2.

Continue using the books of one of the sole

1st Meeting proprietors
a. Adjust the books of the sole proprietor
Accounting for Partnership which will be used as partnership
books. Adjustments are made through
Formation capital account. Capital account is
credited for the increases in the value
-Authoritative body governing partnership: law
of the nest asset and decreases for the
and principles from practices
value of the net assets
- All properties brought into the partnership or
b. Record the investment of other
acquired by the partnership are partnership
partners.
property.
- Partners may contribute:
a. cash (capitalist partner),
b. Property (industrial partner),
c. industry or skills (industrial partner),
d. or cash and industry (capitalist industrial
partner)
 Cash investments – recorded at fair value which is
normally the face value (convert sa current
exchange rate at date of contribution if
denominated in foreign currency)
Solution:
 Noncash Investment – recorded at agreed value
which is normally similar to fair value. If different 1. Adjusted capital of James: 62000 – 2400 +
sila, agreed value prevails. If walang agreed value, 22000 + 6500 – 4000 = 84100
fair value ang gamitin. a. ADA adjustment: decrease capital by 2400
 Services – memorandum entry only (pero pag (120000*2%) (Entry: Dr. Capital, Cr. ADA)
binigyan ng agreed value, may journal entry) (dr. b. Undervalued ang AR, dagdagan ng 22k
expense, cr. Capital) (202000 – 180000) (Entry: Dr. MI, Cr.
 Liabilities assumed – valued at present value of Capital)
remaining cash flows c. Gagawa ng Prepaid Expense account 6500
at Accrued Liab account 4k (Entry: Dr.
A. Two individuals forming a partnership Prepaid Exp, Cr. Capital; Dr. Capital, Cr.
Accrued Exp)
Example:
2. How much cash should Dani invest? 84100
divided by interest of James which is 1 – 1/3=
2/3, Cash= 84100/2/3= 126150 * 1/3 = 42050
3. Journal Entries:
a. If new set of books will be used:
Acosta: (pag may ar na ininvest, magset-up pa rin ng *icloclose muna yong dating books ni James
ADA na account kasi pwede pang macollect) (Pero kung bago new set of books. (adjust muna saka
worthless na, hindi na isasama sa balance ng AR, close)
ieliminate na sa gross amount ng AR) *new set of books:
Cash 26k
Cash 100k
AR 120k
AR 150k MI 202k
Prepaid 6500
Equipment 400k
AP 264k
ADA 50k Accrued 4k
ADA 2400
Acosta, Capital 600k James, Capital 84,100
Beltran: memo entry lang (Beltran is to contribute his
service to the partnership for 1/3 interest. Cash 42050
Dani, Capital
B. Individual and a Sole Proprietor or Two or More b. If books of James will be used by the
Proprietors form a Partnership Partnership (same siguro eto doon sa
o Recording can be done through either: adjustments na gagawin sana ni James bago
1. Opening a new set of books (cloclose nila iclose yong books niya if pinili niya #1):
books nila dati saka gagawa ng bagong MI 22k
books-fresh start) (normal na ginagamit); or
 Prepaid 6500 Example:
Accrued 4k
ADA 2400
James, Capital 22,100

