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Published by bunyawee6251, 2021-06-03 05:06:15

Accounting for Partnership

Accounting for Partnership

Sheet 4 Details of Administrative Expenses 35,000
Salary Expenses 16,000
Travelling expense 9,000
Utilities Expenses 120,000
Depreciation Expenses 36,000
Allowance for doubtful account 216,000
Total Administrative Expenses

Example. Statement of Financial Position

AW Limited Partnership

Statement of Financial Position

As on 31st December ,25x2

Assets

Current Assets

Cash 80,000

Account Receivables 200,000 190,000
96,000 366,000
Less Allowance for Doubtful Account 10,000
800,000
Inventories
344,000
Non-current Assets
304,000
Land
306,000 1,754,000
Building 600,000 2,120,000

Less Accumulated depreciation- Building 256,000

Office Equipment 320,000

Less Accumulated depreciation- Office Equipment 16,000

Truck 720,000

Less Accumulated depreciation- Truck 414,000

Total Assets

Accounting for Partnership Page 93

Liabilities and Partners’ Equity 500,000 1,686,400
Current Liabilities 1,158,000
433,600
Note Payables 28,400 2,120,000
Account Payables
Current Income Tax Payable 195,190 Total
Partners’ Equity 238,410 170,000
Capital – A * 200,000
Capital – W * 113,600
Total Liabilities and Partners’ Equity 483,600
50,000
* From the statement of changes in partner’s capital 433,600
Example. Statement of Changes in Partner’s Capital

AW Limited Partnership

Statement of Changes in Partner’s Capital

For the year ended December 31, 25x2

A W
100,000
Capital as on Jan 1st , 25x2 70,000 120,000
53,410
Add Additional Investments 80,000 273,410
35,000
Profit Sharing 60,190 238,410

210,190

Less Drawing 15,000

Capital as on Dec 31st ,25x2 195,190

Accounting for Partnership Page 94

Explanation of Compendium of Financial Statement
Of Registered Partnership
-----------------------------

Statement of Financial Position

Assets
1. Current Assets

1.1. Cash and Cash Equivalents
Cash means cash in hand and all bank deposits except bank deposits to be returned at the end
of set period, such as:
1.1.1. Bank notes and coins including petty cash, money order, postal order.
1.1.2. Current and saving bank deposits, except bank deposits to be returned at the end of set
period (fixed accounts) and certificates of deposit issued by commercial banks and
financial institutions which to be presented in items 1.2 and 2.5.
1.1.3. Undeposited checks, travelling checks, bank drafts.
Cash Equivalents are temporary investments with high liquidity, readily convertible into
cash at determined value and have least or insignificant risk of change in value, which to
comply with relevant financial reporting standards.

1.2. Temporary Investments
Investments that the entity intends to hold for not longer than 1 year, covers trading securities,
available-for-sale securities, general investments and debt instruments with redemption date
within 1 year, which to comply with relevant financial reporting standards.

1.3. Trade and Other Receivables
Trade Receivables are money owed by customers to the entity for goods or services sold to
them in the ordinary course of business, and debtors from bills of such goods or services.
Other Receivables are other receivables other than trade receivables such as prepaid
expenses, deferred income, advance money, etc.

1.4. Short-term Loans
Any short-term loan and other debtors classified as current assets except trade receivables
from sales or services and other receivables described in item 1.3

Accounting for Partnership Page 95

1.5. Inventories
Finished goods, work or product in progress, raw materials and consumables used in
production for sales or rendering services in the ordinary course of business.

1.6. Other Current Assets
Any other current assets except those described in items 1.1 to 1.5. Any significant item to be
presented in separate item.

2. Non-current Assets
2.1. Available-for-sale Investments
Investments in all debt instruments, market-demand equity instruments not classified as
trading securities or debt instrument to be held till mature, investments in associates,
investments in subsidiaries, investments in joint ventures, which to comply with relevant
financial reporting standards.
2.2. Investments in Associates
Investments in other business over which the entity has significant influence. The term
significant influence shall comply with relevant financial reporting standards.
2.3. Investments in Subsidiaries
Investments in other business which the entity has controlling power. The term controlling
power shall comply with relevant financial reporting standards
2.4. Investments in Joint Ventures
Investments to generate economic activities of two or more parties, with a joint control as
contractually agreed. The term joint control shall comply with relevant financial reporting
standards.
2.5. Other Long-term Investments
Long-term investments in other entities except those described in items 2.1 to 2.4
2.6. Long-term Loans
Long-term loans and other debtors classified as non-current assets.
2.7. Investment Property
Property (land, buildings or parts of buildings (building fixtures)) held (by the owner or tenant
of finance lease agreement) for the benefit of rental income or benefit from an increase in
asset value, or both, which to comply with relevant financial reporting standards.

Accounting for Partnership Page 96

2.8. Non-current Assets Classified as Held for Sale
Non-current assets hold for sale, which to comply with relevant financial reporting standards.

2.9. Property, Plant and Equipment
Tangible assets hold to use in production, for sales of goods or rendering services, for rent or
to serve in the administration, which the entity expects to utilize for more than one accounting
period.

2.10. Intangible Assets
Non-monetary assets without physical substance as described in the financial reporting
standards such as copyrights, patents, franchises, etc.

2.11. Deferred Tax Assets
Income tax prepaid which is expected to be used in the future. Deferred tax assets arises due
to
1) Deductible temporary differences
2) Net loss carry-overs
3) Tax credit carry-overs
Which have to comply with relevant financial reporting standards.

2.12. Other Non-current Assets
Other non-current assets except those described in item 2.1 to 2.11. Any significant item to
be presented in separate item.

Liabilities and Partners’ Equity
3. Current Liabilities

3.1. Bank Overdrafts and Short-term Borrowing from Financial Institutions
Bang overdrafts, short-term borrowings from commercial banks or financial institutions,
including promissory note discounted sales to financial institutions, which classified as
current liabilities.

3.2. Trade and Other Payables
Trade Payables are money owed by the entity for goods or services bought for sale or use in
the production of goods or rendering services in the ordinary course of business, and bills
issued by the entity for the payment of such goods or services.
Other Payables are other payables other than trade payables such as accrued expenses,
deferred income, etc.

Accounting for Partnership Page 97

3.3. Current Portion of Long-term Liabilities
Part of long-term liabilities with repayment within one year after the ending date of the
period.

3.4. Short-term Borrowings
Short-term borrowings and other liabilities other than trade and other payables as described in
item 3.2.

3.5. Current Income Tax Payable
Deferred corporate income tax expense.

3.6. Short-term Provisions
Liabilities expected to repay within one year after the ending date of the period with
uncertainties of time and amount, which to comply with relevant financial reporting standards.

3.7. Other Current Liabilities
Other current liabilities other than those described in items 3.1 to 3.6. Any significant item to
be presented as separate item.

4. Non-Current Liabilities

4.1. Long-term Borrowings
Long-term borrowings and other liabilities with repayment after one year after the period
ending date.

4.2. Deferred Tax Liabilities
Income tax to be paid in the future, a result of temporary tax differences which to comply with
relevant financial reporting standards.

4.3. Employee Benefit Obligations
Liabilities according to employee benefit programs as required in Thai Accounting Standard
Issue 19 ‚Employee Benefits‛, or employee benefit provisions that comply with the financial
reporting standards for non public accountable entity.

4.4. Long-term Provisions
Liabilities with repayment after one year after the period ending date with uncertainties of
time or amount, which to comply with relevant financial reporting standards.

4.5. Other Non-current Liabilities
Other liabilities except those described in items 4.1 to 4.4. Any significant item to be reported
separately.

Accounting for Partnership Page 98

5. Partners’ Equity

5.1. Partners’ Capital
Investments of the partners whether of cash or other assets, which to be presented separately
for individual partner.

