A bonus is an additional amount paid to a partner when they join or leave a partnership, reflecting an adjustment to their capital account. This can occur due to the perceived value they bring or take from the partnership.
5 Must Know Facts For Your Next Test
Bonuses can be given to both incoming and outgoing partners.
The bonus method affects only the capital accounts of the partners, not the assets of the partnership.
When an incoming partner receives a bonus, it typically means they are paying more than their proportional share of net assets.
When an outgoing partner receives a bonus, it usually reflects that they are being paid more than their capital account balance.
The allocation of bonuses among remaining partners depends on their profit-sharing ratios.
Review Questions
What is the impact of a bonus on a partner's capital account?
How does the bonus method differ from other methods in adjusting for admission and withdrawal of partners?
In what scenarios might a partner receive a bonus upon joining or leaving?