Cash 42050
Dani, Capital 42050

I. Special Considerations
A. Capital Share Different from Capital C (50%) 100K 125K
Contribution D (50%) 150K 125K
 Capital Share (Capital interest) – claim TOTAL CONTRI 250K AGREED CAPITAL 250K
against the net assets of the partnership
as shown by the balance in the
partners’ capital account. (magkaiba
ang capital ratio sa p&l ratio)
 Generally, the capital share of a partner
is proportionate to his/her capital
contribution. However, partners may
agree to a division of capital that is not
proportionate to their capital
contributions (reason: isang partner
may dadalhin na intangible factor kaya
bibigyan ng credit na mas mataas Solution:
normally sa ininvest) (hindi to parehas
a. Determine total agreed capital: D, Capital/50%=
sa admission ng new partner where
150k/50%=300k; C, capital/50% = 200k (kukunin
there is existing partnership already kasi
yong mas mataas sa contributed capital kasi
magfoform pa lang ng partnership).
mag-aadd ng intangible asset) kaya si D ang
base
B. Accounting
1. Bonus Method – a transfer of capital from one *mas okay pag intangible asset kasi pwede lang
partner to another partner is made. Total magkaroon ng goodwill pag bumili ng business.
Partnership Capital is equal to the Total
Contribution of Partners.
Example:
A (50%) 100K 150K 2nd Meeting
B (50%) 200K 150K
TOTAL CONTRI 300K AGREED CAPITAL 300K Partnership Operation
2. Revaluation Method/Goodwill Method – the - Goal ng partnership formation: to create profit
new partnership should recognize an intangible and divide based on agreement. Computation
asset at the date of formation due to the of profit is same for partnership and sole
assumption that partner/s are contributing proprietorship. Difference lang ay ang
something of value to the partnership that is allocation.
intangible in nature. (normally mas mataas ang I. Rules for Dividing Profits and Losses
agreed sa contribution) A. As to Capitalist Partner
Example: 1. Division of Profits
A (50%) 100K ? a. In accordance with agreement;
B (50%) 200K ? b. In the absence of an agreement,
TOTAL CONTRI 300K AGREED CAPITAL 350k division of profit is in accordance with
capital contribution (original investment
pero pag wala, beginning balance of
capital ang gagamitin)
2. Division of Losses
a. In accordance with agreement
b. If only the division of profit is agreed
upon, then the division of losses will
follow the same proportion
 c. In the absence of agreement, the *normally pinagsasama ang allocation ng mga
division of losses is in accordance with companies
capital contribution.
A. Types of Withdrawal
B. As to Industrialist Partner
1. Capital withdrawal or permanent withdrawal –
1. Division of Profits
withdrawals of large and irregular amount. They
a. In accordance with agreement;
affect the capital account balance because they
b. In the absence of an agreement, the
arise mostly from the withdrawals of
industrial partner shall receive a just
investment be it original or additional.
and equitable share of the profits and
(withdrawal sa dating investment/
the capitalist partners in accordance
contributuion sa partnership) (directly sa capital
with the capital contribution
na) (dr. capital, cr. Cash)
2. Division of Losses
2. Personal withdrawal or temporary withdrawal –
a. In accordance with agreement
withdrawal of assets in anticipation of profits or
b. In the absence of agreement, the
drawings that are considered salary allowances
capitalist industrial partner shall have
(ina-anticipate na profit).(drawings account
no share in his/her character as an
muna para macontrol yong nilalabas na pera
industrial partner; but will share in
galing sa salary allowance) (regular
proportion to his/her capital
withdrawals) (Dr. Drawings, Cr. Cash) (dr.
contribution in his/her capacity as a
Capital, CR. Drawings)
capitalist partner.

