains a constant capital account.
- All drawings, salaries, interest, and residual profits go to the current account.
- An opening current account balance may appear due to past accumulated profits or revaluation.
5. How to Identify Fixed vs Fluctuating System:
- Fixed: Separate current account is shown or mentioned.
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Partnership Mergers & Capital System Summary
- Fluctuating: Only one capital account is maintained and adjusted with drawings/profits.
6. Exam Tip:
- If the question is silent, and the MS includes a current account, treat it as Fixed Capital System.
7. Syllabus Confirmation:
- The 9706 Accounting syllabus (2023-2025) includes partnership accounting.
- Fixed and fluctuating capital systems are examinable under this section.
- Syllabus link: https://www.cambridgeinternational.org/Images/595461-2023-2025-syllabus.pdf
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