Hi, I am an accountant in a partnership company and facing difficulty in recording the following transactions:
1. Partner 1 - got a contract from a government company with a value of USD 1.5 M and would like to add it in the company balance sheet Partnership Company as his contributed capital. However, the USD 1.5 M is the same amount to be paid to the government as annual license fees by the Partnership Company and it increase by 10% every year. Contract will be for 4 years.
2. Partner 2 - have fixed assets to contribute in the partnership at the fair market value instead of book value ( 5 year old assets). Book value is USD 200k and fair market value is USD 250k. The depreciation amount per year is 20% as per the government tax rules in the country I am currently working.
Partners will be sharing profits and loss 50 / 50.
My question are as follows:
1. Can the government contract be classified and presented as Intangible asset of the Partnership Company and be recognized also as the contributed capital of Partner 1? If so, is the amortization cost not a double recognition of expense along with the license fee? Partners may not agree to deduct both the license fee and the amortization cost from their P&L, it will reduce their profit shares.
2. If the partners do not agree to amortize the intangible asset ( government contract), what is the best accounting treatment?
3. Are the assets of Partner 2 be depreciated over the contract period of 4 years based on the fair market value or 20%?
Thank you very much in anticipation of any help.
Regards,
Migs
1. Partner 1 - got a contract from a government company with a value of USD 1.5 M and would like to add it in the company balance sheet Partnership Company as his contributed capital. However, the USD 1.5 M is the same amount to be paid to the government as annual license fees by the Partnership Company and it increase by 10% every year. Contract will be for 4 years.
2. Partner 2 - have fixed assets to contribute in the partnership at the fair market value instead of book value ( 5 year old assets). Book value is USD 200k and fair market value is USD 250k. The depreciation amount per year is 20% as per the government tax rules in the country I am currently working.
Partners will be sharing profits and loss 50 / 50.
My question are as follows:
1. Can the government contract be classified and presented as Intangible asset of the Partnership Company and be recognized also as the contributed capital of Partner 1? If so, is the amortization cost not a double recognition of expense along with the license fee? Partners may not agree to deduct both the license fee and the amortization cost from their P&L, it will reduce their profit shares.
2. If the partners do not agree to amortize the intangible asset ( government contract), what is the best accounting treatment?
3. Are the assets of Partner 2 be depreciated over the contract period of 4 years based on the fair market value or 20%?
Thank you very much in anticipation of any help.
Regards,
Migs