PARTNERSHIP FORMATION

- forming a partnership

Operation
Dissolution - mabag o ang structure sang partnership but it does not mean ma end ang
partnership
Liquidation

What is partnership? B

By the contract of partnerships two or more persons bind themselves to contribute

money, property, or industry to a common fund, with the intention of dividing the
profits among themselves. (Art, 1767 of the Philippine Civil Code)

“Persons” refers to natural or juridical.

Natural - born
Juridical person - entity that are given existence by the law

*To be a partnership, it has to gave an intention in dividing profits

How is it different from a corporation?

A partnership becomes a juridical person from the time the contract begins while in a
corporation, it only becomes a juridical person upon registration with the Securities
and Exchange Commission (SEC)

Although a partner may transfer its interest in a partnership to another, the transferee
does not automatically become a partner unless all the other partners give their
consent.

As to liability to third persons, partners may be held liable with their private and
personal property while in corporations, the stockholders are generally liable only to
the extent of their subscribed capital stock.

Partnership may be dissolved due to the unsolvency, civil interdiction, death, insanity
or retirement of any of the partners while such grounds do not dissolve a corporation,

Birthday of a partnership is the beg of the contract

Birthday of corporation Registers in the SVC

Civil interdiction - mapriso ang isa niyo ka partner

Reasons for Forming Partnership

It permits pooling of capital and other resources without the complexities and
formalities of a corporation.
Easier and less costly to establish than a corporation

Partners may operate with more flexibility because they are not subject to the control
of the board of directors.

Typical Examples of Partnership

Professional services such as the practice of law or accountancy

Real estate development companies

Small manufacturing operations

Types of Partnership

GENERAL PARTNERSHIP

Each partner is liable personally to the partnership’s creditors if partnership assets are
not sufficient to pay such creditors.

LIMITED PARTNERSHIP

Only one partner needs to be a general partner. Limited partners obligations are
limited to their capital contributions.

Features of Partnership

Ease of Formation
Limited Life
Assignment of Partner’s Interest
Unlimited Liability
Mutual Agency
Separate Legal Personality
Sharing Profits and Losses

Underlying Equity Theories

Equity theories relate to how an entity can be viewed from the accounting and legal
point of view

These theories deal with the question of who the entity is.

PROPRIETARY THEORY

Looks at the entity through the eyes of the owner.

It views assets of a business as belonging to the proprietor.
The liabilities of a business are debts of the proprietor.
The profits generated are viewed as an increase in the proprietor’s capital.
Characteristics of the theory can be demonstrated by:
Salaries to partners are considered as distribution of income rather as a determinant of
net income (treated as expenses in computing net income)
Characteristics of the theory can be demonstrated by:
Unlimited liability of general partners extends beyond the entity to the individual
partners.
Original partnership is dissolved upon the admission or withdrawal of a partnership.

ENTITY THEORY

Views the business as a separate and distinct entity possessing its own existence apart
from individual partners.

Profits earned by the partnership are usually viewed as profit to the entity with each
partner entitled to a distributive share of the profit.

Accounting for Partnership Activities

ENTITY THEORY

The legal life of firms in this fashion transcends the death or admission of a partner.
In partnership agreement for instance, the so - called big accounting firms usually
provide for the continued existence of the partnership beyond the death of a partner.

BALANCE SHEET OF SOLE PROPRIETORSHIP

BALANCE SHEET OF PARTNERSHIP

BALANCE SHEET OF CORPORATION

FORMATION

A contract of partnership is consensual.

It is created by the agreement of the partners which may be in oral or written form.

The partnership’s legal existence begins from the moment the contract is executed,
unless otherwise stipulated.

VALUATION OF CONTRIBUTIONS

Capital contributions of partners to the partnership are INITIALLY MEASURED AT

FAIR VALUE.

Each partner’s capital account is credited for the fair value of his/her net contribution.

