Partnership Question

1. What is partnership?

- With regards to the Article 1767 of the Civil Code of the Philippines, partnership is a contract between two or more parties
who bind themselves to carry on trade or business wherein they will contribute money, property, or industry into a common
fund with the intention of sharing the future profit among themselves.

2. How does partnership differ from sole-proprietorship?

- These two forms of business differ in terms of; sole-proprietorship is owned by a single entity while partnership have two or
more entity as owner. All the profit and liability of sole-proprietorship is entitled to that single owner while in partnership it is
distributed and shared among the parties in the agreed ratio.

3. Explain the meaning of unlimited liability of partner in partnership debts. Is this an advantage or disadvantage on the part of
partnership?

- When a business owner or partner has unlimited liability, all the asset, may it be contributed or not on partnership, is used
pay the liability of the business in case of deficiency of assets of the said partnership business-they are fully responsible for
the company’s debt. Thus, it is a disadvantage because the liability of the company is not limited to what the company owned
but is extended to the personal possession of both owner and partners.

4. What is the basis for measuring the contribution or investment of partners in the form of non-cash assets?

- Agreed value is the basis for measuring the contribution of partners in business. However, if there is no agreement, fair
market value is used.

5. Why is it preferable to have a written contract? What is the content of a typical partnership contract?

- It specifies who will own what percentage of the business, how earnings and losses will be allocated, and who will be
responsible for what responsibilities as well as how disagreements will be resolved. Hence, it is preferable to maintain and
avoid conflict between involving partners as it governs the formation, operation, and dissolution of partnership.

6. What is the major difference between general partner and limited partner? How are they to be distinguished? When partnership is a
limited partnership, does the characteristic of “unlimited liability still apply? Why or why not?

- A general partner actively manages and exercises control over the company wherein partners are subjected into unlimited
liability. On the other hand, limited partner, are not involve in day-to-day operation of business and only contributes shares to
be a partner in the business and his responsibility to the debt of the partnership company is only limited to the assets he
invested. Unlimited liability does not apply as limited partner only agreed to offer limited liability. In short, separate legal entity
is established.

7. Why are capital account and drawing account opened for each partner?

- Capital account is opened for separate partners for the company to distinguished how much of an equity he/she should own
from the profit of the business. While drawing account is used to determine the total amount a partner take from the business
for personal used, to be deducted from his possible equity.

8. What are the step to be followed in recording the formation of a partnership if the books of one of the previous sole-proprietors will be
used?
 - If the partnership will use the book of one of the proprietors, they’ll should follow two steps. First, to adjust the book of the
sole proprietor to bring accounts balance to agreed values. Second, to record the investments of another partner.

9. Why would a partnership decide to use the book of one of the previous sole-proprietors instead of opening new set of books?

- Actually, a partnership does not resort only to using the book of the previous sole-proprietor as they can also opened a new
set of books as being said. However, if a company chose to use the prior, it is because the steps to be taken is much more convenient
than opening a new set of books.

10. Why is the accumulated depreciation account not carried over the new book of the partnership?