Max, Jones and Waters shared profits and losses 20%, 40%, and 40% respectively and their partnership capital balance is $10,000, $30,000 and $50,000 respectively. Max has decided to withdraw from the partnership. An appraisal of the business and its property estimates the fair value to be $200,000. Land with a book value of $30,000 has a fair value of $45,000. Max has agreed to receive $20,000 in exchange for her partnership interest after revaluation. At what amount should land be recorded on the partnership books?

Question

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The land has a fair value of $45,000, which is higher than its book value of $30,000. Therefore, it needs to be revalued and recorded on the partnership books at its fair value of $45,000. This will result in an increase in the partnership's total assets and equity. The $20,000 paid to Max for her partnership interest is unrelated to the revaluation of the land and does not affect the accounting treatment of the land.

Max, Jones and Waters Shared Profits and Losses 20%, 40