PARTNERS’ LEDGER ACOUNTS

Capital Accounts
Drawings Accounts

Receivable from/Payable to a Partner

PARTNERS’ LEDGER ACOUNTS

Capital Accounts

Dela Cruz, Capital

DEBIT CREDIT
Permanent withdrawals of capital xxx xxx Initial Investment
Share in losses xxx xxx Additional Investment
Debit balance of drawings account xxx Share in profits
xxx

Drawings Account

Dela Cruz, Drawings

DEBIT CREDIT
Temporary withdrawals of capital xxx xxx Recurring reimbursable costs paid
by the partner

Temporary funds held to be remitted to

the partnership xxx

PARTNERSHIP OPERATIONS

Introduction

The operations of a partnership are similar in most respects to those of other forms of
organizations operating in the same line of business. At the end of each fiscal year,
when revenues and expenses are closed out, some assignments must be made of the
resulting income figure because a partnership will have two or more capital accounts
rather than a single retained earnings balance. This allocation to the capital accounts is
based on the agreement established by the partners preferably as a part of the Articles
of Partnership.

A wide range of profit allocation is found in the business world. Some partnerships
have straightforward distribution plans while others have extremely complex ones. It
is the accountant’s responsibility to distribute the profit or loss according to the
partnership agreement regardless of how simple or complex that agreement is. Profit
distributions are similar to dividends for a corporation.

Accounting for Partnership Operations: Methods to Allocate Net Income or Loss

In measuring partnership profit for a period, expenses should be scrutinized to make

sure that partners’ personal expenses are excluded from the partnership’s business
expenses. If personal expenses of a partner are paid with partnership assets, the
payment is charged to the drawing or capital account of that partner. Drawings are
closed to the capital accounts of the partners rather to an income summary account.

Practically all partnerships have a profit or loss allocation agreement. It would be rare
to find a partnership that did not spell out the divisions of profits or losses in details.
The agreement must be followed precisely, and if it is unclear, the accountant should
make sure that all partners agree to the profit or loss distribution. Partners should
select a formula that is sensible, practical, and equitable. The formula used to divide
profits and losses is determined through negotiations among the partners. Whether it
is fair or not, it does not concern the accountant.

It is necessary that the benefit the partners expect to obtain from the combination of
their respective contribution should be common to all the partners, because if such
were not the case, there would be no partnership
Now the question that arises is: “How will the partners divide the profits or losses
resulting from the operation of the partnership?”

The Partnership Law provides that if the profit has been agreed upon, the share of
each partner in the losses shall be in the same proportion with the net income
allocation. It also provides that in the absence of agreement, the share of each partner
in the profits and losses shall be in proportion to what they have contributed (based on
capital contribution), but the industrial partner shall receive such share as may be just
and equitable under the circumstances.

However, the law is not clear as to what capital balances shall be applied, whether the
capital balances refers to original capital, beginning or end of each period or the
average capital during the period. In as much as the law does not clearly specify the
capital balance, it is therefore, presumed to be the original capital, in the absence of
such original capital it should be the beginning capital.

The reason behind the usage of original capital (in his absence, the beginning capital)
is that, if at the time of formation there is no agreement, the law should apply and the
only available capital balance is the original capital. Even though usage of original
capital seems to be unreasonable because of inequity, logic dictates that profit and
loss should be established at the time of formation due to some of the following
reasons:
Subsequent adjustments in assets and liabilities;
Admission of a new partner;
Retirement or withdrawal of a partner; and
Liquidation of partnership.

All of the above reasons require the use of profit and loss ratio. The wait period for
the end-of-the-year balances to determine the average or ending capital would be in
exercise of futility because of the urgency of profit and loss ratio. Deferral of such
action would not address the above reasons.