*Capital withdrawal and personal withdrawal

decreases the capital balance of a partner.
II. Methods of Distributing Profits Based on
*pag nagccompute ng weighted average na
Partners Agreement
capital, permanent lang
1. Equally – it is simple to apply but does not give
*pag silent, weighted capital ang ginagamit sa
due to recognition on the disparity of capital
pagcompute ng interest, etc.
contributions nor does it recognize the time and
effort that a partner may devote in running the B. Computation of Average Capital Balance
firm’s business. (simplest, easiest)
1. Simple Average = (beginning + ending)/2
2. Arbitrary Ration – it is simple to apply but does
not give due to recognition on the disparity of 2. Weighted Average
capital contributions nor does it recognize the
time and effort that a partner may devote in - weighted average capital balance provides the fairest
running the firm’s business (walang basis) basis for allocating partnership profit because it reflects
3. Capital ratio (Original, beginning, Ending, the capital actually available for use by the partnership
Average) – this method recognize the during the year.(hindi prinipresent sa FS, yong eding
differences in the capital contributions but does balance ay nakukuha pa rin sa pagminus ng permanent
not take into account the time and effort that a at temporary withdrawals)
partner may devote in running the firm. - a weighted average interpretation of capital should be
4. Interest on Capital – this method recognizes the assumed in the absence of evidence to the contrary.
difference in the capital contributions but does Generally, only permanent withdrawals is considered in
not take into account the time and effort that a the computation of the weighted average capital
partner may devote in running the firm’s balance.
business. (binibigay lagi kahit insufficient net
income) Example:
5. Salary Allowance to Partners – this method
recognizes the time and effort that a partner
may devote in running the firm’s business but
does not take into consideration the differences
in capital contribution. (binibigay lagi kahit
insufficient ang net income)
6. Bonus to managing partners – this method
allows bonus to the managing partner as an
incentive. It is usually based on profit. Bonus is *iyong withdrawals dito ay permanent dahil hindi
allowed only when there is profit. (based sa regular at walang nakalagay na temporary withdrawal
profit, pag wala wala) (Hindi lang pag net loss or in anticipation of profit
hindi magbibigay ng bonus, pati na rin pag
nagnegative basis ng bonus kahit may net Average Capital Balance for M:
income) 1/1 35000 x 12/12
6/1 10000 x 7/12 1st step: kunin weighted average capital balance ng
partner na may variation sa balance ng capital
10/1 5000 x 3/12
contribution
WAC 42,083 – ginagamit sa interest on capital.
James
*Ending capital balance ay 50,000 pa rin.
48000 x 12/12
Another solution (based on running outstanding
balance): 12000 x 7/12

1/1 35,000 x 5/12 55,000

6/1 (35,000 + 10,000) x 4/12 2nd step: kunin allocation of income (kahit ano ang
unahin)
10/1 (35,000 +10,000 + 5000) x 3/12
James Keller Rivers Total
WAC 42,083
Net - - - 30,000
Income
Interest 55000 x 70,000 x 90,000 x (17200)
Average Capital Balance for J: 8% = 8% = 8% =
4400 5600 7200
1/1 25,000 x 12/12
Salary 13,000 15,000 20,000 (48000)
3/1 10,000 x 10/12 Allowance
s
9/1 (10000 x 4/12) Remainder (35200)
Allocation (7040) (10560) (17600)
11/1 (5000 x 2/12)
ng
12/1 8000 x 1/12 negative
remainder
WAC 29,833 (allocation
ay based
Another Solution (based on running outstanding
on ratio of
balance):
20,30,50)
1/1 25,0000 x 2/12 Total 10360 10040 9600 Equal
Allocation to net
3/1 35,000 x 6/12 income
9/1 25,000 x 2/12
3rd Step: Compute ending balance
11/1 20,000 x 1/12
James Keller Rivers
12/1 28,000 x 1/12
Beg Balance 48k 70k 90k
WAC 29,833 Additional 12k - -
Contribution
Share sa 10360 10040 9600
income
from step 2
Temporary (1k x 12 = (1k x 12 = (1k x 12 =
withdrawals 12k) 12k) 12k)
Ending 58,360 68,040 87,600