5.2. Unappropriated Retained Earnings
Retained earnings at the period ending date not yet appropriated to the partners, in case that
the net balance is negative retained earnings the figure to be in parenthesis

5.3. Other Components of Partners’ Equity
Cumulative amount at the period ending date of:
(1) Differences from the translation of financial statements (of foreign subsidiaries)
(2) Profit (Loss) from the valuation of available-for-sale investments
(3) Other profit (Loss) not yet incurred, which to comply with relevant financial reporting
standards. Any significant item to be presented in separate item.

Income Statement by Nature

1. Revenue from Sales or Revenue from Rendering Services
Revenue from sale of products, rights, or rendering services which are the core business of the
entity in exchange of cash, payment claims, or other monetary items. Each main type of revenue to
be presented as separate item such as revenue from sales of product, revenue from rendering
services, etc.

2. Other Income
Income from operation except those described in item 1, including other benefits such as gain on
sale of investments, gain on sale of property, plant and equipment, etc, which to comply with the
relevant financial reporting standards. Any significant item to be presented in separate item.

3. Changes in Inventories of Finished Goods and Work in Progress
Difference between the beginning value and the ending value of finished goods and work in
progress.

4. Work Performed by the Entity and Capitalized
Value of work performed during the period and held as assets of the entity.

5. Raw Materials and Consumables Used
Book value of significant components or ingredients for production of the finished goods.

Accounting for Partnership Page 99

6. Employee Benefits Expense
Expenses directly relating to employee such as salary and wages, social security contribution,
welfare payment, and other employee benefits comply with relevant financial reporting standards.

7. Depreciation and Amortization Expense
Systematic allocation of the cost of a specific type of assets through out its useful life. In case of
intangible assets the term ‘amortization’ shall be used instead of ‘depreciation’, which to comply
with relevant financial reporting standards.

8. Other Expenses
Expenses except those described in items 5 to 7, 10, and 12, including any other loss such as loss
on sale of investments, loss on sale of property, plant and equipment, loss from employee strikes,
etc., which to comply with relevant financial reporting standards. Any significant item to be
presented in separate item.

9. Profit (Loss) Before Finance Costs and Income Tax Expenses
Total revenues less total expenses but before finance costs and income tax expense. In case of loss
the figure to be in parenthesis.

10. Finance Costs
Expenses or cost incurred in connection with the borrowings of an entity such as interest payments,
bank fees on borrowings, interest payments of finance lease agreement, etc.

11. Profit (Loss) Before Income Tax Expenses
Profit (Loss) before finance costs and income tax expenses less finance costs. In case of loss the
figure to be in parenthesis.

12. Income Tax Expense
Income tax expenses calculated according to the financial reporting standard for non public
accountable entity. If the entity chooses to recognize the income tax expense (benefit) according to
Thai Accounting Standard Issue 12 ‚Income Tax‛, the item shall be named ‚Income Tax Expense
(Benefit)‛.

13. Net Profit (Loss)
Profit (Loss) before income tax expense less income tax expense, in case of loss the figure to be in
parenthesis.

Accounting for Partnership Page 100

Income Statement by Function (Single-Step)

1. Revenue
1.1. Revenue from Sales or Revenue from Rendering Services
Revenue from sale of products, rights, or rendering services which are the core business of the
entity in exchange of cash, payment claims, or other monetary items. Each main type of
revenue to be presented as separate item such as revenue from sales of product, revenue from
rendering services, etc.
1.2. Other Income
Income from operation except those described in item 1, including other benefits such as gain
on sale of investments, gain on sale of property, plant and equipment, etc, which to comply
with the relevant financial reporting standards. Any significant item to be presented in
separate item.

2. Expenses
2.1. Cost of Sales or Cost of Rendering Services
Cost of goods, rights or services sold, includes purchasing price, cost of production, and other
expenses to make goods ready for sale (location and condition vise). To be presented
according to the core business types of the entity as described in item 1.1 such as cost of sales,
cost of rendering services, etc.
2.2. Selling Expenses
Expenses incurred in connection with sales.
2.3. Administrative Expenses
Expenses incurred in managing the entity in common.
2.4. Other Expenses
Expenses except those described in items 2.1 to 2.3, 4 and 6, also includes other losses such as
loss on sale of investments, loss on sale of property, plant and equipment, loss from employee
strikes, etc. Any significant item to be presented in separate item.

3. Profit (Loss) Before Finance Costs and Income Tax Expense
Total revenues less total expenses but before finance costs and income tax expense. In case of loss
the figure to be in parenthesis.

Accounting for Partnership Page 101

4. Financial Costs
Expenses or cost an entity incurs in connection with the borrowings such as interest payments,
bank fees on borrowings, interest payments of finance lease agreement, etc.

5. Profit (Loss) Before Income Tax Expense
Profit (Loss) before finance costs and income tax expenses less finance costs. In case of loss the
figure to be in parenthesis.

6. Income Tax Expense
Income tax expenses calculated according to the financial reporting standard for non public
accountable entity. If the entity chooses to recognize the income tax expense (benefit) according to
Thai Accounting Standard Issue 12 ‚Income Tax‛, the item shall be named ‚Income Tax Expense
(Benefit)‛.

7. Net Profit (Loss)
Profit (Loss) before income tax expense less income tax expense, in case of loss the figure to be in
parenthesis.

Income Statement by Function (Multiple-step)

1. Revenue from Sales or Revenue from Rendering Services
Revenue from sale of products, rights, or rendering services which are the core business of the
entity in exchange of cash, payment claims, or other monetary items. Each main type of revenue to
be presented as separate item such as revenue from sales of product, revenue from rendering
services, etc.

2. Cost of Sales or Cost of Rendering Services
Cost of goods, rights or services sold, includes purchasing price, cost of production, and other
expenses to make goods ready for sale (location and condition vise). To be presented according to
the core business types of the entity as described in item 1.1 such as cost of sales, cost of rendering
services, etc.

3. Gross Profit (Loss)
Revenue from sales or revenue from rendering services less cost of sales or cost of rendering
services. In case of loss the figure to be in parenthesis.

Accounting for Partnership Page 102

4. Other Incomes
Income from operation except those described in item 1, including other benefits such as gain on
sale of investments, gain on sale of property, plant and equipment, etc, which to comply with the
relevant financial reporting standards. Any significant item to be presented in separate item

5. Profit (Loss) Before Expenses
Gross profit (loss) add other income but before expenses. In case of loss the figure to be in
parenthesis.

6. Selling Expenses
Expenses incurred in connection with sales.

7. Administrative Expenses
Expenses incurred in managing the entity in common.

8. Other Expenses
Expenses except those described in items 2, 6, 7, 11 and 13, also includes other losses such as loss
on sale of investments, loss on sale of property, plant and equipment, loss from employee strikes,
etc. Any significant item to be presented in separate item.

9. Total Expenses
Sum of expenses from items 6, 8, and 8

10. Profit (Loss) Before Financial Costs and Income Tax Expense
Profit (Loss) before expenses less total expenses. In case of loss the figure to be in parenthesis.

11. Finance Costs
Expenses or cost an entity incurs in connection with the borrowings such as interest payments,
bank fees on borrowings, interest payments of finance lease, etc.

12. Profit (Loss) Before Income Tax Expense
Profit (Loss) before finance costs and income tax expenses less finance costs. In case of loss the
figure to be in parenthesis.

13. Income Tax Expense
Income tax expenses calculated according to the financial reporting standard for non public
accountable entity. If the entity chooses to recognize the income tax expense (benefit) according to
Thai Accounting Standard Issue 12 ‚Income Tax‛, the item shall be named ‚Income Tax Expense
(Benefit)‛.

