ACCOUNTING ON SPECIAL TRANSACTIONS

PARTNERSHIP FORMATION
Introduction
A partnership is an unincorporated association of two or more individuals to carry on, as co-owners, a business, with
the intention of dividing the profits among themselves.
The following distinguishes a partnership from other types of entities:
1) It is owned by two or more individuals;
2) It is created by agreement between the parties;
3) A partnership is formed for a business undertaking that is normally of continuing nature

ACCOUNTING FOR PARTNESHIP

Major Considerations in the accounting for the equity of a partnership
1. Formation
2. Operations
3. Dissolution
4. Liquidation

VALUATION OF CONTRIBUTIONS OF PARTNERS

Appraisal- Fair Value ((non-cash items)
Additional Guidelines
TYPES OF CONTRIBUTION MEASUREMENT

Cash and cash equivalents Face amount (PAS 7)

Inventory Lower of cast and NRV (PAS 2)

Partners' ledger accounts

a. Capital accounts
b. Drawings accounts
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c.Receivable from /Payable to a partner

Capital and Drawings account

Juan Dela Cruz, Capital

▪ Permanent withdrawals of capital ▪ Initial investment

▪ Share in losses ▪ additional investment

▪ Debit balance of drawings account ▪ share in profits

Capital and Drawings account

Juan Dela Cruz, Drawing

• Temporary withdrawals during the period • Recurring reimbursable costs paid by the
partner
• Temporary funds held to be remitted to the
partnership
▪ Loan extended - receivable
▪ loan obtained- payable
RECEIVABLE FROM/ PAYABLE TO PARTNER

Illustration Formation of partnership- Valuation of capital

Yennerfer and Ciri formed a partnership . The following are their contributions
Yennefer Ciri

Cash 100,000 -

Accounts Receivables 50,000 -

Inventory 80,000 -

Land 50,000

Building 120,000

Total 230,000 170,000

Illustration Formation of partnership- Valuation of capital

Yennerfer and Ciri formed a partnership . The following are their contributions
Yennefer Ciri

Notes Payable 60,000

Yennefer, capital 170,000

Ciri, capital 170,000

Total 230,000 170,000

Additional Information
▪ Included in the accounts receivable is an account amounting to P20,000 which is deemed uncollectible
▪ The inventory has an estimated selling price of P100,000 and estimated costs to sell of P10,000
▪ The partnership assumed a P10,000 unpaid mortgage on the land
▪ The building is under depreciated by P25,000
▪ There is unpaid mortgage of P15,000 on the bldg which Ciri agreed to settle using his personal funds
▪ The note payable is stated at face amount. A proper valuation requires the recognition of a P15,000 discount on
note payable
▪ Yennefer and Ciri shall share in profits and losses on a 60:40 ratio, respectively.
Requirement: (a) Compute for the adjusted Balances of the partners' capital account