B. Order of Priority Provision

*peso month method – (nearest month method)
*pag hindi nagstart ng January, yong denominator sa
pagkuha ng WAC ay base lang sa remaining months
from formation of partnership. (kunyare April, yong
denominator ay 9: (x/9).
*withdrawal of 1k per month is temporary (kaya yong
salary lang na minsanan ang ilalagay sa salary
allowances sa pagcompute ng allocation of income)
- Partners may agree not to use a residual profit
sharing ratio in the event profits did not exceed
the total of the salary and interest allowances.
In this case, the partners must agree on the
priority of various features.
- Ginagamit lang ito kapag may sinabi na may
priority of provision at insufficient ang income
for sum of salary and interest.
 E F Total - Effect of error nilalagay sa capital accounts.
Net Income - - 240,000 - Profit and loss sharing ratio na gagamitin ay
Interest 500k x 800k x (130k) yong agreement kung kalian nangyari yong
10% = 50k 10% = 80k error.
Remaining 110k (hindi - Kungyari last year yong error, yong P&L ratio
100k + 50k last year ang gagamitin.
dahil
magnenegative
income tapos Example:
may priority
provision) Abe, Bert, and Carl are partnerd sharing profit on a
Allocation 73333 36667 (110k) 7:2:1 ratio. On January 1, 20x5, Dave was admitted into
of Salary the partnership with 15% share in profits. The old
based on partners continue to participate in profits in their
salary(10:5) original ratios. For the 20x5, the partnership showed a
Total 123,333 116,667 240,000 profit of P15,000. However, it was discovered that the
Allocation (parehas sa net following items were omitted in the firm’s books.
ng net income)
income Unrecorded at Year-End 20x4 20x5
*nagnegative na net income after ideduct interest at Accrued Expense - P 1050
salary allowance, kaya ang hatian na lang sa remaining Accrued Income - 875
(salary allowance) ay sa agreed hatian (priority Prepaid Expense P 1400 -
provision). Disregard yong equally. Hindi gagawin yong Unearned Income 1225 -
solution sa baba kasi madidisregard yong proportion ng
salaries na 2/3 at 1/3 or (150k:50k).
- Si Abe, Bert, at Carl, paghahatian yong 85% base
E F Total sa p&l ratio nila dati.
Net Income - - 240,000 - New P&L ratios: For D =15%; A=70% x 85% =
Interest 500k x 10% 800k x 10% (130k) 59.5%; B=20% x 85%=17%; C= 8.5%
= 50k = 80k - Next find the share of Profits:
Salary 100k 50k (150k)
Errors Correction of income for
Remaining 240k-130k- this year
150k = (40k) Accrued Expense (1050)
Allocation (50%(40k)= (50%(40k)= Accrued Income 875
of 20k) 20k)
Prepaid Expense (1400)
remaining
Unearned Income 1225
Total 130k 110k
Total (350)
Salary for E: 100k-20k = 80k

Salary for F: 50k-20k = 30k *pag hinahanap din 20x4, hanapin corrected balance
*The order of profit sharing provision generally applies tapos i-allocate based on P&L ratio nong 20x4 kung saan
unless the partners agree on the order of priority wala pa si Dave. Pero 20x5 lang hinahanap, i-allocate
provision relative to profit distribution. base sa new P&L ratio.

A B C D Total
Net 59.5% 17% 8.5% 15% 15k –
C. Correction of Partnership Net Income of Prior income 350=
Period 14650
- In a partnership, the correction is allocated to Allocation 8716.75 2490.5 1245.25 2197.50
the individual partner’s capital accounts. The
allocation should be based on the profit and
Example:
loss agreement in effect during the period of
the error.
Total Bonus= 12k x 2 = 24k (para maging indifferent si
Jones, iyong first option na 40k salary plus bonus should
be equal to second option na 52k. yong difference ay
12k for Jones, meaning 12k din kay Cable)
X = 40k + 10% (Net Income – (30k +40k) – Bonus)
52,000 = 40k + 10% (Net income – 70k -24k)
(bonus: 24k = 10% (x-70k-24k): x= 334k income
- A new partner maybe admitted when he
purchase part or all of the interest of one or
more of the existing partners. (may personal
gain/loss)
- 2 means of dealing with purchase of interest:
1. Transfer a portion of the existing partner’s
capital to a new capital account for the buying
partner (Book Value Approach)
2. Revaluation Approach (Goodwill Approach)

 Accounting
th
4 Meeting 1. BV method

Ex: Assume for the following for the AB partnership:

Partnership Dissolution Partner A B
- Nag-end partnership pero hindi business Capital P500,000 P500,000
- Pag liquidation, end ang partnership at business
(windind up) P&L ratio 60% 40%

Dissolution – change in the relation of the partners Assume that C wishes to enter the partnership by
caused by any partner ceasing to be associated in the buying 50% of the partnership interest from both A and
carrying on as distinguished from the winding up of the B for a total of P800,000 (may personal gain sila na
business. 300k)(hindi relevant yong cash)

1. Admission of Partner Entry:

2. Withdrawal or retirement of partner A, Capital (500k x 50%)=250k
3. Death or incapacity of a partner; and
4. Incorporation of a partnership B, Capital (500k x 50%)=250k

Assignment of Interest entitles the assignee to receive C, Capital 500k

the assigning partner’s interest in the future partnership
*total capital ng partnership before and after admission
profits and partnership assets in the event of
is the same
liquidation.

