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assume a partner withdraws from a partnership and receives assets of greater value than the book...

assume a partner withdraws from a partnership and receives assets of greater value than the book value of his equity. Should the remaining partners share the resulting reduction in their equities in the ratio of their relative capital balances or according to their income-and-loss-sharing ratio? Explain in detail.

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Expert Solution

When a partner withdraws from a partnership and receives assets of greater value than the book value of his equity , the excess portion of receipt is called bonus receipts.

It is an additional benefit of withdrawing partner, compensated by remaining partners as per their income and loss sharing ratio ( Profit sharing ratio)

Relative Capital balance ratio only depicts their relative capital contribution , but actual share of profit depicted by profit sharing ratio of the partners only.

After withdrawal of partners , share of profit of withdrawing partner normally divided inbetween existing partners as per their profit sharing ratio if nothing specified , not on the basis of relative capital ratio. So, on the basis of benefits received by the existing partners during retirement or any withdrawal of partners would be compensated by them in the same ratio ( That is profit sharing ratio or income and loss sharing ratio).

ekkarill92 answered 1 year ago
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