In the United States, in the absence of any agreement, profit or loss should be
allocated equally and if they agreed on capital balances it is presumed to be the
average capital. Nevertheless, these are practices which are not applicable under
Philippine setting because of its differing law provisions.
Profits and loss can be shared in many ways among partners of a partnership. Most
profit and loss sharing formula includes one or more of the following features or
techniques:
Equally;
Arbitrary ratio;
In the ratio of partner’s capital account balances and the dividing the balance on
agreed ratio:
Original capital – the initial investment / capital at the time of formation.
Beginning capital of the period
Average capital
c1. Simple average
c2. Weighted average
c2.1. Peso-day approach
c2.2. Peso-month approach
Interest on partners’ capital accounts and dividing the balance on agreed ratio;
Salaries to partners and dividing the balance on agreed ratio;
Bonus to partners and dividing the balance on agreed ratio; and
Interest on capital account balance, salaries and bonus to partners and dividing the
balance on agreed ratio

Contract = Agreement - can be written or verbal

Consent
Object
Cause

Fiduciary - establish base on confidence and trust

MUTUAL AGENCY

Outside the authority

On profit - partner
On losses - punishes the one who act outside the authority (siya lang mabayad sang
losses)

Fair Value - price at which an asset or liability could be exchanged in a current

transaction between knowledgeable, unrelated willing parties.

WHO CAN FORM PARTNERSHIP

1. Individuals with no existing business form a partnership

2. A sole proprietorship and another individual form a partnership
Step 1: Adjust the account of the sole proprietor
Step 2: Close the account
Step 3: Transfer the account on the partnership book
3. Two or more sole proprietorship form a partnership
Step 1: Adjust the account of the sole proprietor
Step 2: Close the account
 Step 3: Transfer the account on the partnership book

PARTNERSHIP FORMATION
(Two or more sole proprietors form a partnership)

PARTNERSHIP OPERATION

On Nov. 30, 2021, Angelyn Lique and Charles Kevin Sultan, friendly competitors in
apparel business, decided to combine their talents and capital to form a partnership.
Name will be Charles Angel Clothing Circles. Their statement of financial position
before partnership formation are as follows:

Lique Clothing Lines

Statement of Financial Position
November 30, 2021

Cash 100,000
A/R 200,000
Inventory 160,000
Furniture and Fixtures 120,000
Total Assets 580,000

A/P 100,000
Lique, Capital 480,000
Total L and OE 580,000

Sultan Clothing Curves

Statement of Financial Position
November 30, 2021

Cash 100,000
A/R 160,000
Inventory 200,000
Machinery 180,000
Total Assets 640,000

A/P 250,000
Sultan, Capital 390,000
Total L and OE 640,000

The conditions and adjustments agreed upon by the partners for purposes of
determining their interest in the partnership are:
a. Establishment of a 15% allowance or uncollectable accounts in each book.
b. The inventory of Lique is to be increase by 20,000 while the inventory of Sultan is
to be decreased to 185,000.
c. The furniture and fixtures of Lique are to be depreciated by 15,000. The machinery
of Sultan are to be depreciated by 10%.

Required:

1. Journal entries to record the partnership formation

2. Statement of financial position after partnership formation.

Old Books of Lique

Nov. 30,2021 a.) Lique, Capital 30,000 (A/R divided by 15%)

Allowance for doubtful accounts (15%) 30,000

b.) Inventory 20,000

Lique, Capital 20,000

c.) Lique, Capital 15,000

Acc. Dep. Furnitures and Fixtures 15,000

Close the accounts:

A/P 100,000
Allowance for Doubtful Accounts 30,000
AD - Furnitures and Fixtures 15,000
Lique, Capital 455,000
Cash 100,000
A/R 200,000
Inventory 180,000
Furniture and Fixtures 120,000

By - amo gid na ibutang nga amount

To - kinanglan pa e solve

Old books of Sultan

November 30, 2021 a.) Sultan, Capital 24,000

Allowance for Doubtful Accounts 24,000

b.) Sultan Capital 15,000

Inventory 15,000

c) Sultan, Capital 18,000

AD - Machinery 18,000

Close the accounts:

A/P 250,000
Allowance for Doubtful Accounts 24,000
AD- Machinery 18,000
Sultan, Capital 333,000
Cash 100,000
A/R 160,000
Inventory 185,000
Machinery 180,000

New Set of Books - Partnership

Nov. 30, 2021 Cash 100,000

A/R 200,000
Inventory 180,000
Furnitures and FIxtures 105,000
A/P 100,000
Allowance for Doubtful Accounts 30,000
Lique, Capital 455,000

Nov. 30, 2021 Cash 100,000

A/R 160,000
Inventory 185,000
Machinery 162,000
A/P 250,000
Allowance for Doubtful Accounts 24,000
Sultan, Capital 333,000

Charles Angel Clothing Circles

Statement of Financial Position
November 30, 2021

ASSETS LIAB AND OE

Cash 200,000 A/P 350,000

A/R 360,000 Lique, Capital 455,000
Allow. for Doubtful Acc. (54,000) 306,000 Sultan, Capital 333,000
Inventory 365,000 TOTAL L and OE 1,138,000
Furnitures and Fixtures 105,000
Machinery 162,000
TOTAL ASSETS 1,138,000

Partnership Operations

Division of Profits or Losses

Rules for Distribution of Profits or Losses

Profits:

1. According to partners agreement

2. If there is no agreement:
Capitalist Partner: According to capital (original) contributions
Industrial Partner: Just and equitable under the circumstances

Losses:

1. According to partners agreement

2. If there is no agreement as to division of losses but there is an agreement as to
division of profit, use the profit sharing agreement.
3. If there is no any agreement:
Capitalist Partner: According to capital (original) contributions
Industrial Partner: Not liable for any losses

Distribution based on Partners Agreement

 Equally or in other agreed ratio
 Based on partners capital contribution
 By allowing Interest, Salaries and/or Bonus

Original Capital - capital nga kauna unahang na invest

Opportunity Cost - not a cost but it is a benefit forgone by choosing one alternative
over another.

The following data are available in the books if Robin Padilla and Batman Caster
Partnership for the year 2021.

Padilla, Capital
May 1 100,000 January 1 2,500,000
3,150,000 April 1 250,000
October 1 500,000
3,250,000

Caster, Capital
June 1 150,000 January 1 1,500,000
December 1 50,000 September 1 500,000
200,000 2,000,000
1,800,000

Prepare the entry to record the allocation of the partnership profit (600,000) to
individual capital accounts under each of the following assumptions:
1. Profit is divided equally
2. Profit is divided in the ration of 3:4 to Robin and Batman
3. There is no profit sharing agreement
4. Profit is allocated based on the beginning capital ratio
5. Profit is allocated based on the ending capital ratio
6. Profit is allocated based on the average capital ratio
7. Each profit is allowed 10% interest ending capital and the remaining income is
divided on 60%, 40%.
8. Robin is allowed 350,000 salaries and the remaining profit divided in the ratio of
1:4
9. Batman, the managing partner, is allowed a bonus of 20% of profit before bonus
and tax and the remainder is divided in the ratio of beginning capital.
10. The partners are allowed 5,000 and 10,000 weekly salaries respectively, 10%
interest on average capital, an d the remainder is divided in the ratio of 2:3
11. Assume the same agreement as in #10 except that instead of profit, the partnership
has incurred a loss of 100,000

1.
Padilla Caster Total
Divided Equally 300,000 300,000 600,000

Income Summary 600,000

Padilla, Capital 300,000
Caster, Capital 300,000

2.