The assignee does not become a partner, the only

change required on the partnership books is to transfer 2. Rev Method
the interest of the assignor partner to assignee. (Dr.
Ex: Assume for the following for the AB partnership:
Capital of assignor, Cr. Capital of assignee) (personal in
nature)(hindi nadidissolve ang partnership pag may Partner A B
assignment) (hindi siya pwde magkaroon ng
Capital P500,000 P500,000
participation s management)
P&L ratio 60% 40%
*if may ratio for loss tapos wala sa net income, yong
ratio ng profit ay capital contribution.

Assume that C paid A & B P800,000 for a 50% interest in

the partnership and the new partnership decided to use
I. Accounting for Admission of Partner
the revaluation method.
The admission of a new partner may be either through:
Solution (relevant na yong cash):
1. Purchase of interest in the partnership (personal
Total capital= 800k/50% = 1.6M (Capital after
transaction) (binibili iyong interest ng partner, di
admission)
katulad ng assignment na pagtransfer lang)
(nakakareceive ng pera ang partners, kaya hindi 1.6M – 1M = 600k (asset revaluation/goodwill/upward
magdedebit ng cash), or revaluation) (paghahatian ng OLD PARTNERS)
2. Investment in the partnership (transaction
between partner and partnership) (magdedebit ng
cash ang partnership) Entry:

A. Admission by Purchase of Interest 1st: I-adjust muna yong total capital ng old partners
- Transaction between individuals based on old P&L Ratio (paghahatian nila yong asset
revaluation na 600k):
Asset 600k
A, Capital (600k x 60%) 360k
B, Capital (600k x 40%) 240k
 Bonus Approach (Book Value Approach)
2nd:Irecord na yong pagpasok ni partner C. Itatimes sa
percent ng makukuha ni C iyong new capital balances ng
old partners.
Entry to transfer Capital:
A, Capital (500k+360k)x50% = 430k
B, Capital (500k + 240k) x 50% = 370k
C, Capital 800k
(pag silent, BV method ang gagamitin)
*pag sa isang partner lang bumili:
(ang magshashare pa rin ng revaluation ay si A at si B)
1st:record asset revaluation na paghahatian ng old
partners pa rin kahit na sa isa lang binili.
Asset 600k
A 360k
B 240k
2nd: paglipat ng capital GALING KAY A lang
A, Capital(500+360)50%= 430k
C, capital 430k
 Revaluation Approach
B. Admission by Investment
- When a new partner is admitted to the
partnership essentially three cases can result.
The new partner can invest assets into the
partnership and receive the capital balance.
a. Equal to his/her purchase price (acquired
capital or capital credit=investment or
purchase price) (no bonus/revaluation)
b. Greater than his/her purchase price (may
bonus/revaluation na)
c. Less than his/her purchase price (may
bonus/revaluation na)
- If the new partner’s capital balance is equal to
the assets invested, then the entry debits the
assets(s) contributed and credits the new
partner’s capital account for the fair value of
the asset(s) contributed.
- If the new partner’s capital balance is not equal
to the assets invested (as in situation (b) and (c)
above), then either the bonus or revaluation
method must be used to account for the
difference.
- The old partnership capital plus the new
partner’s asset contribution is equal to the new
partnership capital. (Total Contributed Capital =
Total Agreed Capital) (Total contributed
capital= old partner’s capital before admission
+ investment of new partner) (for admission,
hindi ginagamit ang loan balances: loans to
and from partners, ang ginagamit lang ay
capital balances)
- The new partner’s capital is allocated his
purchase share and the old partner’s capital
accounts are adjusted as if they had been paid
(or as if they paid) a bonus (based sa old P&L
ratio). (may instance na yong capital ng new
partner ay mas mataas kaysa sa contribution
niya: bonus to new partner)(If
capital<contribution, bonus to old partners)
- The new partner’s capital account is never
equal to the amount of assets contributed in a
case where the bonus method is used. (walang
bonus pag equal ang contri at capital credit)
- Recognition of understatement of assets is not
recorded unless agreed by the partners. Write-
down of asset is always recorded.
- If FV<BV, record impairment always. (whether
may agreement or wala, irerecord muna mga
impairment ng asset na paghahatian ng old
partners based on P&L ratio before i-admit new
partner)
- If undervalued, FV>BV (revaluation, kailangan
muna na may agreement bago magrecognize
ng increase ng capital at asset dahil sa
undervaluation.
- Old partnership capital plus the new partner’s
asset contribution is not equal to the new
partnership capital. (TAC not equal TCC)
- Partnership can record upward revaluation or
downward revaluation. Upward Revaluation =
TAC > TCC, Downward Revaluation = TAC <TCC
(paghahatian lagi ng old partners)
- TAC can be determined by dividing the
contributed capital of old partners to their
capital interest and or the contributed capital of
the new partner to his/her capital interest. (TAC
= Old partner’s capital / Interest of old partner)
(TAC = Contribution of new partner / interest
acquired) (tignan ang nirerequire ng problem.
Kung may upward revaluation, gamitin yong
makakapagdagdag ng asset and vice versa)(if
walang sinabi, automatic upward revaluation,
tapos hanapin na yong makakapagtaas ng asset
or asset revaluation)
 - Recognition of understatement or Mortgage Payable 6k
overstatement of assets is always recorded
whether agreed or not agreed by the partners.
2. Notes: i-adjust muna yong undervaluation
(FV>BV), kaya dagdagan yong asset/capital based
SUMMARY-Admission by Investment: sa old p&l ratio ng old partners.

