In the exact method, what factor determines the purchase price of the capital account purchased?

In the exact method of accounting for partnerships, the purchase price of the capital account purchased is determined by the book value of that capital account. This approach reflects the financial position of the partnership and ensures that the capital accounts are adjusted to accurately represent the contributions and the financial interests of the partners involved in the transaction.

When a partnership interest is acquired using the exact method, the buyer purchases the seller's share of the partnership at the book value, which represents the seller's equity in the partnership as recorded on the balance sheet. This includes their share of assets and liabilities, ensuring that the adjustments reflect the true economic value as recognized in the partnership's financial records at the time of the purchase.

The fair market value of the partnership, while useful in other contexts, does not determine the purchase price under the exact method. The amount of capital contribution made is not directly relevant, as the transaction focuses on the existing book values. The agreed profit-sharing ratio can influence future profit distributions but does not dictate the purchase price in the context of the exact method for the transfer of capital accounts.