Question

Daisy Tree Partnership owns and operates two apartment complexes in the metropolitan area. The first complex was contributed to the partnership by partner L. The other two partners (M and N) contributed cash which, together with borrowed funds, was used to purchase the second complex. The three partners share partnership income, loss, gain and deduction equally. The tax basis and book value of the partnership’s assets at the end of the current year are as follows: Tax Book Cash and equivalents Tax $60,000.00 Book $60,000.00 Receivables Tax $- Book $45,000.00 Apartment Complex 1 Tax $600,000.00 Book $1,500,000.00 Accumulated depreciation, complex 1 Tax $(120,000.00) Book $(300,000.00) Apartment Complex 2 Tax $2,475,000.00 Book $2,475,000.00 Accumulated depreciation, complex 2 Tax $(180,000.00) Book $(180,000.00) Land and other assets Tax $200,000.00 Book $200,000.00             Total assets Tax $2,035,000.00 Book $4,070,000.00 B. Does the curative allocation of depreciation on complex 2 from L to M and N completely “cure” the discrepancy caused by the ceiling rule with respect to the allocation of depreciation on complex 1? C. How can the partnership eliminate the remaining discrepancy?

Answer 1

		Value in dollar
	Particulars	Tax Value	Book Value	Difference
	Cash & Equivalent	60,000	60,000	-
	Reivable	-	45,000	45,000
				-
	Complex 1	600,000	1,500,000	900,000
	A: Dep	120,000	300,000	180,000
	WDV Value	480,000	1,200,000	720,000
				-
	Complex 2	2,475,000	2,475,000	-
	A: Dep	180,000	180,000	-
	WDV Value	2,295,000	2,295,000	-
				-
	Land & Other Asset	200,000	200,000	-
				-
	Total Asset	2,035,000	4,070,000	2,035,000
				-
Ans (A)	Actual Asset Value	3,035,000	3,800,000	765,000
Ans (B)	After Deprication the Amount contributed by M & N are 2,295,000/- Divided by 2 which is
	2,295,000.00	1,147,500	Contribution M & N
		1,200,000	Contribution L
		52,500	Difference
	Deprication of Complex 1 does not cure the discripancy as there is a balance of 52500/- to set off
Ans ( C )	The remaining Discripancy can be cleared by dividing the value equally that is 52500/-
		52,500	17,500