Accounting for Partnership Page 103

14. Net Profit (Loss)
Profit (Loss) before income tax expense less income tax expense, in case of loss the figure to be in
parenthesis.

Summary

Financial statements are financial reports prepared to present the financial position and result of
operation of an entity in the format of income statement, balance sheet or statement of financial
position, and other statements for the decision-making of the management or the users of financial
statements. In order that the preparation and presentation of financial statements serve such purpose,
the accounting framework defines the underlying assumptions for preparation of financial statements as
2 items : accrual basis of accounting, and going concern basis.
A complete set of financial statements shall comprise statement of financial position, income statement
or comprehensive income statement, statement of changes in partners’ equity, statement of cash flows,
accounting policies and notes to the financial statements.
There are 4 qualitative characteristics of financial statement: understandability, relevance, reliability,
and comparability.
Financial statement of registered partnership is prepared according to the requirements in the
notification of the Department of Business Development, Ministry of Commerce dated September 28,
2011. Registered ordinary partnership and limited partnership have duty to pay corporate income tax
from net profit at the rates defined by the Revenue Department.

e-Learning Sources What are the
www.dbd.go.th
qualitative
www.fap.or.th characteristics of
www.google.com financial statement

Learning Activities
1. Search and study about financial statement for partnerships
2. Discuss about information for preparation of financial statement

Accounting for Partnership Page 104

Chapter 5
Admission of a New Partner

Outline

1. Admission of a new partner
2. Admission of a new partner by capital purchase from the former partners
3. Admission of a new partner by investment of cash or assets
4. Admission of a new partner with goodwill recognition
5. Admission of a new partner with bonus recognition

Learning Objectives

1. Able to explain the admission of a new partner
2. Entries of a new partner admission by capital purchase from the former partners
3. Entries of a new partner admission by investment of cash or assets
4. Entries of a new partner admission, with goodwill and bonus recognition
5. Having work habit of organized, careful, honesty, discipline, punctuality, and good attitude

towards the accounting profession

Accounting for Partnership Page 105

Chapter 5
Admission of a New Partner

Introduction

Once a partnership was formed and operated, and later a competent personnel required for
various fields of operation or someone would like to invest in the entity. Then there may be an
admission of a new partner. Such admission may cause changes in the capital of partnership. The
admission of a new partner must have consent from all former partners. There are two methods of
admission of a new partner: the new partner purchases capital from the former partner, and the new
partner invests of cash and other assets.
After a partnership was formed and operated, the capital may be changed due to profit and loss from
operation, or draws for personal use, addition or reduction of investment as described, which create
changes in the partners’ equity. There are other transactions that cause changes in the partner’s capital
as follow:
1. Admission of a new partner
2. Resignation of a partner
3. Death of a partner
We will discuss only the admission of a new partner in this Chapter 5.

Admission of a New Partner

According to the Commercial Code, Article 1040 – admission of other person as partner in a
partnership must have consent from all former partners. Therefore, all former partners may agree for
an admission of a new partner in the partnership agreement. There should be a new partnership
agreement when a new partner is admitted. There are 2 methods of admission of a new partner:
1. Admission of a new partner by capital purchase from the former partner
2. Admission of a new partner by investment of cash or other assets

Accounting for Partnership Page 106

Admission of a New Partner by Capital Purchase from the Former Partner

Using this method, the new partner may purchase capital or interest from one or all former
partners by paying cash to such former partner. There is no change (increase) in assets and capital of
the partnership since it is only the capital transfer from the selling partner to the buying partner. There
are 3 cases for the entries
1. Capital purchase without account adjusting.
2. Capital purchase with adjusting in assets of partnership
3. Capital purchase with goodwill recognition

1. Capital Purchase without Account Adjusting

This is just a capital transfer from former partner to new partner at book value as agreed.
The actual amount paid - whether higher or lower than the book value - is neglected from account of
the partnership since it is considered only personal matter among partners.

Journal entries will be: XX
Dr. Capital – former (selling) partner
Cr. Capital – new partner XX

Example 1. Toy and Tao were partners and shared the profit and loss at 1 : 2, with capital of 200,000

Baht and 300,000 Baht respectively. On March 1, 25x1 they admitted Toei as the new partner. Toei

bought half of Toy’s capital at 100,000 Baht with cash

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Capital – Toy 301 100,000 -

Capital – Toei 302 100,000 -

Toei bought half of Toy’s capital

¤

Accounting for Partnership Page 107

Calculation of the partners’ capital and profit and loss sharing ratio after admission of new partner is

Toy Tao Toei Total

Former capital 200,000 300,000 - 500,000

Transfer 1/2 of Toy’s capital to Toei (100,000) - 100,000 -

Partners’ capital after admission of Toei 100,000 300,000 100,000 500,000

The profit and loss sharing ratios Toy : Tao : Toei = 2 : 6 : 2

Example 2. Fah and Saeng were partners with capital of 600,000 Baht and 400,000 Baht

respectively, the profit and loss to be shared by the capital ratio. On January 19, 25x1 they

admitted Tean as partner. Tean purchased 1/3 of Fah’s capital and 1/2 of Saeng’s capital, cash

paid to Fah and Saeng was 420,000 Baht

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Jan 16 Capital – Fah (600,000 1/3) 301 200,000

Capital – Saeng (400,000 1/2) 302 200,000

Capital – Tean 303 400,000

Tean purchased 1/3 of Fah’s capital and 1/2

of Saeng’s capital

¤

Calculation of the partners’ capital after admission of Tean is

Fah Saeng Tean Total
1,000,000
Former capital 600,000 400,000 -
-
Capital transfer - Fah 1/3 (200,000) - 200,000 -
1,000,000
l – Saeng 1/2 - (200,000) 200,000

Partners’ capital after admission of Tean 400,000 200,000 400,000

Profit and loss sharing ratios Fah : Saeng : Tean = 4:2:4

= 2:1:2

Accounting for Partnership Page 108

In case the new partner purchases the capital from one or many partners at book value, there will

be no problem in money distribution among partners. But if the amount paid is higher or lower

than the capital transferred, the money shared among the former partners will different as:

Fah Saeng Total

Capital transferred to the new partner 200,000 200,000 400,000

Plus profit from sale of capital at 3 : 2 12,000 8,000 20,000

Money each former partner received 212,000 208,000 420,000

2. Capital Purchased with Assets Adjusting

Account adjusting before the admission of a new partner is required when book value of

an asset is different from the fair market value and the new partner pays for the equity at higher or

lower than the book value. The book value of assets should be adjusted to present the real value first,

then the capital transfer from the former partner to the new partner will be entered at the book value

after the adjusting entries.

Example 3. Bie and Rain were partners, the profit and loss to be shared at 3 : 2. Their

capitals were 80,000 Baht and 70,000 bath respectively. On January 1, 25x1 they admitted Tui as the

new partner. Tui purchased 1/4 of Bie’s capital and 1/5 of Rain’s capital at 36,300 Baht. The old

partners agreed for the following adjusting transactions before the admission:

1. Add value of inventories for 15,000 Baht

2. Lessen price of office equipment 5,000 Baht

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Jan 1 Inventories 104 15,000 -

Capital – Bie (10,000 x 3/5) 301 6,000 -

Capital – Rain (10,000 x 2/5) 302 4,000 -

Office Equipment 105 5,000 -

Adjusting entries before the admission of new

¤partner

Accounting for Partnership Page 109

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Capital – Bie 301 21,500 -
Capital – Rain 302 14,800 -
303
Capital - Tui 36,300
Tui purchased 1/4 of Bie’s capital and 1/5 of
Rain’s capital

¤

Calculation of the partners’ capital and profit and loss sharing ratio after admission is

Bie Rain Tui Total

Former capital 80,000 70,000 - 150,000
Plus Profit from adjusting transactions
Capital after adjusting 6,000 4,000 - 10,000
Bie and Rain transferred 1/4 and 1/5 of
capital to Tui 86,000 74,000 - 160,000
Partners’ capital after admission of Tui
Profit and Loss sharing ratios (21,500) (14,800) 36,300 -

64,500 59,200 36,300 160,000
40% 37% 23%

Profit and loss sharing ratio of Bie = 64,500 x 100/160,000 = 40%*
Profit and loss sharing ratio of Rain = 59,200 x 100/160,000 = 37%*
Profit and loss sharing ratio of Tui = 36,300 x 100/160,000 = 23%*
* decimal rounded
Note Payment from the new partner to the former partners can be higher or lower than the book
value, which considered as personal matter and neglected from bookkeeping of the entity. Except
for the case of recognition for operation‘s result which will be discussed later.