Padilla Caster Total

Divided 3:4 257,143 342,857 600,000

Income Summary 600,000

Padilla, Capital 257,143
Caster, Capital 342,857

3.
Padilla Caster Total
Based on original capital 375,000 225,000 600,000

= 2,500,000 + 1,500,000 = 40,000,000

Iya gin lowest term ( 25 + 15 = 40)
So, 600,000 / 40 = 15,000 x 25 = 375,000 (Padilla)
600,000 / 40 = 15,000 x 15 =225,000 (Caster)

Income Summary 600,000

Padilla, Capital 375,000
Caster, Capital 225,000

4.
Padilla Caster Total
Based on beg. capital 375,000 225,000 600,000

Income Summary 600,000

 Padilla, Capital 375,000
Caster, Capital 225,000

5.
Padilla Caster Total
Based on ending capital 381,818 218,182 600,000

= 3,150,000 + 1,800,000 = 4,950,000

= 600,000 / 4,950,000 = 0.121212121 x 3,150,000 = 381,818 (Padilla)
= 0.121212121 x 1,800,000 = 218,181.8 (Caster)

Income Summary 600,000

Padilla, Capital 381,818
Caster, Capital 218,182

6.
Padilla Caster Total
Based on average capital 381,292 218,708 600,000

Padilla

Date Amount Months Unchanged Ave. Capital

Jan. 01 2,5000,000 3/12 625,000
Apr. 01 2,750,000 1/12 229,167
May 01 2,650,000 5/12 1,104,167
Oct. 01 3,150,000 3/12 787, 500
AVERAGE CAP. 2,745,834

Caster

Date Amount Months Unchanged Ave. Capital

Jan. 01 1,500,000 5/12 625,000
June 01 1,350,000 3/12 337,500
Sept. 01 1,850,000 3/12 462,500
Dec. 01 1,800,000 1/12 150,000
AVE. CAP. 1,575,000
TOTAL AVE. CAP. 4,320,834

= 600,000/4,320,834 = 0.138862089
= 0.138862089 x 2,745,834 = 381,292 (Padilla)
= 0.138862089 x 1,575,000 = 218,708 (Caster)

Income Summary 600,000

Padilla, Capital 381,292
Caster, Capital 218,708

7.
Padilla Caster Total
Interest (10%) 315,000 180,000 495,000
Balance (60:40) 63,000 42,000 105,000
Total 378,000 222,000 600,000

Interest on ending capital = 3,150,000 x 0.10 = 315,000 (Padilla)

1,800,000 x .10 = 180,000 (Caster) Income Summary 600,000
315,000 + 180,000 = 495,000 Padilla, Capital 378,000
600,000 - 495,000 = 105,000 Caster, Capital 222,000
105,000 x .60 = 63,000 (Padilla)
105,000 x .40 = 42,000 (Caster)

8.
Padilla Caster Total
Salaries 350,000 - 350,000
Balance (1:4) 50,000 200,000 250,000
Total 400,000 200,000 600,000

Income Summary 600,000

Padilla, Capital 400,000
Caster, Capital 200,000

(1:4) = 1+4 = 5
250,000 x 1/5 = 50,000
250,000 x 4/5 = 200,000

9.
Padilla Caster Total
Bonus 120,000 120,000
Balance based on beg. cap. 300,000 180,000 480,000
Total 300,000 300,000 600,000
Income Summary 600,000
Padilla, Capital 300,000
Caster, Capital 300,000

Computation of Bonus
Bonus = 20% of profit
B = 20% (P)
= 20% (600,000)
B = 120,000

480,000/40 [ang lowest term sang 40,000,000 (total capital)] = 12,000

= 12,000 x 25 = 300,000 (Padilla)
= 12,000 x 15 = 180,000 (Caster)

25 and 15 [lowest term sang capital (2.500,000 and 1,500,000)]

10.
Padilla Caster Total
Salaries 260,000 520,000 780,000
Int. based on ave. cap. (10%) 274,583 157,500 432,083
Balance divided (2:3) (244,833) (367,250) (612,083)
Total 289,750 310,250 600,000

