CENTRAL ACCOUNTING:
Central Acounting is a special branch of accounting that applies the Central Point Law for computing two unknown accounting values from one or more known values.These two unknown values are responsible for predicting several accounting values.
PARTNERSHIP:
The most popular form of Business is partnership which
allows several individuals to combine their talent and practical skills in one
business ventures. Partnership is not only combining talents and skills but
also a means of obtaining more equity capital than a single individual can
obtain and allow the sharing of risk for rapidly growing businesses.
From accounting viewpoint, the partnership is a separate
business entity. Secondly accrual accounting is the most useful account for
partnership operations that use the cash basis or modified cash basis of
accounting. New partners get his share from the first and foremost step in determine
how to account for the admission of a new partner’s proportion of the
partnership’s book value and percentage of capital to new partner is as
follows.
New Partner’s Proportionate book value=2(percentage of capital X Prior capital of present partners)
Investment in new Partner Value= New Partner’s Proportionate book value/2 X percentage of capital)
Where NPV is new partners proportion of the partnerships book value, PCP is prior capital of present partners and NP is Investment of new partner and PP percentage of capital to new partner.
EXAMPLE
In partnership, if the new partner’s proportionate book
value and the new investment in partnership value are unknown, I can compute
them if the prior capital of present partner is $3000 and percentage of capital to new partner is 0.25.
I investment in new partnership
3000/2x0.25 =
|
$6000
|
New partners proportionate book value
2x0.25x3000 =
|
($1500)
|
Difference(investment<book value)
|
$4500
|
Since the amount of the investment ($6000) that is less than
the new partner’s proportionate book value ($6000<$1500=2x0.25x3000), truly
shows that the net assets are fairly accurate. The prior partners’ capital
($3000) plus the tangible investment ($6000) is the total resulting capital ($9000=3000+6000).
The capital credit assigned to the new partner is her share of the total
resulting capital of the partnership after admission as partner. The new
partner’s share of total resulting capital is $2250(=9000x0.25). To represent
the concept in the example above, we have the following table:
Prior capital
|
New partner tangible investment
|
New partner proportionate
Book value
(25%)
|
Total resulting
capital
|
New partner share of total resulting capital (25%)
|
|
New partner investment equal to proportionate
value
|
$3000
|
$6000
|
$1500
|
||
Number revaluation bonus or goodwill
|
$9000
|
$2250
|
