PARTNERSHIP

ACCOUNTING
 I. PARTNERSHIP OPERATION

Rules for the Distribution of Profits and Losses

1. Agreement

2. In proportion to the capital contribution, industrial partners shall

have just and equitable in profits and exempt from losses.

 I. PARTNERSHIP OPERATION

Methods of Distributing of Profits and Losses

1. Equally
2. Arbitrary
3. Capital Ratio
a. Original capital
b. Beginning capital
c. Ending capital
d. Average capital (simple/weighted)
4. Salary allowance and the balance on the agreed ratio
5. Interest allowance and the balance on the agreed ratio
6. Bonus to the managing partner and the balance on the agreed ratio
7. In order of priority schemes if profits are not sufficient to cover the
salary and interest allowances
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Methods of Distributing of Profits and Losses

1. Equally
2. Arbitrary
3. Capital Ratio
a. Original capital
b. Beginning capital
c. Ending capital
d. Average capital (simple/weighted)
4. Salary allowance and the balance on the agreed ratio
5. Interest allowance and the balance on the agreed ratio
6. Bonus to the managing partner and the balance on the agreed ratio
7. In order of priority schemes if profits are not sufficient to cover the
salary and interest allowances
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I. PARTNERSHIP OPERATION
FORMATION
Illustration 1: On January 1, 2020, A and B Case 1: Equally
formed a partnership. A contributed 50,000
and B 200,000 as their investment. On year Income Summary 39,500
2022, the capital accounts were as follows: A, Capital (39,500 x ½) 19,750
B, Capital (39,500 x ½) 19,750
A, Capital B, Capital
1/1 40,000 1/1 60,000
4/1 8,000 3/1 (9,000)
8/31 (6,000) 7/1 7,000
10/31 18,000 10/1 12,000
12/31 60,000 12/31 70,000 Case 2: Arbitrary ratio, assume that profits will be distributed
70% to A and 30% B
The net income of the partnership is 39,500
for the year 2022. The partnership provides Income Summary 39,500
for the division of profits as follows: A, Capital (39,500 x 70%) 27,650
B, Capital (39,500 x 30%) 11,850
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Case 3: Capital ratio, (a) assume that profits will be distributed
Illustration 1: On January 1, 2020, A and B according to their original capital.
formed a partnership. A contributed 50,000
and B 200,000 as their investment. On year Income Summary 39,500
2022, the capital accounts were as follows: A, Capital (39,500 x 50K/250K) 7,900
B, Capital (39,500 x 200K/250K) 31,600
A, Capital B, Capital
1/1 40,000 1/1 60,000
4/1 8,000 3/1 (9,000)
Case 3: Capital ratio, (b) assume that profits will be distributed
8/31 (6,000) 7/1 7,000
according to their beginning capital.
10/31 18,000 10/1 12,000
12/31 60,000 12/31 70,000
Income Summary 39,500
A, Capital (39,500 x 40K/100K) 15,800
The net income of the partnership is 39,500 B, Capital (39,500 x 60K/100K) 23,700
for the year 2022. The partnership provides
for the division of profits as follows:
Case 3: Capital ratio, (c) assume that profits will be distributed
according to their ending capital.

Income Summary 39,500

A, Capital (39,500 x 60K/130K) 18,230
B, Capital (39,500 x 70K/130K) 21,270
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Illustration 1: On January 1, 2020, A and B
formed a partnership. A contributed 50,000
and B 200,000 as their investment. On year Case 3: Capital ratio, (d1) assume that profits will be distributed
2022, the capital accounts were as follows: according to their simple average.

A, Capital B, Capital Income Summary 39,500

1/1 40,000 1/1 60,000 A, Capital (39,500 x 50K/115K) 17,174
B, Capital (39,500 x 65K/115K) 22,326
4/1 8,000 3/1 (9,000)
8/31 (6,000) 7/1 7,000
10/31 18,000 10/1 12,000 A, Capital (40,000+60,000) / 2 = 50,000
12/31 60,000 12/31 70,000
B Capital (60,000+70,000) / 2 = 65,000
The net income of the partnership is 39,500
for the year 2022. The partnership provides
for the division of profits as follows:
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Case 3: Capital ratio, (d2) assume that profits will be distributed

