Final answer:
True, when a partner withdraws more than their capital balance, the excess is treated as a bonus to the remaining partners, adjusting the economic burden among them.
Step-by-step explanation:
When a partner in a business withdraws assets greater than his capital balance, the excess amount is indeed treated as a bonus to the remaining partners. This is true because the overdrawn amount by the withdrawing partner must be absorbed by the remaining partners, effectively increasing their capital accounts. The logic behind this is that the partnership entity must remain in balance; that is, the total assets must equal the sum of all partner's capital accounts plus liabilities.
In practice, when a partner withdraws more than his or her capital balance, the difference reduces the capital balances of the remaining partners based on their profit-sharing ratios. It's a way to compensate them for the economic value they are giving up, and for the increased financial burden they will carry because of the withdrawal.
Let's say a partner invests $10,000 in a business partnership. If that partner withdraws $15,000, $10,000 will be treated as a return of capital and $5,000 as a draw.
The excess withdrawal is not distributed among the remaining partners as a bonus; instead, it is adjusted against the partner's future share of profits.