Accounting for Partnership Page 110

3. Capital Purchase with Goodwill Recognition

When a partnership has been operated for a long time and becomes famous, with high
profit and many customers, also with correct value of the assets. The new partner may have to
purchase the capital at a higher price than book value. The goodwill shall be allocated to the former
partners at the profit and loss sharing ratio, then the capital to be transferred to the new partner at
purchase value.

Example 4. Gai and Gig were partners, the profit and loss shared at 2 : 3, with capital of

200,000 Baht and 300,000 Baht respectively. On April 1, 25x1 they admitted Gay as partner. Gay

purchased 50% of capital from Gai and Gig. Before the admission, the value of assets is up to date.

But Gay agreed to pay 260,000 Baht for the purchase as compensation of operation to the former

partner, recognized as goodwill.

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Apr 1 Goodwill 108 20,000 -

Capital – Gai 301 8,000

Capital - Gig 302 12,000

Goodwill to former partners recognized

Capital – Gai (200,000+8,000) x 50% 301 104,000 -
Capital – Gig (300,000+12,000) x 50% 302 156,000 -
303 260,000 -
Capital - Gay
Capital transferred from former partners to
new partner
¤

Accounting for Partnership Page 111

Gay purchased 50% of the capital of partnership at 260,000 Baht
New capital of partnership should be 100% (260,000 x100/50) 520,000 Baht
Capital of former partners (200,000 + 300,000) 500,000 Baht
Difference recognized as goodwill 20,000 Baht

Admission of a New Partner by Investment of Cash or Assets

This method of admission will increase the total capital of partnership for the investment
of the new partner. It should be clearly agreed about the capital ratio and profit and loss sharing ratio
of the new partner. Before the admission, line items of partnership should be adjusted to the real value
such as assets value adjusted to the fair market value, to prevent any advantage between the former
partners and the new partner. There may be some conditions that the capital of the new partner will be
recorded at higher or lower than the investment value. Such difference may be recorded as assets
adjusting, goodwill or bonus which depends on the agreement.
Admission of a new partner by investment of cash or assets has the following cases:

1. Admission of a new partner without account adjusting
2. Admission of a new partner with assets adjusting
3. Admission of a new partner with goodwill recognition
4. Admission of a new partner with bonus recognition
5. Admission of a new partner with goodwill and bonus recognition

1. Admission of a new partner without account adjusting

In case assets of the partnership recorded accurate and complete. There will be no account

adjusting when the new partner invests of cash and assets, the entries of admission will be

Dr. Assets XX

Cr. Capital – new partner XX

Example 5. Aim and Oat were partners, profit and loss shared at 4 : 5, with capital of 120,000
Baht and 150,000 Baht respectively. On 1st June, 25x1 they admitted Ohn as a new partner.
Ohn invested 60,000 Baht of cash and 30,000 Baht of inventories, having the capital ratio 1/4 of
total capital of partnership.

Accounting for Partnership Page 112

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

May 15 Cash 101 60,000 -
Inventories 104 30,000 -
303
Capital - Ohn 90,000
Admitted Ohn as new partner with investment
of cash and inventories

Total capital of partnership after the admission will be 120,000 Baht
Capital – Aim 150,000 Baht
Capital – Oat 90,000 Baht
Capital – Ohn 360,000 Baht
Total

From Example 5 Assume there was no information of Ohn’s investment, but the capital

ratio of the new partner was 1/4 of total capital of partnership. The investment of the new partner can

be calculated as follow:

Let total capital of the entity =1

Ohn’s capital ratio = 1/4

Aim and Oat’s capital ratio = 1- 1/4 = 3/4

3/4 of capital is (120,000 + 150,000) = 270,000 Baht

1/4 of capital = 90,000 Baht

So, Ohn must invest 90,000 Baht of cash or other assets.

2. Admission of a new partner with assets adjusting

In this case, the partnership will adjust all asset accounts as up to date then records the admission
of new partner

Accounting for Partnership Page 113

Example 6 Bie and Rain were partners with capital of 250,000 Baht and 500,000 Baht

respectively, the profit and loss ratio 2 : 3. They admitted Tui as a new partner on June 1, 25x1. Tui

invested 200,000 Baht of cash, and had the capital ratio of 1/5. Bie and rain still had their profit and

loss shared as previous. Before the admission of Tui, both of them agreed to complete the adjusting

entries as follow:

1. Add value of land 70,000 Baht

2. Less account receivables from bad debt 6,000 Baht

3. Add office equipment – accumulated depreciation 14,000 Baht

Genera Journal Page

25x1 Transactions A/C Debit Credit
MD No.

Jun 1 Land 106 70,000 -
103
Account Receivables 105 6,000
Office Equipment – Accumulated 14,000

Depreciation
Adjusting transactions before new partner
admission

Cash 101 200,000 -

Capital – Tui 303 - 200,000 -

Admission of Tui as new partner, investment

of cash

Accounting for Partnership Page 114

Capital before admission of new partner Bie Rain Tui Total
Plus Profit from adjusting transactions 250,000 500,000 - 750,000
Capital after adjusting 20,000 30,000 - 50,000
Tui invested of cash 270,000 530,000 - 800,000
Partners’ capital after admission of Tui 200,000 200,000
- - 200,000 1,000,000
270,000 530,000

As mentioned above. At the admission of a new partner, there should be agreement on the

profit and loss sharing ratios. The former partners may use the same ratios or change to a new ones.

The above example set the profit and loss sharing ratio of Tui = 1/5 while Bie, Rain – the former

partners will use the same ratio of 2 : 3 for their sharing.

The calculation of the three partners’ profit and loss sharing ratios will be

Let Total profit and loss =1

Tui’s profit and loss sharing ratio = 1/5

Bie and Rain’ profit and loss sharing ratio = 1 - 1/5 = 4/5

Bie : Rain’s profit and loss sharing ratios 2:3

Bie’s profit and loss sharing ratio = 4/5x2/5 = 8/25

Rain’s profit and loss sharing ratio = 4/5x3/5 = 12/25

Tui’s profit and loss sharing ratio = 1/5x5/5 = 5/25

Profit and loss sharing ratios Bie : Rain :Tui = 8 : 12 : 5

Note The divider of Tui’s profit and loss sharing ratio should be 25 as of Bie’s and Rain’s

3. Admission of a new partner with goodwill recognition

There may be goodwill recognition allocated to the former partners or the new partner at

the admission in case the partnership is renowned, stable, successful in operation and generate higher

profit to the partnership than normal case.