Illustration 1: On January 1, 2020, A and B according to their weighted average.
formed a partnership. A contributed 50,000
and B 200,000 as their investment. On year Income Summary 39,500
2022, the capital accounts were as follows: A, Capital (39,500 x 47K/106K) 18,230
B, Capital (39,500 x 59K/106K) 21,270
A, Capital B, Capital
1/1 40,000 1/1 60,000
4/1 8,000 3/1 (9,000)
8/31 (6,000) 7/1 7,000
A, Capital B, Capital
10/31 18,000 10/1 12,000
1/1 40,000 x 3/12 = 10,000 1/1 60,000 x 2/12 = 10,000
12/31 60,000 12/31 70,000
4/1 48,000 x 5/12 = 20,000 3/1 51,000 x 4/12 = 17,000
8/31 42,000 x 2/12 = 7,000 7/1 58,000 x 3/12 = 14,500
The net income of the partnership is 39,500
10/31 60,000 x 2/12 = 10,000 10/1 70,000 x 3/12 = 17,500
for the year 2022. The partnership provides
for the division of profits as follows: 47,000 59,000
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Case 4: Assume that the partnership agreement provides the
Illustration 1: On January 1, 2020, A and B following distribution:
formed a partnership. A contributed 50,000
and B 200,000 as their investment. On year 1. Partner A receives a bonus of 10% of the net income before bonus and
2022, the capital accounts were as follows: interest but after salary.
2. Salary allowance of 5,000 each to A and B
A, Capital B, Capital 3. Interest allowance of 10% of average capital balances
1/1 40,000 1/1 60,000 4. The balance is to be divided equally
4/1 8,000 3/1 (9,000)
8/31 (6,000) 7/1 7,000
Income Summary 39,500
10/31 18,000 10/1 12,000
A, Capital 20,625
12/31 60,000 12/31 70,000
B, Capital 18,875
The net income of the partnership is 39,500
for the year 2022. The partnership provides
for the division of profits as follows: Computation A B Total

Salary allowance 5,000 5,000 10,000

Bonus= 10% (NI - Salary) Interest allowance 4,700 5,900 10,600
Bonus=10%( 39,500 - 10,000 ) Bonus Allowance 2,950 2,950
Bonus=10%(29,500) Balance Equally 7,975 7,975 15,950
Bonus=2,950 20,625 18,875 39,500
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Case 4: Assume that the partnership agreement provides the
Illustration 1: On January 1, 2020, A and B following distribution:
formed a partnership. A contributed 50,000
and B 200,000 as their investment. On year 1. Partner A receives a bonus of 10% of the net income after allowance
2022, the capital accounts were as follows: for interest, salary and bonus.
2. Salary allowance of 5,000 each to A and B
A, Capital B, Capital 3. Interest allowance of 10% of average capital balances
1/1 40,000 1/1 60,000 4. The balance is to be divided equally
4/1 8,000 3/1 (9,000)
8/31 (6,000) 7/1 7,000
Income Summary 39,500
10/31 18,000 10/1 12,000
A, Capital 20,009
12/31 60,000 12/31 70,000
B, Capital 19,491
The net income of the partnership is 39,500
for the year 2022. The partnership provides Computation A B Total
for the division of profits as follows:
Salary allowance 5,000 5,000 10,000
Interest allowance 4,700 5,900 10,600
Bonus= 10% (NI – Interest - Salary - Bonus) Bonus Allowance 1,718 1,718
Bonus=10%( 39,500 - 10,000 – 10,600 - Bonus) Balance Equally 8,591 8,591 17,182
Bonus=1,718 20,009 19,491 39,500
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I. PARTNERSHIP OPERATION
FORMATION
Illustration 1: On January 1, 2020, A and B
formed a partnership. A contributed 50,000
and B 200,000 as their investment. On year
2022, the capital accounts were as follows:

A, Capital B, Capital
1/1 40,000 1/1 60,000 Note: Bonus is not given if income is insufficient to
4/1 8,000 3/1 (9,000) cover salary allowances and interest.
8/31 (6,000) 7/1 7,000
10/31 18,000 10/1 12,000
12/31 60,000 12/31 70,000

The net income of the partnership is 39,500

for the year 2022. The partnership provides
for the division of profits as follows:
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I. PARTNERSHIP OPERATION
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EXERCISES
 I. PARTNERSHIP
I. PARTNERSHIP OPERATION
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1. Luffy, Zoro and Sanji agreed to form a partnership and to share profits and loss in
the ratio of 5:3:2. They also agreed that Sanji is to be allowed a salary of P28,000 and
that Zoro is to be guaranteed with 21,000 as his share of the profits. During the first
year of operation, income from fees is P180,000, while expenses total P96,000. What
amount of net income should be credited to each Luffy, Zoro and Sanji’s account
respectively?

a. P25,000; P21,000; and P39,000

b. P24,000; P22,000; and P38,000
c. P28,000; P16,800; and P11,200
d. P25,000; P21,000; and P38,000
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2. The partnership contract of Aileen, Irene and Josie divides profits and losses in the
ratio of 4:5:3. In 2020, the business earned P90,000. Aileen share of this income is:

a. P36,000
b. P30,000
c. P37,500
d. P45,000
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3. Billy and Silly share profits in the ratio of 3:2. However, Billy is to receive a bonus of
20% of the profits, in addition to his profit share. For the year, the partnership made
income of P144,000 before the bonus. Assuming Billy’s bonus is computed on profit
after deducting the said bonus, how much profit share will Silly receive?

a. P36,000
b. P48,000
c. P96,000
d. P45,000
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