Income Summary 600,000

Padilla, Capital 289,750
Caster, Capital 310,250

Salaries solution:

5,000 x 52 (tungod weekly, so 1 year consist of 52 weeks) = 260,000

10,000 x 52 = 520,000

11.
Padilla Caster Total
Salaries 260,000 520,000 780,000
Int. based on ave. cap. (10%) 274,583 157,500 432,083
Balance divided (2:3) (524,833) (787,250) (1,312,083)
Total 9,750 (109,750) (100,000)

Caster, Capital 109,750

Padilla, Capital 9,750
Income Summary 100,000
 PARTNERSHIP DISSOLUTION

- is the change in relation of partners caused by any partner ceasing to be associated

in the carrying on as distinguished from the winding up (pagsasarado ng negosyo) of
the business of the partnership. (Lifted by the Civil Code of the Philippines, Article
28)
- change in the structure of ownership

On dissolution, the partnership is not terminated. Mostly changes in the ownership

of a partnership are accomplished without interruption of its normal operations.

(Naglain lang sa kung sin o ang ara sa business)

*Una anay ang dissolution before liquidation, and not all dissolution ay mapupunta sa
liquidation.
Causes of Dissolution

1. Admission of a partner
- may bag o nga nag sulod, dapat tanan masugot, indi pwede ang majority

a. Purchase of Interest from one or more Existing Partner/s

Partner A = 100,000 Partnership AB = 250,000

Partner B = 150,000

Partner C = 50% (50,000)

Partner C, gusto mag intra but the investment of his money is hindi magsulod sa
partnership kundi sa iya lang partner. For example, Partner C is partner ya si A, and
he said bibilhin niya ang 50% na interest ni Partner A, ang bayaran ay mamamagitan
kay A at C lamang.

Kung sila ay nagbintahan, ang capital ni A ay mababawasan ng 50% kasi nga

malilipat kay Partner C.

In effect, how much is the total capitalization of the partnership?

- Still, 250,000, kasi hindi nga pumasok ang investment ni Partner C sa Partnership
kundi kay Partner A lang.

INTEREST = CAPITAL

*Yung capital ng nagbebenta ay nababawasan dahil pumupunta don sa bagong

partner, at ang nagbebenta ay hindi lang nag iisa but rather maaring lahat.

Entry:

A, Capital xxx
C, Capital xxx
Transfer of Capital Account lang, wala kang makikitang Cash, kasi hindi pumasok sa
partnership sa Asset yung inilabas ni C, but rather pumasok kay A/B.

Other scenario, for example, 50% ang interest ni C kay A pero iya gina hatag is either
40,000 or 50,000 or 60,000, it can be nubo, chaktohan or mas mataas sa 50%. Ignore
the actual transaction because wala na ta labot sa ila agreement, ara lang ta sa Book
ni Partnership not on Partners. Again, in the purchase of Interest ara lang ta sa
Transfer of Capital.

*Maaari din magkaroon ang Asset Revaluation pero di na kailangan gawan ng

table.

Another example:

It can also be, Partner D, baklon ya ang 20% sang capital sang all partners.

Partner A,B,C (100%) - D 20% - Partnership A,B,C,D

b. Investment of Assets in a Partnership - ang capitalization ay nababago

Partner A = 100,000 Partnership AB = 250,000

Partner B = 150,000

Partner C = 50,000

*Ang capital ay hindi napupunta sa Partners kundi direct sa Partnership.

In effect, how much is the total capitalization of the partnership?

- Partnership ABC = 300,000

AGREED CONTRIBUTED BONUS/ASSET

CAPITAL (AC) CAPITAL (CC) REVALUATION
OLD xxx xxx xxx
NEW xxx xxx xxx
TOTAL xxx xxx xxx

*Ang ara sa sulod sang hammer amo na ang possible nga

may entry.
4.

1. 5. *Pattern of solving
3.

