IIA-CIA-Part3 Exam Dumps | An internal auditor was asked to review an equal equity partnership. In one sampled transaction, Partner

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Question 2/191

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?

A. The capital accounts of the partners should be increased by the original cost of the contributed equipment.

B. The capital accounts should be increased using a weighted average based on the current percentage of ownership.

C. No action is necessary as the capital account of each partner was increased by the correct amount.

D. The capital accounts of the partners should be increased by the fair market value of their contribution.

Correct Answer: D

Comprehensive and Detailed In-Depth Explanation:
Partnership contributions should be recorded at their fair market value (FMV) at the time of contribution, ensuring equitable financial representation.
Option A (Original cost of the equipment) - Not appropriate since the asset's current fair value is relevant, not its historical cost.
Option B (Weighted average approach) - Not applicable; capital accounts should reflect actual contributed value.
Option C (No action necessary) - Incorrect because partners contributed assets of different values, making an equal capital credit unfair.
Since partnership accounting requires fair market value for capital accounts, Option D is correct.
Reference: IIA Financial Accounting - Partnership Equity Contributions

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