Contributions to the partnership

A partner may contribute the following to the partnership:

Money – this may be in the form of bills and coins. They are recorded at face value. In case that the money is in a foreign currency, it is recorded using the current exchange rate at the date of contribution.

Property – a partner may also contribute properties like land, building, office equipment, furniture and fixtures, etc. These contributions are valued at their fair market values, on the date of contribution. If a liability is attached to a property (like mortgage or loan), the recognized amount for capital contribution is net of the liability.

**Fair market value – the value at which the property can be sold at arm’s length between two people.

Sometimes, the partners may also agree to the amount of valuation of a property contributed to the partnership. In cases like this, the recorded amount is the agreed value.

When we say agreement, both partners (or all partners, if more than two) must agree to it. If one partner suggested a value, it must be accepted by the other partners before it can be used in recording. If there is no agreement, then we use the fair value.

Industry – when a partner’s contribution is his skills and talent, it is recorded using a memo entry. No actual value or amount is associated with it. This happens when the partner is well-known for his management skills, or entrepreneurial skills, or it can also be that he is well-connected and has a network of suppliers and clients that would benefit the partnership.