Treatment of Partner Current A/C on sale

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An LLP has 5 partners, and 4 of the partners have agreed to buy out the 5th partner.

The 5th partner is unwell and is looking for a quick exit, and therefore the monies offered to him are less than what he is owed by the partnership.

The sum being offered to buy out the partner is £225k, in exchange for his share and all funds owed to him.

The partner being brought out has a capital account of £50,000 and a current account of £273,000. This means that he is owed £323,000 by the partnership.

What will the accounting treatment be for the £97k of capital and current account being written off in the transaction?  Does this get posted to the balance sheet as negative good will and written off of an agreed period of time or instantly allocated among the remaining partners based on the share per the partnership agreement?

 

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By johngroganjga
21st May 2020 16:40

The accounting treatment will follow what the partners have agreed. What was the logic behind the continuing partners claiming, and the outgoing partner accepting, a discount on the book value of his capital and current accounts?

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