An internal auditor was asked to review an equal equity partnership. In one sampled transaction, Partner A transferred equipment into the partnership with a self- declared value of $10,000, and Partner B contributed equipment with a self-declared value of $15,000. The capital accounts of each partner were subsequently credited with $12,500. Which of the following statements is true regarding this transaction?
In partnership accounting, when partners contribute non-cash assets to the partnership, the capital accounts of the partners should be increased by the fair market value of those assets. Partner A and Partner B declared different values for their contributions ($10,000 and $15,000 respectively), but their capital accounts were each credited with $12,500. This suggests an averaging method was used rather than reflecting the fair market values. Therefore, the correct approach would be to credit the capital accounts based on the fair market value of their contributions.
The partnership in question is "equal equity partnership", which means the capital injection should be equal, i.e. "The capital accounts of each partner were subsequently credited with $12,500". The declared values of the assets are irrelevant as the “fair value” of the assets had been evaluated at $12500 for Partner A and B's asset.
I would like to know the reason why not D as well.
Why not D? It is just a mere valuation of their invested assets and not a share on profit or loss.
pls explain why not D