Professional Documents
Culture Documents
Partnerships
B. Characteristics of a Partnership
1. Mutual Agency--the action of any partner is binding on all other
partners when the partner is engaging in partnership business
2. Limited Life--the partnership is dissolved whenever a new partner is
admitted to the partnership or an old partner withdraws from the
partnership
3. Unlimited Liability--each partner is personally liable for the
liabilities of the partnership if the partnership assets are
insufficient to settle the liabilities of the partnership
4. Co-ownership of Property--partnership assets are owned jointly by all
the partners
a. Separate Capital Accounts--separate capital and drawing accounts
are maintained for each partner to keep track of each partner’s
claim against the partnership’s assets
5. Taxation--the net income of the partnership is not taxed at the
partnership level, but is allocated to the partners and is included as
income on their individual tax returns
D. Formation
1. Accounting Treatment--the assets and liabilities contributed to the
partnership should be recorded at their fair market value at the date
of formation of the partnership, and the partners' capital accounts are
credited for the recorded value of the net assets contributed by each
partner
2. Illustration--A, B, and C formed a partnership; A contributed inventory
with a fair market value of $100,000; B contributed equipment with a
fair market value of $180,000 and a building with a fair market value
of $600,000 and subject to a $480,000 mortgage; C contributed $100,000
in cash
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PARTNERSHIP
Cash 100,000
Inventory 100,000
Equipment 180,000
Building 600,000
Mortgage Payable 480,000
A, Capital 100,000
B, Capital 300,000
(180,000 + 600,000 – 480,000)
C, Capital 100,000
Interest:
A = 10% x 50,000 = 5,000
B = 10% x 100,000 = 10,000
C = 10% x 350,000 = 35,000
2
PARTNERSHIP
Fixed Ratio:
A = 30% x (140,000 – (60,000 + 50,000)) = 9,000
B = 25% x 30,000 = 7,500
C = 45% x 30,000 = 13,500
Interest:
A = 10% x 50,000 = 5,000
B = 10% x 100,000 = 10,000
C = 10% x 350,000 = 35,000
Fixed Ratio:
A = 30% x (100,000 – (60,000 + 50,000)) = (3,000)
B = 25% x (10,000) = (2,500)
C = 45% x (10,000) = (4,500)
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PARTNERSHIP
Cash 50,000
C, Capital 50,000
(50% x (200,000 + 50,000))
Cash 60,000
C, Capital 52,000
(20% x (200,000 + 60,000))
A, Capital 2,000
(25% x (60,000 - 52,000))
B, Capital 6,000
(75% x 8,000)
Cash 30,000
A, Capital 4,000
(25% x (30,000 – 46,000))
B, Capital 12,000
(75% x (16,000))
C, Capital 46,000
(20% x (200,000 + 30,000))
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PARTNERSHIP
b. Illustrations
1) A and B are partners with profit-and-loss sharing ratios of
25% and 75%, respectively, and capital balances of $130,000
and $70,000, respectively; C purchased a 20% capital interest
in the partnership by purchasing 20% of A’s capital balance for
for $26,000 and 20% of B’s capital interest for $14,000
C = 20% x 200,000
C = 40,000
A, Capital 26,000
(20% x 130,000)
B, Capital 14,000
(20% x 70,000)
C, Capital 40,000
(20% x 200,000)
A, Capital 26,000
(20% x 130,000)
B, Capital 14,000
(20% x 70,000)
C, Capital 40,000
(20% x 200,000)
A, Capital 26,000
(20% x 130,000)
B, Capital 14,000
(20% x 70,000)
C, Capital 40,000
(20% x 200,000)
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PARTNERSHIP
C, Capital 55,000
A, Capital 2,500
(20% / 80% x (55,000 - 65,000))
B, Capital 7,500
(60% / 80% x 10,000)
Cash 65,000
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PARTNERSHIP
2. Illustrations
a. A, B, and C are partners with profit-and-loss sharing ratios of
20%, 60%, and 20%, respectively; the partnership balance sheet
consisted of cash of $20,000, noncash assets of $270,000,
liabilities of $40,000, and capital balances of $140,000 for A,
$60,000 for B, and $50,000 for C; the partnership was liquidated by
selling the noncash assets for $310,000; the partners have
sufficient cash to make up any capital deficiencies
Noncash A B C
_ Cash_ _Assets Liab. Capital Capital Capital
20,000 270,000 40,000 140,000 60,000 50,000
310,000 (270,000) _ _ 8,000 _24,000 _ 8,000
330,000 _ --- _ 40,000 148,000 84,000 58,000
( 40,000) (_40,000) _ _ _ _ _ _
290,000 _ --- _ 148,000 84,000 58,000
(290,000) (148,000) ( 84,000) ( 58,000)
_ --- _ _ --- _ _ --- _ _ --- _
Gain Allocation:
A = 20% x (310,000 – 270,000) = 8,000
B = 60% x 40,000 = 24,000
C = 20% x 40,000 = 8,000
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PARTNERSHIP
Noncash A B C
_ Cash_ _Assets Liab. Capital Capital Capital
20,000 270,000 40,000 140,000 60,000 50,000
220,000 (270,000) _ (_10,000) (_30,000) (_10,000)
240,000 _ --- _ 40,000 130,000 30,000 40,000
( 40,000) (_40,000) _ _ _ _ _ _
200,000 _ --- _ 130,000 30,000 40,000
(200,000) (130,000) ( 30,000) ( 40,000)
_ --- _ _ --- _ _ --- _ _ --- _
Loss Allocation:
A = 20% x (220,000 – 270,000) = (10,000)
B = 60% x (50,000) = (30,000)
C = 20% x (50,000) = (10,000)
Loss Allocation:
A = 20% x (160,000 – 270,000) = (22,000)
B = 60% x (110,000) = (66,000)
C = 20% x (110,000) = (22,000)
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PARTNERSHIP
Noncash A B C
_ Cash_ _Assets Liab. Capital Capital Capital
20,000 270,000 40,000 140,000 60,000 50,000
160,000 (270,000) _ (_22,000) (_66,000) (_22,000)
180,000 _ --- _ 40,000 118,000 ( 6,000) 28,000
( 40,000) (_40,000) _ _ _ _ _ _
140,000 _ --- _ 118,000 ( 6,000) 28,000
_ ( 3,000) _ 6,000 ( 3,000)
140,000 115,000 _ --- _ 25,000
(140,000) (115,000) ( 25,000)
_ --- _ _ --- _ _ --- _
Loss Allocation:
A = 20% x (160,000 – 270,000) = (22,000)
B = 60% x (110,000) = (66,000)
C = 20% x (110,000) = (22,000)
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PARTNERSHIP
ICMAP—FRESH
CLASSES—15TH
ACCOUNTING OF ICMAP STAGE 1,2,3 JANUARY 2009
STAGE 1,2,3
ACCOUNTING OF CA MODULE – B & D *PRINCIPLES OF
ACCOUNTING
*COST
ACCOUNTING OF PIPFA ACCOUNTING
*FINANCIAL
ACCOUNTING OF BBA,MBA AND O/A LEVEL ACCOUNTING
*COST
ACCOUNTING-
ACCOUNTING AND STATISTICS OF I.COM APPRAISAL
STATISTICS OF MA-ECONOMICS
R-1173, 3RD FLOOR, ALNOOR SOCIETY, BLOCK 19, F.B.AREA, NEAR POWER HOUSE,
KARACHI.
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