Entries of goodwill recognized will be

Dr. Goodwill XX

Cr. Capital – partner with goodwill allocated XX

Accounting for Partnership Page 115

There are 2 cases of goodwill recognition

1. Goodwill allocated to former partners

2. Goodwill allocated to new partner

3.1. Admission of a new partner, goodwill allocated to former partners

Example 7. Captain and Saksith were partners, having capital of 200,000 Baht and

150,000 Baht respectively, the profit and loss sharing ratio was 3 : 2. On February 14, 25x1 they

admitted Ning as a new partner. Ning invested 100,000 Baht of cash and had capital ratio as 1/5 of

total capital of partnership 500,000 Baht, and profit and loss sharing ratio was the capital ratio. They

agreed to allocate goodwill to Captain and Saksith. Captain and Saksith still used the same profit and

loss sharing ratios.

Total capital of partnership = 500,000 Baht

Net assets of partnership = 200,000+150,000+100,000 = 450,000 Baht

Goodwill allocated to former partners = 500,000-450,000 = 50,000 Baht

Note Compare total capital of partnership to net assets of partnership or sum of partner’s capital in

calculating goodwill.

Genera Journal Page

25x1 Transactions A/C Debit Credit
MD No.

Feb 14 Goodwill 108 50,000 -

Capital - Captain 301 30,000 -

Capital - Saksith 302 20,000 -

Allocation of goodwill to former partners

Cash 101 100,000 -
Capital - Ning 303 - 100,000 -

Ning invested of cash

Or the entries will be compound as

Accounting for Partnership Page 116

Genera Journal Page

25x1 Transactions A/C Debit Credit
MD
No.
Feb 14 Cash 100,000 -
101 50,000 -
Goodwill 108 30,000 -
Capital – Captain (5,000 x 3/5) 301 - 20,000 -
302 100,000 -
Capital – Saksith (5,000 x 2/5) 303
Capital – Ning

Admission of Ning as new partner and
allocated goodwill to former partners

The capital of partnership after admission of Ning as a new partner will be

Captain Saksith Ning Total
350,000
Former Capital 200,000 150,000 - 50,000
400,000
Plus Goodwill 30,000 20,000 - 100,000
500,000
Total 230,000 170,000 -

Capital of the new partner (Ning) - - 100,000

Partners’ capital after admission of Ning 230,000 170,000 100,000

Example 8. Tui and Tam were partners with capital of 220,000 Baht and 280,000 Baht

respectively, their profit and loss to be shared at 2 : 3. On February 1, 25x1 they admitted Tim as

a new partner. Tim invested 260,000 Baht of cash for the capital ratio 1/3 of total capital of

partnership after the admission of new partner.

The calculation will be

Tim’s capital ratio = 1/3

Tim’s investment = 260,000

One part is = 260,000

Three parts will be = 260,000x3/1

= 780,000

Accounting for Partnership Page 117

Total capital of partnership after admission = 780,000
Net assets of partnership (220,000+280,000+260,000) = 760,000
Goodwill allocated to former partners = 20,000

And the entries will be

Genera Journal Page

25x1 Transactions A/C Debit Credit
MD No.

Feb 1 Goodwill 108 20,000 -
301
Capital – Tui (20,000 x 2/5) 302 8,000
Capital – Tam (20,000 x 3/5) 12,000

Goodwill allocated to old partners

Cash 101 260,000 -
Capital - Tim 303 260,000

Tim invested of cash

Note Calculation of goodwill allocated to former partners will use the capital of new partner as
base to calculate the total capital of partnership.

3.2. Admission of a new partner, goodwill allocated to the new partner

Example 9. Som and Mod were partners with capital of 600,000 Baht and 900,000 Baht

respectively. They admitted Oil as a new partner on March 1, 25x1. Oil invested 480,000 Baht of

cash, with the capital interest of 500,000 Baht. The two partners agreed to allocate goodwill to Oil,

the new partner.

Calculation of goodwill is

Total capital of partnership (600,000+900,000+500,000) = 2,000,000

Net assets of partnership (600,000+900,000+480,000) = 1,980,000

Goodwill allocated to Oil = 20,000

Accounting for Partnership Page 118

Journal entries is

Genera Journal Page

25x1 Transactions A/C Debit Credit
MD No.
20,000 -
Mar 1 Goodwill 108 20,000
303
Capital – Oil
Goodwill allocated to the new partner

Cash 101 480,000 -
Capital - Oil 303 480,000

Oil invested of cash

Or the entries will be compound

Genera Journal Page

25x1 Transactions A/C Debit Credit
MD No.

Mar 1 Cash 101 480,000 -
Goodwill 108 20,000 -
303
Capital - Oil 500,000 -
Admitted Oil as a new partner and allocated
goodwill to Oil

The capital of partnership after admission of Oil as a new partner will be

Capital – Som 600,000 Baht

Capital – Mod 900,000 Baht

Capital – Oil (480,000+20,000) 500,000 Baht

Total capital of partnership 2,000,000 Baht

Accounting for Partnership Page 119

Example 10. Tui and Tam were partners, with capital of 220,000 Baht and 280,000 Baht

respectively, the profit and loss sharing ratio was 2 : 3. On February 1, 25x1 Tui and Tam admitted

Tim as a new partner. Tim invested 240,000 Baht of cash for the capital ratio 1/3 of total capital of

partnership after the admission.

The calculation will be

Let Total capital of partnership = 1

Tim’s capital ratio = 1/3

Tui and Tam’s capital ratio = 1 - 1/3 = 2/3

Tui and Tam’s capital interest = 500,000

Two parts value = 500,000

Three parts value = 500,000 x3/2

= 750,000

Total capital of partnership = 750,000

Net assets of partnership (220,000+280,000+240,000) = 740,000

Goodwill allocated to the new partner 10,000

Tim’s capital ratio 1/3 value 1/3 x 750,000 = 250,000

Genera Journal Page

25x1 Transactions A/C Debit Credit
MD No.

Feb 1 Cash 101 240,000 -
108 10,000 -
Goodwill 303

Capital - Tim 250,000 -

Tim invested of cash and received goodwill

from former partners

Accounting for Partnership Page 120

Calculation of the capital of partnership after admission of new partner will be

Tui Tam Tim Total
500,000
Capital before the admission of new partner 220,000 280,000 - 240,000
10,000
Tim invested of cash - - 240,000
750,000
Pluss goodwill received from the former - - 10,000

partners

Capital of partnership after the admission 220,000 280,000 250,000

Note Calculate goodwill allocated to the new partner using the capital of former partners as base
of calculation for the total capital of partnership.

4. Admission of a new partner with bonus recognition

In case that the new partner receives the capital interest higher or lower than the value of
investment, the difference may be a bonus or extra money among partners. Either the former or the
new partner will reduce their capital and give that amount to the other party without compensation.

Bonus will be recognized in 2 cases
4.1. Bonus to the former partners
4.2. Bonus to the new partner

4.1. Bonus to the former partners

In case the new partner receives the capital interest less than the investment without
goodwill recognition, the difference is bonus to the former partners.

Example 11. Kane and Noi were partners with capital of 230,000 Baht and 270,000 Baht
respectively, the profit and loss sharing ratio was 3 : 2. They admitted Ann as new partner on
October 1, 25x1. Ann invested 280,000 Baht of cash for 1/3 of total capital. They agreed for a
new profit and loss sharing ratios of 4 : 3 : 3 respectively.

Accounting for Partnership Page 121

The calculation will be

Total capital of partnership = 230,000+270,000+280,000

= 780,000

Ann’s capital interest 1/3 = 1/3 x 780,000 = 260,000 Baht

Ann’s investment = 280,000

Thus Bonus allocation to former partners = 280,000-260,000 = 20,000

Kane’s bonus = 3/5 x 20,000 = 12,000 Baht

Noi’s bonus = 2/5 x 20,000 = 8,000 Baht

Journal entries will be

Genera Journal Page

25x1 Transactions A/C Debit Credit
MD No.

