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Partnership Operations Lecture Notes2

Partnership Operations Lecture Notes2

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Published by bum_24
accounting lectures. enjoy!:)
accounting lectures. enjoy!:)

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Published by: bum_24 on Nov 22, 2008
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05/17/2013

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PARTNERSHIP OPERATIONS
Closing the books at the end of the accounting period:1. Merchandise InventoryxxIncome Summary xxTo set up ending inventory2. All Nominal Accounts with Credit BalancesxxIncome Summary xxTo close all nominal accounts with credit balances to income summary.3. Income SummaryxxAll Nominal Accounts with Debit Balances xxTo close all nominal accounts with debit balances to income summary.
NET Income
4. Income Summary xxPartnersDrawing xxTo distribute profits to partners
NET Loss
4. PartnersDrawingxxIncome Summary xxTo distribute losses to partnersINCREASES/DECREASES IN CAPITAL & DRAWING ACCOUNTS
CAPITALDRAWING
DecreaseIncreaseIncreaseDecreasePermanent withdrawal0Initial investmentTemporary withdrawalShare in Net IncomeSale of equityAdditional InvestmentShare in Net LossPayment of partnershipliability from personalfundsPartnership pays the personal liability of a partner Debit balance indrawingCredit balance indrawing
DIVISION OF PROFITS & LOSSESProfits and Losses may be shared partners according to the following agreements:
1.equally2.arbitrary ratioa.percentage b.fraction3.capital ratioa.original/beginning capital b.ending capitalc.average capital4.allowing interest on partners’ capital balances5.allowing salaries to partners6.bonus to managing partner based on net income
 
 EXAMPLE 
JOHN CAPITAL
MARTHA CAPITAL5/110,0001/1400,0007/150,0001/1300,00010/3150,0007/1160,0004/1200,0009/30150,000
NET INCOME FOR THE PERIOD –P 150,000DIVISION OF PROFITS & LOSSES1.equally
Income Summary150,000John, Drawing75,000Martha, Drawing75,000To distribute profits to partners2.arbitrary ratioa.percentage 40%:60% b.fraction 2/5:3/5Income Summary150,000John, Drawing60,000Martha, Drawing90,000To distribute profits to partners3.Capital RATIOa.Beginning Capital Ratio : 400:300 or 4/7:3/7Income Summary150,000John, Drawing85,714.29Martha, Drawing64,285.71To distribute profits to partners b. Ending Capital Ratio 500: 600 or 5/11:6/11Income Summary150,000John, Drawing68,181.82Martha, Drawing81,818.18To distribute profits to partnersc. Average Capital RatioIncome Summary150,000John, Drawing75,202.16Martha, Drawing74,797.84To distribute profits to partnersCOMPUTATION OF AVERAGE CAPITAL
 
DateCapitalBalance No. of MonthsUnchangedPeso MonthsAverage CapitalJohnJan 1400,0004P1,600,000May 1390,0002780,000July1550,00042,200,000Oct 31500,00021,000,000MarthaP5,580,000/12P465,000Jan 1300,0003P900,000April 1500,00031,500,000July1450,00031,350,000Sept 30600,00031,800,000P5,550,000/12462,500
Computation Share in Net Income of P150,000
Average Capital:John P465,000 150,000 x 465000/927,500= P 75,202.16Martha 462,500 150,000x 462,500/927,500 = P 74,797.84P927,500=======4. Allowing interest on partners’ capital balances
10% interest on beginning capital, balance equallySchedule of Distribution of ProfitsJohnMarthaTotal
10% Interest on beginning CapitalJohn (400,000 x 10%)Martha (300,000 x 10%)P40,000P30,000P70,000Balance equally(150,000-70,000)40,00040,00080,000
Share in Net IncomeP80,000P70,000P150,000
Income Summary150,000John, Drawing80,000Martha, Drawing70,000To distribute profits to partners5.Allowing salaries to partners
Salary allowance of P50,000 to John and P40,000 to Martha, balance in the ratio of 2:3Schedule of Distribution of ProfitsJohnMarthaTotal
Salary allowanceP50,000P40,000P90,000Balance 2:3 24,000 36,000 60,000
Share in Net IncomeP74,000P76,000P150,000
Income Summary150,000John, Drawing74,000Martha, Drawing76,000To distribute profits to partners6.Bonus to managing partner based on net income20% Bonus to John, the managing partner, balance equally
Schedule of Distribution of ProfitsJohnMarthaTotal
20% Bonus to JohnP30,000P30,000Balance equally 60,000 60,000 120,000
Share in Net IncomeP90,000P60,000P150,000
Income Summary150,000John, Drawing90,000Martha, Drawing60,000To distribute profits to partners

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