Question

How do disclosure requirements differ from a corporation to a partnership, and what information is required?

Answer 1

In a corporation, the probable damages are supposed to be disclosed as liabilities in the balance sheet and as expenses in the Income statement. This amount will be disclosed immediately in the company's financial statement as the liability because they will reduce the shareholders' interest they have in the company. While in partnership, it is assumed that the probable damages do not reduce the basis the partners have in their partnership interest. Therefore, the contingency liability can be reported in a later accounting period depending on the agreement of the partners or if required to do so by a relevant authority. The probable damages will be disclosed like any other liability in the financial statements. However, the probable damages on the lawsuits would reduce the price a new coming partner would pay for the partnership interest on a subsequent sale. The timing of the disclosure of the damages is different in the corporation as compared to partnership.