Oct 1 Cash 101 280,000 -
Capital - Kane 301 12,000 -
Capital – Noi 302 8,000 -
Capital – Ann 303 260,000 -

Admission of new partner, bonus to former
partners

Note Compare the investment to the capital interest of the new partner as the bonus allocated.

4.2. Bonus to the new partner

In case the new partner receives capital interest more than the investment and no goodwill
recognition. The difference is be bonus to the new partner.

Example 12. From example 11, if Ann invested 235,000 Baht of cash for the capital ratio of 1/3

The calculation will be

Total capital of partnership = 230,000+270,000+235,000

= 735,000

Ann’s capital interest = 1/3 x 735,000 = 245,000

Accounting for Partnership Page 122

Ann’s investment = 235,000

Bonus to Ann = 245,000-235,000 = 10,000
Bonus from Kane = 3/5 x 10,000 = 6,000 Baht
Bonus from Noi = 2/5 x 10,000 = 4,000 Baht
Journal entries will be

Genera Journal Page

25x1 Transactions A/C Debit Credit
MD No.

Oct 1 Cash 101 235,000 -
Capital - Kane 301 6,000 -
Capital – Noi 302 4,000 -

Capital – Ann 303 245,000 -
Admission of new partner, bonus to the new

partner

5. Admission of a new partner with goodwill and bonus recognition

In case there are many conditions in admission of a new partner, there may be both the goodwill
and bonus recognized. The entries will be in 2 cases:
5.1. Goodwill and bonus to the former partners
5.2. Goodwill and bonus to the new partner

5.1. Goodwill and Bonus to the former partners

The new partner accepts for credit to capital account less than the investment and the

agreement is to allocate both goodwill and bonus to the old partners.

Example 13. From example 11, if Ann invested 280,000 Baht of cash for the capital ratio 1/3 of

total new capital of partnership, 810,000 Baht

Goodwill calculation :

Total capital of partnership as set = 810,000 Baht

Net assets of partnership (230,000+270,000+280,000) = 780,000 Baht

Goodwill to the former partners = 30,000 Baht

Bonus calculation :

Accounting for Partnership Page 123

Ann’s investment = 280,000 Baht
Ann’s capital interest (1/3 x 810,000) = 270,000 Baht
Bonus to the former partners = 10,000 Baht
Journal entries will be
Page
Genera Journal

25x1 Transactions A/C Debit Credit
MD No.

Oct 1 Cash 101 280,000 -
Goodwill 108 30,000 -
Capital – Kane (40,000 x 3/5) 301 24,000 -
Capital – Noi (40,000 x 2/5)
Capital – Ann 302 16,000 -
Admission of new partner, bonus to the new 303 270,000 -
partner

Calculation of the capital of partnership after admission of new partner:

Kane Noi Ann Total
- 500,000
Capital before the admission of new 230,000 270,000
- 40,000
partner
270,000 270,000
Plus goodwill and bonus to former 24,000 16,000 270,000 810,000

partners

Capital interest of Ann --

Capital of partnership after the admission 254,000 286,000

5.2. Goodwill and bonus to the new partner

The new partner has credit to capital account more than the investment, the agreement is to
recognize both goodwill and bonus to the new partner.
Example 14. From example 11, if Ann invested 210,000 Baht of cash for the capital ratio 1/3 of
total new capital of partnership, 720,000 Baht

Accounting for Partnership Page 124

Goodwill calculation : = 720,000
Total capital of partnership as set = 710,000
Net assets of partnership (230,000+270,000+210,000) = 10,000
Goodwill to the new partner

Bonus calculation :

Ann’s capital interest 1/3 of total capital (1/3 x 720,000) = 240,000

Ann’s investment 210,000 = 220,000
= 20,000
Plus Goodwill 10,000

Bonus to Ann

Journal entries will be

Genera Journal Page

25x1 Transactions A/C Debit Credit
MD No.

Oct 1 Cash 101 210,000 -
Goodwill 108 10,000 -
Capital – Kane (20,000 x 3/5) 301 12,000 -
Capital – Noi (20,000 x 2/5) 302 8,000 -
Capital – Ann 303
Ann invested of cash, with goodwill and 240,000 -
bonus from the former partners

Accounting for Partnership Page 125

Summary

Admission of a new partner came from expansion requirement of the partnership, or the
former partners want to sell part of their capital. All partners must give consent to such admission. For
an admission, the new partner may purchase the capital from former partners, or invest of cash and
other assets. If the value of investment and capital interest are not equal, the difference may be
recorded as goodwill or bonus, calculate total capital against net assets of partnership, or investment
against capital interest.

e-Learning Sources
www.dbd.go.th
www.fap.or.th
www.google.com

Learning Activities
1. Search and study about goodwill and bonus of partnership
2. Discuss about entries of goodwill and bonus

Accounting for Partnership Page 126

Chapter 6

Resignation of a Partner

Outline

1. Resignation of a partner
2. Capital purchase of the resigned partner by the existing partner
3. The partnership makes capital repayment of cash or other assets to the resigned partner

Learning Objectives

1. Able to explain the resignation of a partner
2. Entries of capital purchase of the resigned partner by the existing partner
3. Entries of The partnership’s capital repayment of cash or other assets to the resigned partner
4. Having work habit of organized, careful, honesty, discipline, punctuality, and good attitude

towards the accounting profession

Accounting for Partnership Page 126

Chapter 6

Resignation of a Partner

Introduction

When a partner resigns from the partnership, that partnership is considered liquidated by
law, unless otherwise stated in the partnership agreement. In the latter case, the partnership is not
liquidated and can continue the operation under a new agreement. The existing partners purchase the
capital of the resigned partner, or the partnership makes capital repayment to the resigned partner.

Resignation of a Partner

According to the Commercial Code, Article 1056 – resignation of a partner shall be at the
period end not during the accounting period. A resignation requires at least six months notification.
Resignation of an unlimited liability partner shall cause the liquidation of the partnership, unless
otherwise stated in the partnership agreement. For the latter case, the partnership shall continue
operation under a new agreement. All transactions shall be like the admission of a new partner.
When a partner terminates the agreement, resigns, going bankrupt or being disabled. The existing
partners may not liquidate the partnership and continue the operation if they purchase the capital of the
resigned partner or agree to make capital repayment of cash or other assets to the resigned partner. The
agreement can be done as the followings

1. The existing partners purchase the capital of the resigned partner
2. The partnership makes capital repayment of cash or other assets to the resigned partner

The existing partners purchase the capital of the resigned partner

The capital purchase may be equal to, higher or lower than the transferred capital. The transactions
will be like the admission of a new partner by capital purchase from the former partners. The payment
is considered personal among partners not related to the partnership.

Accounting for Partnership Page 127

Example 1. Gor, Gam and Gan were partners with capital of 200,000 baht, 400,000 baht

and 600,000 baht respectively. The profit and loss shared by the capital ratio. On April 1, 25x1 Gam

resigned from the partnership, Gor purchased Gam’s capital at 400,000 baht.

The entries will be

General Journal Page…..…..

Year Transactions A/C Debit Credit
MD No.

Apr 1 Capital – Gam 302 400,000

Capital – Gor 301 400,000

¤Gam resigned from the partnership and

Gor purchased all of Gam’s capital

Example 2. Jaew, Jaem, and Jha were partners with capital of 200,000 baht, 250,000 baht and 300,000

baht respectively. The profit and loss shared equally. On November 1, 2014 Jaew resigned from the

partnership, Jaem and Jha each purchased half of Jaew’s capital, the total payment was 210,000.

The entries will be

General Journal Page…..…..

Year Transactions A/C Debit Credit
MD No.

