Partnership

Money
4 Major Stages of a Partnership business Property
1. Partnership Formation Liabilities - does not assume
2. Partnership Operations
3. Partnerhsip Dissolution
4. Partnership Liquidation Money Face amount
Property 1. Agreed value
1. Partnership Formation 2. Fair Market Value
Cash xx 3. Carrying Value/Book Value
A, Capital xx

Properties xx
B, Capital xx Case 1 50% 50%
Liabilities xx A B
Total Contributed Capital 100,000.00 100,000.00 100,000.00
Total Agreed Capital 150,000.00 150,000.00 300,000.00
Additional Investments - 50,000.00 - 50,000.00

Cash/Other Assets 50,000.00

A, Capital 50,000.00

Cash/Other Assets 50,000.00

A, Capital 50,000.00

Case 2 50% 50%

A B
Total Contributed Capital 150,000.00 150,000.00 300,000.00
Total Agreed Capital 100,000.00 100,000.00 200,000.00
Withdrawals 50,000.00 50,000.00
A, Capital 50,000.00
Cash/Other investments 50,000.00

B, Capital 50,000.00
Cash/Other investments 50,000.00

Case 3 60% 40%

A B
Total Contributed Capital 100,000.00 100,000.00 200,000.00
Total Agreed Capital 120,000.00 80,000.00 200,000.00
- 20,000.00 20,000.00

B, Capital 20,000.00
A, Capital 20,000.00
Partnerhip Operations Profit
1. Based on Profit agreement
Operating Cycle 2. Capitalist Partners - based on the capital contribution (beginning c
Industrial Partners - based on Just and Equitable share
Sales 3. Equally TCC = TAC
COGS
Gross Profit
Less: Opex 102,000.00 Loss
Profit or Loss - 2,000.00 How shall the P&L distributed to the partners? 1. Based on Loss Agreement
2. Based on Profit Agreement
3. Capitallist partners - based on the capital contribution
Gross of Salaries, Interest and Bonus to be contributed to the partners Industrial Partners - Exempt

Salaries Monthly, Quarterly, Annually

Loss - 100,000.00 Interest 1. Beginning Balance
Salaries 20,000.00 2. Weighted Ave capital
Interest 15,000.00 35,000.00 Bonus Given only if the partnership earned profit duirng the yea
- 135,000.00 Bonus before salaries and interest
Bonus is based on after salaries and interest but before b
 70% 30%
contribution (beginning capital)
quitable share

50% 50%

l contribution

Even loss

rned profit duirng the year

and interest but before bonus

A. Theories of Accounts

1. Which of the following transactions shall not affect the capital balance of a partner?
a Share of a partner in the partnership loss x
b Receipt of a bonus by a partner from another partner based on the agreement x
c Advances made by the partnership to a partner
d Additional investment by a partner to the partnership

2. In the absence of agreement as to distribution of profit, how shall the partnership profit have distributed to the
partners?
a. The industrial partner shall receive a share equivalent to the least share of a capitalist partner while the
capitalist partner shall share based on capital contribution.
b. The industrial partner shall receive a just and equitable share and the remainder shall distributed to the
capitalist partners on the basis of capital contribution ratio.
c. The profit shall be distributed on the basis of loss contribution ratio which may have been agreed by the
partners.
d. The profit shall be distributed equally to all partners including the industrial partner.

3. In the absence of the agreement as to distribution of loss, how shall partnership loss be distributed to the
partners?
a. The loss shall be distributed equally to all partners including the industrial partner.
b. The industrial partner shall be exempted from partnership loss while capitalist partner shall share equally.
c. The industrial partner shall be exempted from the partnership loss while the capitalist partners shall be
distributed on the basis of capital contribution ratio.
d. The industrial partner shall be exempted from the partnership loss while the capitalist partners shall be
distributed on the basis of profit ratio.

4. Which of the following will decrease the capital balance of a partner?

a. Share in partnership profit
b. Receipt of share in revaluation surplus from PPE
c. Drawings made by a partner
d. Advances made by partner to the partnership

5. If there is an agreement for the division of profits but none for losses, it is concluded that:
a. Losses should be divided using original capital ratio
b. Losses should be divided using ave. capital ratio
c. Losses should be divided in the same way as profit
d. Losses should be divided equally
1. Salaries, interest and division of Profit and Loss Case 1 40%
A
A, B and C partnership agreement stipulates the following: Amount being allocated
Annual salaries of P12,000 to A and P8,000 to B. Salaries 12,000.00
10% interest based on the beginning capital contribution of the partners. Interest 10,000.00
o A beginning capital – P100,000 Remaining 39,200.00
o B beginning capital – P600,000 Total 61,200.00
o C beginning capital – P120,000

Profit ratio of 40%:30%:30% respectively:

Case 1: (Profit) The partnership earns profit of P200,000. Compute the partners respective shares.
Case 2: (Insufficient profit) The partnership earns profit of P100,000. Compute the partners respective shares.
Case 3: (Net loss) The partnership incurs loss of P10,000. Compute the partners respective shares.
Case 2 40%
A
Amount being allocated
Salaries 12,000.00
Interest 10,000.00
Remaining - 800.00
Total 21,200.00

