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MODULE 2 PACKET
AE 13 – PARTNERSHIP & CORPORATION ACCOUNTING
MODULE 2 OVERVIEW: COURSE CONTENT FOR MODULE 2:
Welcome to Module 2 – PARTNERSHIP OPERATIONS PARTNERSHIP OPERATIONS
ACTIVITY DESCRIPTION TIME TO COMPLETE
In this module, we will discuss the proper distribution of partnership profits and losses among the Lecture discussions Partnership Operations 2 hours
partners and prepare the financial statements for a partnership. At the end of this module, you are Distribution of Partnership Profits and Losses
Activity 2-1 1 hour
going to answer an assessment to apply the lessons you learned from this module. and Journal Entries
Activity 2-2 Multiple Choice Problems 1 hour
Quiz Summative quiz for Module 2 2 hours
CONSULTATION HOURS:
Phone or Messenger:
Virtual time: Class schedule
LECTURE DISCUSSIONS
DIVISION OF PROFIT AND LOSSES
MODULE 2 LEARNING OBJECTIVES:
1.1 PROFIT & LOSS RATIOS
By the end of this module, the students will be able to: The partnership agreement should specify the basis for sharing net income or net loss. The
following are typical profit and loss ratios:
1. Determine the proper distribution of partnership profits and losses among the partners. 1 A fixed ratio, expressed as a proportion (6:4), a percentage (60% and 40%), or a fraction
2. Journalize entries involved in profit or loss distribution (3/5 and 2/5).
2 A ratio based on either capital balances at the beginning of the year, end of the year, or
3. Prepare the financial statements for the partnership such as the income statement, statement
on average capital balances during the year.
of partners’ equity; and statement of financial position. 3 Salaries, interests, and bonuses to partners

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1. Fixed Ratio

2. Ratio based on either capital balances at the beginning of the year or on average capital
balances during the year.
• This income-sharing ratio may be based either on capital balances at the beginning of
the year or on average capital balances during the year.
• Capital balances income-sharing may be equitable when a manager is hired to run the
business, and the partners do not plan to take an active role in daily operations.

3. Salaries to Partners
Income-sharing based on salary allowances may be:
a. Salary allowances to partners and the remainder on a fixed ratio or
b. Salary allowances to partners, interest on partners’ capitals, and the remainder on
a fixed ratio.
• Salaries to partners and interest on partner’s capital balances are not expenses of
the partnership; therefore, these items do not enter into the matching of expense
with revenues and the determination of net income or net loss.

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4. Salaries to partners, interest on partners’ capitals, and the remainder on a fixed ratio The following points should be remembered regarding the division of profits and losses:

1. Payment of salaries, interest and bonus to partners should be treated as part of

profit distribution and not as expenses.

2. If there is a bonus agreement, determine the basis of computing the bonus

which may be based either on the net income before deducting the bonus or on
the net income after deducting the bonus (as expense). Bonus agreement is
not applicable if there is a loss.

3. If there is no agreement regarding the division of profits and losses, profits and
losses should be divided according to the original capital ratios. If the original
capital contributions are not given, use the beginning capital ratios.

4. If the agreement specifies how profits are to be divided but is silent as to

Division of Net Income with Income Deficiency losses, losses are to be divided in the same manner as profits.

5. If the partners agree to divide losses only, profits if any shall be divided
according to the original capital contributions.

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1.2 STATEMENT OF PARTNER’ EQUITY & STATEMENT OF FINANCIAL POSITION

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Activity 2-1 Distribution of Partnership Profits & Losses and Journal Entries Activity 2-1 Distribution of Partnership Profits & Losses and Journal Entries
The AA Enterprise realized a profit of P240,000 for the year. Changes in the Capital Accounts of
the partners are as follows: Emy and Dax formed a partnership dividing income as follows:

1. Annual salary allowance to Emy of P48,000

2. Interest of 8% on each partner’s capital balance on January 1
3. Any remaining net income divided equally.

Emy and Dax had P25,000 and P140,000 respectively in their January 1 capital balances.
Net income for the year was P220,000.

How much net income should be distributed to Emy and Dax, respectively?

Activity 2-3 Multiple Choice Questions/Problems. Please answer directly in the Neo LMS.

Summative Quiz- Module 2

Prepare the journal entries and computation to record the division of profit using the following
assumptions:
1. Profit is divided equally REFERENCES:
2. Profit is divided in the ratio of 3:2
3. Profit is divided 45% to Adam and 55% to Andy
Aduana, Nick L. (2016). Partnership and Corporation
4. Profit is divided according to the beginning capital ratio Accounting (A Procedural Approach). Quezon City:
5. Profit is divided according to the average capital ratio C & E Publishing, Inc.
6. Each partner is allowed 10% interest on ending capital and remaining is divided equally
Ballada, Win Lu, Susan Ballada. (2019). Partnership
7. Andy, the managing partner, is allowed a salary of P150,000 and the remainder divided in
and Corporation Accounting. 21st Edition. Manila:
4:1 ratio. Printed Learning Resources Domdane Publishers and Made Easy Books.
8. A bonus of 10% of profit before bonus to Adam, and the balance to be divided in the ratio
40:60. Dayag, Antonio J. (2019). Advanced Financial
Accounting and Reporting (Theories & Problems).
9. A bonus of 10% of profit after bonus to Adam, and the balance to be divided equally.
2017 C.M. Recto Ave.: GIC Enterprises & Co., Inc.
Guerrero, Pedro, Jose Peralta. (2017). Advanced
Accounting Principles and Procedural Applications

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