Uniform Partnership Case Study

There is something to be said about with whom a person goes into business. In the 1980’s, my brother and two friends formed a partnership doing surveying in Colorado. Shortly after getting established, the two friends ousted my brother and took all of the money. There was an IRS audit in which a gain was determined, and my brother was included in the assessment. He quietly paid it, then one day, he received all of his money back; his “friends” paid the assessment not knowing it was paid. We never figured out why my brother got the refund instead of them, but we were not going to look a gift horse in the mouth. This scenario raises a few questions about how the partnership was formed and what the partnership agreement may have included or excluded. There are several types of partnerships which are viable options for two or more individuals who would like to go in business for themselves. Ideally, a partnership starts when an opportunity is discovered by an entrepreneur and associates who decide to go into business. They will hammer out all of the details, including company name, and record them in a document called a partnership agreement. The partnership agreement is so important that Congress passed the Uniform Partnership Act of 1997 …show more content…
There are several methods to handle these changes; many of them are non-GAAP. To keep things simple, the new partners may want to use the bonus method to book the admission of a new partner. The bonus method is a GAAP compliant method in which the total capital is increased by the fair value of the new partner’s investment. When a potential partner is negotiating with the partners, his investment cost will fall into one of three scenarios. It will equal the book value, be less than book value, or be greater than book value. Figure 2 reflects a before and after look at the partnership interest when the investment cost equals the book