and Jackson sells a half-interest to B. Killian for a given consideration, the new balance sheet becomes:
| Cash | $ 5,000.00 | Liabilities | $ 6,000.00 |
| Other Assets | 15,000.00 | A. Jackson, Capital | 7,000.00 |
| B. Killian, Capital | 7,000.00 | ||
In this case no new capital has come into the business because the purchase price does not go to the business as such but to A. Jackson as a private individual.
If, however, Killian is admitted as a half-interest partner by making a cash investment equal to the amount of Jackson’s interest on the basis of book values, the balance sheet of Jackson and Killian will read:
| Cash | $19,000.00 | Liabilities | $ 6,000.00 |
| Other Assets | 15,000.00 | A. Jackson, Capital | 14,000.00 |
| B. Killian, Capital | 14,000.00 | ||
showing an investment of double the capital in the original Jackson business.
The question of good-will which frequently comes up when an interest in a going business is secured will be treated in [Chapter XXXV], where also the manner of closing the books of the old business and opening those of the new firm will be shown.
Final Considerations.—From the foregoing discussion it is evident that the partnership relation gives rise to some of the most vexing questions which confront the accountant and the lawyer. It is a truism, therefore, that in drawing up the partnership agreement, all eventualities should be foreseen as nearly as possible and that they should be carefully provided for. As a final safeguard it is well to provide for the submission to arbitrators of disputes subsequently arising, the decision to be binding upon all the partners. This will avoid endless, expensive, and usually unsatisfactory actions at law and will more nearly secure justice to all. As a step in the same direction, it is suggested that provision be made for the drawing up of correct balance sheets and profit and loss statements, that sufficient time be allowed each partner to examine them as to their correctness and, if satisfied, that each be compelled to subscribe to them. This will localize any dissatisfaction within a limited time period and secure its adjustment while all salient points are still fresh in the minds of the interested parties.
CHAPTER XXXIV
CAPITALIZATION OF THE PARTNERSHIP
Sources of Capital.—From an accounting viewpoint, the capital of any business enterprise is the excess of its assets over its liabilities. Usually, the main fund of capital is secured by original contribution. In a partnership, the partners’ investments provide the common partnership fund. Thereafter, additions to the capital may be secured in several ways: