Accounting for Special Transactions

Chapter 1

Partnership Formation

    • The major considerations in the accounting for the equity of partnerships are:

    (a) Formation;

    (b) Operations;

    (c) Dissolution; and

    (d) Liquidation.

    • The contributions of the partners to the partnership are initially measured at fair value.
    • A partner’s capital balance is normally credited for the fair value of his net contribution to the partnership. If a partner’s capital balance is credited for an amount greater than or less than the fair value of his net contribution, there is bonus.
    • Under the bonus method, any increase (or decrease) in the capital credit of a partner is deducted from (or added to) the capital credits of the other partners. The total partnership capital remains equal to the fair value of the partners’ net contributions to the partnership.