Case 3 40%
A
Amount being allocated
Salaries 12,000.00
Interest 10,000.00
Remaining - 44,800.00
Total - 22,800.00
 30% 30%
B C Total
200,000.00
8,000.00 - 20,000.00
60,000.00 12,000.00 82,000.00
29,400.00 29,400.00 98,000.00
97,400.00 41,400.00 200,000.00

30% 30%
B C Total
100,000.00
8,000.00 - 20,000.00
60,000.00 12,000.00 82,000.00
- 600.00 - 600.00 - 2,000.00
67,400.00 11,400.00 100,000.00

30% 30%
B C Total
- 10,000.00
8,000.00 - 20,000.00
60,000.00 12,000.00 82,000.00
- 33,600.00 - 33,600.00 - 112,000.00
34,400.00 - 21,600.00 - 10,000.00
2. Interest on Weighted average capital
Case 1 - Full year
A and B’s partnership agreement stipulates the following: Amount being allocated
o Annual salary of P48,000 to A Salary
o B receives a 12% interest based on B’s weighted capital balance. B initially contributed P30,000. During the Interest
period, B contributed additional P10,000 on July 1 and P6,000 on November 30, and withdrew P4,000 on Remaining
October 1. Total
o The balance is shared equally.

Case 1: (Full year) The partnership earned profit of P90,000 during the year ended December 31, 2022. Compute the 1/1 30,000.00 x 12/12
share allocated to A and B during the year and provide the journal entry. 12months 7/1 10,000.00 x 6/12
10/1 - 4,000.00 x 3/12
Case 2: (Partial year) The partnership earned profit of P90,000, for the eight (8) months of opera􀆟on during the year 11/30 6,000.00 x 1/12
ended December 31, 2022. Compute the share allocated to A and B during the year and provide the journal entry.

Annual Salary 48,000 Case 2 - Partial year

48,000 x8/12 32,000 Amount being allocated
48,000/12 = ______ x 8 Salary
Interest
Remaining
Total

5/1 30,000.00 x 8/12

7/1 10,000.00 x 6/12
10/1 - 4,000.00 x 3/12
11/30 6,000.00 x 1/12

5/1 30,000.00 x 8/8

7/1 10,000.00 x 6/8
10/1 - 4,000.00 x 3/8
11/30 6,000.00 x 1/8
A B Total

90,000.00
48,000.00 - 48,000.00
- 4,140.00 4,140.00
18,930.00 18,930.00 37,860.00
66,930.00 23,070.00 90,000.00

30,000.00
5,000.00
- 1,000.00
500.00
34,500.00 x 12%

A B Total

90,000.00
32,000.00 - 32,000.00
- 2,940.00 2,940.00
27,530.00 27,530.00 55,060.00
59,530.00 30,470.00 90,000.00

20,000.00
5,000.00
- 1,000.00
500.00
24,500.00 x 12% 2,940.00

30,000.00
7,500.00
- 1,500.00
750.00
36,750.00 x 12% x 8/12 2,940.00
3. Computation of Bonus 1. Bonus is based on net income before bonu
Dawn and Drew started on their partnership business on January 1, 2022. During the first year of operation, the net
income of the business is amounted to P1,008,000. Dawn was appointed as the managing partner. During the year.
The article of Co-Partnership agreed on the allocation of net income as follows: Amount being allocated
o Bonus of 20% to Dawn Salary
o Annual salary of 96,000, and P144,000 to Dawn and Drew, respectively. Interest
o Interest based on average capital balance, amounting to Dawn – P28,800 and Drew – 19,200. Bonus
o Remaining balance in the net income be allocated to Dawn and Drew in the ratio of 2:1. Remaining
Compute the Bonus assuming: Total
1. Bonus is based on net income before bonus, salaries, and interest. 201,600
2. Bonus is based on net income after bonus but before salaries, and interest. 168,000
3. Bonus is based on net income after bonus, and salaries, but before interest. 128,000 2. Bonus is based on net income after bonus
4. Bonus is based on net income after bonus, salaries, and interest. 120,000
5. Bonus is based on net income after salaries, but before bonus, and interest. 153,600
6. Bonus is based on net income after interest, but before bonus and salaries. 192,000 Amount being allocated
Salary
Compute the profit distributed to each partner Interest
Bonus
Remaining
Total

3. Bonus is based on net income after bonus,

Amount being allocated

Salary
Interest
Bonus
Remaining
Total
s based on net income before bonus, salaries, and interest.
0.66666667 0.33333333
Dawn Drew Total B = 20% (NI)
1,008,000.00 B = 20% (1,008,000)
96,000.00 144,000.00 240,000.00 B = 201,600
28,800.00 19,200.00 48,000.00
201,600.00 201,600.00
345,600.00 172,800.00 518,400.00
672,000.00 336,000.00 1,008,000.00

s based on net income after bonus but before salaries, and interest.
0.66666667 0.33333333
Dawn Drew Total
1,008,000.00 B = 20% (NI - B)
96,000.00 144,000.00 240,000.00 B =20% (1,008,000 - B)
28,800.00 19,200.00 48,000.00 B = 201,600 - 20%B
168,000.00 - 168,000.00 B + 20%B = 201,600
368,000.00 184,000.00 552,000.00 1.20%B = 201,600
660,800.00 347,200.00 1,008,000.00 1.2 1.2
B = 168,000

s based on net income after bonus, and salaries, but before interest.

