 In this discussion we will discuss the discussion question of describe process for a new partner to be admitted to a partnership. So this is a bit of a loaded question here because there's a few different ways that a new partner can be admitted to a partnership and the transactions that will be involved will be a bit different depending on those processes. So one way is that we can have a partnership say we've got A and B as the partners A and B and they own 50-50. We could have one partner say B sell a portion of their partnership say 20% to C and if that happened then what's happening is and usually you'd have to get approval from A, B would have to get approval from A to sell a portion of the partnership to C but once done so it's really a transaction between not the partnership and the new partner but between B and C. So they're selling part of the partnership between B and C. The thing that's going to be confusing about this is often the fact that when we see problems related to this we see that C pays B and we tend to think that we have to record that cash somehow. But we don't for the partnership because the cash didn't go to the partnership C paid B it didn't go to the partnership. So in terms of the partnership side of things what do we need to do well it depends on the agreement here B may have just said hey you're going to purchase a future share of revenue generation meaning you're going to get 20% of the revenue and B keeps 30% which means we don't really have to do anything when on the partnership side when it first starts we just need to once allocating net income at the end of the period start allocating based on a 50-30-20 split rather than a 50-50 split and that's all we need to do now it is possible as well for B to sell some portion of their current capital account and whatever they end up selling whatever portion they sell as part of the agreement we would then just transfer from B to C we would debit B's capital account and credit C's capital account but there shouldn't be any any other confusion from that because the cash isn't going to the partnership so it's not like we have this difference between how much cash was received and the capital account balances. The second way it could happen we would have some of those different so if we had A and B the partnership then bringing on a new partner C then now the transaction is between the whole partnership and C so then that means that the money is going to go from the new partner to the partnership and we will have to record it it's going into the partnerships account now so we'll have to debit the cash into the partnership and then we're going to have to credit C for whatever C goes on the books for now this one this one gets a bit more confusing this method because we could have we could have cash going up and C being attributed an equal amount of capital in the business and if that case is the scenario then we would just debit cash and we would credit C's capital for the amount of cash contributed and that would be all good however it doesn't always happen that way it could be that C gives more cash to the business then then the capital account that we distribute to C meaning if we take a look at the value of the business assets minus liabilities or the equity in the business then and plus the plus the revenue that we're cash that we're getting assets minus liabilities and including the cash we get work then C if C gives more money then that amount the net assets in business then we're going to have to do some allocation of that excess to the other partners A and B and the question might ask well why would that happen why would C give more money then he's technically receiving or he was technically receiving in the net assets of the business and the reason is there could be stuff on the business that's not being reflected meaning there could be something like goodwill within the business so A and B might have been in this business for a long time they might have a reputation in the business that's not reflected on the balance sheet and therefore there's some value in the balance sheet that's not reflected and there's some value not reflected on the balance sheet that is apparent in the business and sees willing to pay for that by paying more than the net assets in the business so if that was the case then we'd have to we'd have to debit cash for whatever was given we'd have to credit C's capital account for the amount that C's going on the books for and then A and B would get kind of a bonus their capital accounts would be increasing because in essence they're selling you know they sold kind of part of their partnership for more than it's on the books for it's kind of the book value of the partnership they got more money than the book value of the partnership and there's a gain on the sale we don't record the gain in net income and then roll it into the capital accounts because it's not really the partnership that it's we're not talking partnership performance the partnership didn't earn the revenue we sold the actual partnership so it's it's not it shouldn't go into net income it's a gain kind of to it's kind of like a bonus or a gain to B A and B their capital accounts going up representing that they they're owed more money from the partnership they have more value within the partnership now it could also be last scenario that C goes into the partnership and he gives less money than the the book value of the partnership including the cash that's being contributed and so if that's the case and again you might ask well why would why would A and B accept that why would they accept a new partner going into the partnership and the put the new partner pays less money than uh is is the net value of the partnership their portion of the net value of the partnership why would why would A and B do that well it could be that C now is going maybe C's some kind of all-star some kind of superstar big name person and if they go into the partnership maybe they're going to they have going to bring some intangible into the into the business and therefore pull up the business reputation a lot so that could be one way it could also be that A and B really need some capital investment in the partnership at this point in time because they want to start a new project or something like that or expand in some way and they're looking and they're willing to get get the capital that they can from C even though it's less than possibly the net value of the business so if that happened then we'd have to debit the cash we would credit C's capital account which which would be you know higher than than the cash because we're we're going to give a higher percentage to C than the cash and then we'd have to reduce the other two A and B's capital accounts because in essence they kind of sold their their business at a loss we don't record it as a loss on the income statement again same reason because the partnership didn't really have a loss the partners kind of had a loss so we're going to lower the capital accounts representing the fact that the partnership basically owes them less money due to this transaction due to the sale of the partnership 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