Apr 1 Capital – Jaew 302 200,000 -
Capital – Jaem 301 100,000 -

¤ Capital – Jha 100,000 -
Jaew resigned from the partnership and
Jaem, Jha each purchased half of Jaew’s
capital

Accounting for Partnership Page 128

The partnership makes capital repayment of cash or other assets to the resigned

partner

This method of payment cause the reduction of assets and capital of the entity equal to the
capital of the resigned partner. To be fair to all partners, there should be adjusting transactions to all
assets and liabilities of the partnership to the real value before the capital repayment to the resigned
partner in the following cases:

1. Repayment at the residual capital value of the resigned partner
2. Repayment more or less than the residual capital value of the resigned partner

1. Repayment at the residual capital value of the resigned partner

In this case, the partnership will make the capital repayment equal to the residual capital value of
the resigned partner.

Example 3. Sakda, Sakchai and Saksith were partners with capital of 70,000 baht, 80,000 baht and

100,000 baht respectively. The profit and loss shared at 1 : 1 : 2. On April 1, 2014 Saksith resigned
from the partnership, the partnership made the capital repayment of cash equal to the residual capital
value, 100,000 baht.

The entries will be

General Journal Page…..…..

Year Transactions A/C Debit Credit
MD No.

Apr 1 Capital – Saksith 303 100,000 -
Cash 101
100,000 -
Capital repayment of cash to the resigned
partner

Accounting for Partnership Page 129

Example 4. Golf, Nhum and May were partners. The profit and loss shared at 2 : 1 : 2.

They had capital of 40,000 baht each. On January 1, 2014 Golf resigned from the partnership, the

partnership made the capital repayment of cash 50,000 baht. Before the resignation of Golf, the

partners agreed for the following adjusting entries:

1. Add value of land for 100,000 baht

2. Allowance for doubtful account 20,000 baht

3. Lessen inventories. At the latest ending date the entity checked and revalued the inventories

at cost. On that date the estimation of net value was 55,000 baht under cost price. The

entity had the policy of using the lower of cost price or estimation of net value.

The entries will be

General Journal Page…..…..

Year Transactions A/C Debit Credit
MD No. 100,000 -
20,000 -
Jan 1 Land 107 55,000 -
Allowance for doubtful account 104 10,000 -
Inventories 105 5,000 -
Capital – Golf 301 10,000 -
Capital – Nhum 302
Capital - May 303

Adjusting entries of assets before the
resignation of the partner

Capital – Golf 301 50,000 -
Cash 101
50,000 -
The partnership made capital repayment to
the resigned partner

Accounting for Partnership Page 130

2. Repayment more or less than the residual capital value of the resigned partner

The partnership may make capital repayment to the resigned partner more or less than the
residual capital value after the assets adjusting entries. The difference may be recognized as goodwill
or bonus, as in the following examples.

In case the repayment is more than the residual value of capital. The surplus recognized
as the goodwill of the partnership, allocated to all partners.

Example 5. Saeng Duan, Saeng Dao and Saeng Tean were partners with capital of
28,000 baht, 30,000 baht and 32,000 baht respectively. The profit and loss shared at 1 : 1 : 2. On
January 5, 2014 Saeng Dao resigned from the partnership, the partnership made the capital repayment
of cash 33,000 baht. The surplus was recognized as goodwill to Saeng Dao.

The calculation of goodwill of the partnership will be

Goodwill to Saeng Dao = 33,000-30,000

Ohn’s capital ratio = 3,000

One part of profit and loss : goodwill = 3,000 baht

recognition

Four parts of profit and loss : goodwill = 3,000x4

recognition

= 12,000 baht

Goodwill of the partnership allocated by the profit and loss sharing ratio 1 : 1 : 2

Goodwill to Saeng Duan = 1/4 x 12,000 = 3,000 baht

Goodwill to Saeng Dao = 1/4 x 12,000 = 3,000 baht

Goodwill to Saeng Tean = 2/4 x 12,000 = 6,000 baht

The entries will be

Accounting for Partnership Page 131

General Journal Page…..…..
Credit
Year Transactions A/C Debit
MD No. 12,000 - 3,000
3,000
Jan 5 Goodwill 108 6,000
Capital – Saeng Duan 301
302
Capital – Saeng Dao 303
Capital – Saeng Tean
Entries of goodwill of the partnership

Capital – Saeng Dao 302 33,000 -
Cash 101
33,000
The partnership made capital repayment of
cash to the resigned partner

In case the capital repayment is more than the residual value of capital. The surplus
recognized as the bonus of the partnership to the resigned partner.

Example 6. From example 5, assume the partner made the capital repayment of 33,000 baht to

Saeng Dao. The surplus recognized as bonus to Saeng Dao.

The calculation of bonus will be

Surplus recognized as bonus to the resigned partner = 33,000-30,000

= 3,000

Bonus from Saeng Duan = 1/3 x 3,000

= 1,000 baht

Bonus from Saeng Tean = 2/3 x 3,000

= 2,000 baht

Accounting for Partnership Page 132

General Journal Page…..…..
Credit
Year Transactions A/C Debit
MD No. 3,000
1,000 -
Jan 5 Capital – Saeng Duan 301 2,000 -
Capital – Saeng Tean 303
302
Capital – Saeng Dao
Bonus from existing partners to Saeng Dao

Capital – Saeng Dao 302 33,000 -
Cash 101
33,000
The partnership made capital repayment of
cash to the resigned partner

In case the capital repayment is less than the residual value of capital. The deficit
recognized as the negative goodwill of the resigned partner, or bonus to the existing partners.

Example 7. Taew, Ann and Oey were partners. They shared the profit and loss equally,
and had capital of 60,000 baht, 60,000 baht and 70,000 baht respectively. On March 31, 2014 Taew
resigned from the partnership, the partnership made the capital repayment of cash 55,000 baht. The
deficit recognized as:

1. Negative goodwill. The existing partners agreed to allocate this only to the resigned
partner.

2. Bonus from the resigned partner to the existing partners.
Calculation of goodwill and bonus will be

1. Negative goodwill to the resigned partner
Deficit recognized as negative goodwill = 60,000-55,000
= 5,000 baht

Accounting for Partnership Page 133

General Journal Page…..…..
Credit
Year Transactions A/C Debit
MD No. 5,000 - 5,000 -

Mar 31 Capital – Taew 301
Goodwill 302

Negative goodwill to the resigned partner

Capital – Taew 301 55,000 -
Cash 101
55,000 -
The partnership made capital repayment to
the resigned partner

2. Bonus to the existing partners = 60,000-55,000
Deficit recognized as bonus = 5,000 baht
= 1/2 x 5,000 = 2,500 baht
Bonus from Taew to Ann = 1/2 x 5,000 = 2,500 baht
Bonus from Taew to Oey

General Journal Page…..…..
Credit
Year Transactions A/C Debit
MD No. 5,000 - 2,500 -
2,500 -
Mar 31 Capital – Taew 301
Capital – Ann 302
Capital – Oey 303

Bonus from the resigned partner to the
existing partners

Accounting for Partnership Page 134

Year General Journal A/C Debit Page…..…..
MD No. 55,000 - Credit
Transactions
301 55,000 -
Capital – Taew 101
Cash

The partnership made capital repayment to
the resigned partner

Summary
When a partner resigns, it requires at least six month notification. The resignation of an unlimited
liability partner will cause the liquidation of the partnership, unless otherwise stated in the partnership
agreement. When a partner terminates the agreement, resigns, going bankrupt or being disabled, the
existing partners may not liquidate the partnership by either the existing partner purchase the capital of
resigned partner, or the partnership makes capital repayment of cash or other assets to the resigned
partner.

e-Learning Sources
www.dbd.go.th
www.fap.or.th
www.google.com

Learning Activities
1. Search and study from the Commercial Code – case of the resignation of a partner
2. Discuss on the searched information

Accounting for Partnership Page 135

Chapter 7

Capital Repayment to a Dead Partner

Outline

1. Capital repayment to a dead partner
2. Calculation of profit and loss sharing to a dead partner
3. Entries of capital repayment

Learning Objectives

1. Able to explain the capital repayment to a dead partner
2. Able to calculate the profit and loss sharing to a dead partner
3. Able to make entries of capital repayment
4. Having work habit of organized, careful, honesty, discipline, punctuality, and good attitude

towards the accounting profession

Accounting for Partnership Page 136

Chapter 7
Capital Repayment to a Dead Partner

Introduction

When a partner dies, the partnership is considered dissolved by law, unless otherwise
stated in the partnership agreement. In the latter case, the partnership is not dissolved and can
continue the operation. The partnership will calculate the interest of the dead partner and make the
capital repayment to the rightful heir of the dead partner.