0.66666667 0.33333333 B = 20% (NI -S - B)

Dawn Drew Total B = 20% (1,008,000 - 240,000 - B)
1,008,000.00 B = 201,600- 48,000 - 20%B
96,000.00 144,000.00 240,000.00 B = 153,600 - 20%B
28,800.00 19,200.00 48,000.00 1.2B = 153,600
128,000.00 - 128,000.00 1.2 1.2
394,666.67 197,333.33 592,000.00 B = 128,000
647,466.67 360,533.33 1,008,000.00
 4. Bonus is based on net income after bonus,

Amount being allocated

Salary
Interest
Bonus
Remaining
Total

5. Bonus is based on net income after salarie

Amount being allocated

Salary
Interest
Bonus
Remaining
Total

6. Bonus is based on net income after interes

Amount being allocated

Salary
Interest
Bonus
Remaining
Total
s based on net income after bonus, salaries, and interest.

0.66666667 0.33333333
Dawn Drew Total B = 20% (NI -S - I - B)
1,008,000.00 B = 20% (1,008,000 - 240,000 -48,000 - B)
96,000.00 144,000.00 240,000.00 B = 201,600- 48,000 - 9,600 - 20%B
28,800.00 19,200.00 48,000.00 B = 144,000 - 20%B
120,000.00 - 120,000.00 1.2B = 144,000
400,000.00 200,000.00 600,000.00 1.2 1.2
644,800.00 363,200.00 1,008,000.00 B = 120,000

s based on net income after salaries, but before bonus, and interest.
0.66666667 0.33333333
Dawn Drew Total B = 20% (NI - S)
1,008,000.00 B = 20% (1,008,000 - 240,000 )
96,000.00 144,000.00 240,000.00 B = 201,600- 48,000
28,800.00 19,200.00 48,000.00 B = 153,600
153,600.00 - 153,600.00
377,600.00 188,800.00 566,400.00
656,000.00 352,000.00 1,008,000.00

s based on net income after interest, but before bonus and salaries.
0.66666667 0.33333333
Dawn Drew Total B = 20% (NI - I)
1,008,000.00 B = 20% (1,008,000 - 48,000 )
96,000.00 144,000.00 240,000.00 B = 192,000
28,800.00 19,200.00 48,000.00
192,000.00 - 192,000.00
352,000.00 176,000.00 528,000.00
668,800.00 339,200.00 1,008,000.00
4. Multiple bases of allocation: Next week - continuation of pa
Next Topic - Partnership Dissol
On January 1, 2018, partners Earth and Shakers formed Earthquake Partnership with partner Earth contribu􀆟ng
P500,000 and Shakers contribung P300,000. Partnership realized a profit of P200,000 for the year ended 2018.
Below is the summary of addional investments and withdrawals of the partners during the year.

Partner Earth Additional Investments Withdrawals

February 1 60,000.00
March 31 30,000.00
July 1 50,000.00
November 1 15,000.00

Planet Shaker Additional Investments Withdrawals

May 1 50,000.00
August 1 35,000.00
December 1 30,000.00

Profit is distributed to the partners according to the following provisions:

A. Annual salary to Earth, managing partner in the amount of P50,000.

B. Interest of 10% each based on weighted average capital balance.
C. Bonus to Earth of 5% of net income before bonus.
D. Balance is 4:6 respectively.

Requirements: Compute the following

1. The profit distributed to each partners.
2. The ending capital of each partners.
Next week - continuation of partnership operation
Next Topic - Partnership Dissolution
5. Partnership capital account

Hellen and Monvi’s Partnership began its operations on March 1, 2022. Hellen invested P100,000 cash while Monvi
invested equipment with book value of P300,000 and fair value of P180,000. Hellen invested additional cash of
P20,000 on August 31, 2022. The partnership stipulates the following.

* Monthly salaries of P2,000 and P10,000 to Hellen and Monvi, respectively, recognized as expenses.
* 20% bonus to Monvi, based on profit before deducting salaries, and interest but after deducting the bonus.
* 12% annual interest based on beginning capital of Hellen,
* Balance allocated equally.

Additional information:

* The partners received their monthly salaries at each month end.

* The partners earned profit of P210,000 before deduc􀆟ons for bonus and interest.

Compute the following.

1. Salaries allocated to Hellen and Monvi.
2. Bonus allocated to Monvi.
3. Total net profit shares allocated to both partners.
4. The ending capital balance to both partners.