New partners investment: a new partner acquires a share in partnership by investing in the business in the form of cash or other assets. There are three possible cases when a new partner invests in partnership. The new partner investment equals the new partner’s proportional share in partnership’s book value. The new partner’s investment is more than the new partner’s proportion of partnership’s book value. This indicates that the partnership assets were undervalued or an unrecorded goodwill exists. The new partner’s investment is less than his proportional share in partnership book value. This suggests that the partnership assets were overvalued on its books or the new partner may be contributing goodwill in addition to other assets. To choose: the correct answer to determine ratio to be used to allocate to C and D the excess of E contribution over the amount credited to E’s capital account.

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Chapter 15, Problem 15.16.7P

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New partners investment: a new partner acquires a share in partnership by investing in the business in the form of cash or other assets. There are three possible cases when a new partner invests in partnership.

The new partner investment equals the new partner’s proportional share in partnership’s book value.

The new partner’s investment is more than the new partner’s proportion of partnership’s book value. This indicates that the partnership assets were undervalued or an unrecorded goodwill exists.

The new partner’s investment is less than his proportional share in partnership book value. This suggests that the partnership assets were overvalued on its books or the new partner may be contributing goodwill in addition to other assets.

To choose:the correct answer to determine ratio to be used to allocate to C and D the excess of E contribution over the amount credited to E’s capital account.

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