In 2014 tom and missy from TM Partnership, Ltd. (an LLLP), to own and operate ce

Question

In 2014 tom and missy from TM Partnership, Ltd. (an LLLP), to own and operate certain real

estate. Tom contributed land, and missy contributed cash to be used for setting up the entity and

creating a plan for developing the property. Once a development plan was in place, the

partnership sold interests in the partnership to investors to raise funds for constructing a

shopping center. The partnership incurred expenses of $30,000 for forming the entity and

$60,000 for starting the business (e.g. setting up the accounting system, locate tenants and

negotiating leases). It also paid $5,000 in transfer taxes for changing the ownership of the

property to the partnership name. There brokerage firm that sold the interests to the limited

partners charged a 6% commission which totaled $600,000. The calendar partnership started

business in November 2014. Describe how all of these initial expenses are treated by the

partnership

Explanation / Answer

Preliminary Expenses Dr 30,000

To Bank Cr 30,000

(Being Business formation charges incurred and expensed)

Note : Preliminary formation expenses are to be treated as expenses as there is no long enduring benefit coming from such expenditure to give treatment of deferred expenditure

Business Expenses Dr 60,000

To Bank Cr60,000

(Being expenses relating to locating tenents, lease negotiations and accounting system set up expensed)

Note: Out of the above accounting system set up can be capitlised if the amount is available as the economic benefit from this expenditure will be enjoyed in the future years also.

Land Dr5000

To Bank Cr5000   

(Being taxes paid on transfer of land to partneship firm capitalised)

Share Issue Expenses Dr600,000

To Bank Cr600,000

{Being Share issue expenses incurred accounted for)

Note: Share issue expenses are not treated as expense and reduced from share capital

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.