Paul, Frank, and Basil formed a partnership 10 years ago and Paul is about to retire. Paul is not financially minded but he knows that he is entitled to one-third of partnership assets upon his retirement. Total assets have a book value of $900,000 and Paul feels that he is entitled to his share. Frank and Basil are aware that the market value of the firm’s net assets approximates $1,500,000. Frank and Basil plan to form a new partnership.
What are the financial and ethical implications of distributing $300,000 to Paul upon his retirement?