Capital Repayment to a Dead Partner

When an unlimited liability partner dies the partnership agreement is terminated by
law. Unless otherwise stated in the partnership agreement, the partnership shall continue the
operation. The partnership has to calculate the interest of the dead partner accurately and make the
capital repayment to the rightful heir of the dead partner. The partnership shall close the books to
calculate the profit and loss of operation for the period that the dead partner was still a partner.
Otherwise, the estimation of the profit till the date of death shall be used to make the profit sharing
to the capital account and the capital repayment to the heir accordingly. To be fair to all partners,
there shall be adjusting entries of assets and liabilities to the real values as of the date of death
before the repayment. The partnership agreement shall allow the calculation promptly without
waiting until the period ending date.

The procedure of capital repayment to a dead partner can be summarized as
follow:

1. Adjust assets and liabilities of the partnership as of the date of death of the partner.
All assets must be adjusted to the fair market values, all liabilities must all be recorded completely.
The differences shall be allocated to the capital accounts of all partners at the profit and loss sharing
ratios.

Accounting for Partnership Page 137

2. Calculate the profit and loss sharing to the dead partner. The current period shall
use the duration while the dead partner still had interest in the partnership.

3. Make capital repayment to the heir or the estate of the dead partner. The entity
shall make the repayment for the residual capital amount after the adjusting of assets and liabilities,
and also the profit and loss sharing to the dead partner.

In case the entity cannot make the capital repayment to the heir or the estate of the dead
partner promptly. The capital account of the dead partner shall be transferred to liability as Payable
– Heir of the dead partner or Payable – Estate. In order not to mislead outsiders, since that partner
deceased.

The amount the heir of the dead partner will receive to be calculated as follow:
1. Balance of the capital account or any other relevant account of the dead partner
2. Average profit and loss sharing from the beginning date to the date of death, using the
average profit and loss of the last 3-5 years
3. Profit and loss from the value adjusting of assets
4. Goodwill provision. In case any goodwill already recognized, such goodwill recognition
may be lower at death. Then there may be a negative goodwill allocated.

Calculation of Profit and Loss Allocated to the Dead Partner

Calculation of profit and loss allocated to the dead partner can be done in many methods as
agreed as follow:

1. Calculate the profit and loss by estimation as of the date of death, using average profit
and loss of the previous years. The steps are

1.1. Calculate total profit and loss of the previous years, may be 3 or 5 years as agreed
1.2. Find the average net profit per year
1.3. Calculate the estimated net profit of the period from the beginning date to the date

of death of the partner
1.4. Calculate the estimated profit and loss allocated to the dead partner using the profit

and loss sharing ratio
1.5. Calculate the amount the heir or the payable – estate will receive
2. Calculate the profit and loss allocated to the dead partner using the net profit and loss of
the year at the period ending date.

Accounting for Partnership Page 138

Entries of capital repayment

The entries of capital repayment to the heir of the dead partner shall be according to

following steps

1. Entries - estimated profit sharing

Dr. Estimated Profit Sharing XX

Cr. Capital – Dead Partner XX

2. Entries – capital repayment to the heir of the dead partner

Dr. Capital – Dead Partner XX

Cr. Cash/Bank Account XX

In case the repayment is still pending

3. Close the capital account – dead partner transfer to the payable – heir of the dead partner

or payable – estate.

Dr. Capital – Dead Partner XX

Cr Payable – Heir of the Dead Partner XX,

OR Cr Payable – Estate XX

4. Entries – capital repayment, from 3 when the entity makes the repayment to either

payable - the heir or payable - the estate

Dr. Payable – Heir of the Dead Partner XX

OR Dr. Payable – Estate XX

Cr. Cash/Bank Account XX

5. Entries – close the estimated profit sharing to the profit and loss, at the ending date

Dr. Profit and Loss XX

Cr. Estimated Profit Sharing XX

Example 1. P, K and G were partners with capital of 60,000 baht, 70,000 baht and

80,000 baht respectively. The profit and loss shared at 1 : 1 : 2. On May 1, 25x3 K died. The

profit and loss of the last 3 years were:

25x1 Net Profit = 274,000 baht

25x1 Net Profit = 350,000 baht

25x3 Net Profit = 240,000 Baht

After calculation of profit and loss allocated to the dead partner, the partnership made

capital repayment to the heir of the dead partner

Accounting for Partnership Page 139

The calculation will be:

1. Sum of the last 3 years net profit

Net Profit of 25x1 = 274,000 baht

Net Profit of 25x2 = 350,000 baht

Net Profit of 25x3 = 240,000 baht

Total 864,000 baht

2. Profit and loss allocated to K, estimated from the last 3 years net profit

Average net profit per year = 864,000/3

= 288,000 baht

3. Estimate the net profit of Jan 1 – May 1, 25x3 = 4 months

Average net profit of 4 months = 288,000x4/12

= 96,000 baht

4. Calculate the estimated profit sharing of the dead partner

Estimated profit sharing to K = 96,000x1/4

= 24,000 baht

5. Calculate the amount the heir or payable – inheritance will receive

The amount that the heir or estate of K will receive

Capital – K 70,000 baht

Profit Sharing 24,000 baht

Total 94,000 baht

General Journal Page…..…..
Credit
Year Transactions A/C Debit
MD No. 24,000 - 24,000 -
307
May 1 Estimated profit sharing 302
Capital – K

Profit sharing to the dead partner

Capital - K 302 94,000 -

Cash/Bank Account 101 94,000 -

Capital repayment to the heir or estate

Accounting for Partnership Page 140

OR, In case the entity does not make the repayment yet, that amount will be transferred to
the payable-heir, or payable – estate of the dead partner.

The entries will be

General Journal Page…..…..
Credit
Year Transactions A/C Debit
MD No. 94,000 - 94,000 -
302
May 1 Capital – K 203
Payable – K’s Heir /

Payable – K’s Estate
Close the capital account of K, transfer
to liquidities

Dec 31 Profit and Loss 304 24,000 -
Estimated Profit Sharing 307
24,000 -
Close the estimated profit sharing account

Example 2. From example 1, assume the partners agreed to the following adjusting

entries of assets and liabilities before the capital repayment to the heir or the estate: add price of

inventories 18,000 baht, deferred expenses 5,000 baht, the partnership bought life insurance for all

partners with total insured amount of 150,000 baht

Calculation

Profit - difference from adjusting of assets and liabilities = 18,000-5,000

= 13,000 Baht

Allocate to all partners by the profit and loss ratios 1 : 1 : 2

Profit allocated to P = 13,000x1/4 = 3,250 baht

Profit allocated to K = 13,000x1/4 = 3,250 baht

Profit allocated to G = 13,000x2/4 = 6,500 Baht

Accounting for Partnership Page 141


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