2.
Example of Entry:

Cash (CC) xxx

C. Capital (AC) xxx

CONTRIBUTED CAPITAL - sum of the capital balances of old partners and actual
investment of new partner.
- totoong ibinigay

AGREED CAPITAL - total capital of the partnership after considering the capital
credits given to each partners.
- lalabas na capital amount

BONUS - binibigay ng new partner going to old partner or the other way around.
- can be bonus to all or bonus to new

Bonus to old - kung si new partner ay pumapayag na ang kanyang capital na ininvest
ay mas mababa don sa matatangap niya, nagbibigay siya don sa old
- Yung negosyo ay sobrang tagal na, established na kaya pumapayag si new partner
na ang ibigay sa kanya ay mas mababang credit because mas magaling na ang mga
old partners. But eventhough, mas mababa ang kanyang natatangap pag nakapasok
siya sa partnership, makikinabang din naman sya in the long run. So inshort, para siya
ay makasali nag bibigay siya ng bonus o nagpapababa siya ng kanyang capital.

Bonus to new partner

In other scenario, it can also be na ang kanyang CC ay 50,000 but ang kanyang AC ay
60,000.

Bakit pumapayag ang mga old na mas mataas ang capital ng new kesa don sa inilabas
niyang actual?

- Una, sino ba ang new, mas maaring mas magaling din naman siya, maaaring iniisip
ng old partner na kailangan nila ang new partner dahil pagnakuha ng old ang technical
expertise ng new, maaring ang kanyang net at lahat ng kakilala ay mapapakinabangan
nila in the long run. So, para makuha siya, papayag ang old na mas mababa ang
capital na kanyang maiinvest kesa don sa inooffer na capital credit at yun na nga ang
agreed capital.

ASSET REVALUATION - kung sakali na mayroong mga assets na mas mababa ang
Fair Market Value bago pa sumali ang bagong partner. Applicable for old partners
only.

Partner AB (2020) (2025)

Land = 150,000 *Andyan pa din ang land pero iba na

ang value, kaya kailangan e revalue
ang land from 150,000 - 200,000
bago sumali si Partner C.
So there is a 50,000 increase in land, the question is sino ang makikinabang?

- The asset revaluation ay para lamang don sa old partners dahil, sino ba ang may ari
ng lupa during 2020 - 2025.
- Ang may karapatan lang doon sa revaluation ng asset is kung sino ang partner na
nandon sa mga panahong nababago ang value.
- Magkakaroon lang ng karapatan si Partner C, after the year of 2025.

2. Withdrawal (umalis) or Retirement of a partner - no longer wants to be a part of

partnership
3. Death of a partner

1. Sale of interest to a Partner or an Outsider

If the interest of A who passed away is sale to Partner B, the entry will be:

A, Capital xxx
B, Capital xxx

If the interest of A who passed away is sale to the outsider, the entry will be:

A, Capital xxx
D, Capital xxx

2. Sale of Interest to the Partnership

A, Capital xxx
Cash xxx

4. Incorporation of the partnership - naglain ang formation (ex. Gin corporation)

Steps:

Adjust Close Transfer

Acc. Dep. xxx A, Capital xxx Cash xxx

A, Capital xxx B, Capital xxx A/R xxx
B, Capital xxx C, Capital xxx Land xxx
C, Capital xxx Acc. Dep. xxx Equipt, Net xxx
All. For Bad debts xxx All. For Bad debts xxx
A, Capital xxx A/P xxx A/P xxx
B, Capital xxx Mort. Pay. xxx Mort. Pay xxx
C, Capital xxx Cash xxx Share Capital xxx
Inventory xxx A/R xxx Share Premium xxx
Land xxx
Accrd. Int. Inc. xxx Equipment xxx
A, Capital xxx
B, Capital xxx
C, Capital xxx
*Kung may liabilities ang old partner then sumali si new sa kanilang partnership,
magkakaliable din siya sa dating liable ng partnership.