Entry ng pag-adjust ng undervalued asset:

Equipment 8400

G, Capital 8400*60%= 5040

H, Capital 8400*40%= 3360

Contribute Agreed (TAC) Allocation Agreed

d (TCC) of (TAC)
Revaluatio Balance
n (BASED NA s
SA OLD P&L
Ex: RATIO)
G 24k+5040 = 3600*60% 31200
29040 = 2160
H 12k+3360 = 3600*40% 16800
15360 = 1440
J 28800 76800*37.5 28800
% = 28800
(DAHIL EQUAL NA
TAC AT TCC NI J,
WALA NANG
REVALUATION
PARA SA KANIYA)
73200 76800 3600 76800
Entry:

Answers/Solution: Asset 3600

*pag nagdedetermine ng contributed capital, G, Capital 2160

dinidisregard yong loans from/to partners. H, Capital 1440
1. Notes: pag magdedetermine ng bonus later, 30%
ang gagamitin; hindi kailangan irecord yong asset
revaluation na (8400-4800) dahil walang Cash 28800
agreement in conformity sa accounting principles. J, Capital 28800
If bonus method, TCC=TAC. Nakabase tayo sa
capital ratio (30%) kung ilan ang icrecredit ni J na
capital.
3.
Contributed (TCC) Agreed Allocation Agreed
Contribute Agreed Allocation of Agreed
(TAC) of Bonus (TAC)
d (TCC) (TAC) Revaluation and (TAC)
Balances
Bonus Balance
G 24K 6k*60% = 27 600 s
3600
G 24K (3600+18k)*60 36960
H 12K 6k*40%= 14 400 %= 12960
2400
H 12K (3600+18k)*40 20640
J 30k(asset) - 60k x 24k-18k= 18000 %= 8640
6K(mortgage)=24k 30% = (6k)
J 18k 72k*20% (3600) 14400
18k
= 14400
60k 60k 60k
54k 72k 18k 72k
Entry:

Tangible Asset 30k

Entry: Dr. Cash 18k, Dr. Asset 18k; Cr. J, Capital 14400,
G, Capital 3600
Cr. G, Capital 12960, Cr. H, Capital 8640
H, Capital 2400

J, Capital 18000