When a new partner invests less than the proportionate share he or she receives in the partnership,a bonus is recorded to his or her account.

Question

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This is known as a bonus allocation and is a common practice in partnerships. It recognizes the fact that the new partner is contributing value to the partnership in ways that are not reflected in the amount of capital they are investing. The bonus is typically calculated as a percentage of the investment amount and is credited to the new partner's capital account.

When a New Partner Invests Less Than the Proportionate Share