What is the Bonus Method?

The bonus method is used to grant a new partner additional capital in a partnership when the person is adding goodwill or some other intangible asset to the partnership. Any positive difference between the capital amount granted and the tangible asset contribution of the new partner is recorded in the original partners' capital accounts based on the partners' normal method of allocating profits and losses. If the capital amount granted is less than the tangible asset contribution, the difference is allocated to the incoming partner. The bonus method is especially common when a new partner has an unusually high level of expertise that is expected to help a partnership.