ABSTRACT
Any change in the membership of a partnership amounts to a formal cessation of the partnership and the creation of a new one. Partnership agreements often provide that the remaining partners may continue the partnership business if one of their number departs. Equally, it is not uncommon for a new partner to be admitted to a partnership. A change in the composition of a partnership may result in a change in the proportions in which the partners own partnership capital and share capital profits and will result in a change in their revenue profits sharing ratio. The nature and extent of any such changes will be determined by the terms agreed by the partners in each case: sometimes, the terms are agreed in advance and set out in a partnership agreement. Commercial sense will dictate that any change in the composition of a partnership will mean that at least one partner, if not more, will require the partnership assets to be revalued at the date on which the change occurs. A retiring partner will expect to be paid the current full value of his partnership interest; this interest is reflected in the value of the assets of the business. Invariably, asset values in the balance sheet are based on historical cost less depreciation and, consequently, the value of a partner’s interest as recorded in the capital accounts will not necessarily reflect its current value. Revaluation of the business assets will be necessary to achieve the aims of the retiring partner. By the same token, partners contemplating the admission of a new partner will take the view that they are entitled to any appreciation in the value of the partnership assets up to the date of admission of the new partner and that he should only benefit from any increase in asset values which occurs after his admission. Again, to accommodate this situation partnership assets will have to be revalued at the date of admission. The same commercial considerations apply when two businesses amalgamate.
