PARTNERSHIP FORMATION MAJOR CONSIDERATIONS IN THE ACCOUNTING FOR THE

EQUITY OF A PARTNERSHIP

a. - accounting for initial investments

❖ an unincorporated association of two or
to the partnership
more individuals to carry on, as co-
owners, a business, with the intention of
dividing the profits among themselves. b. – division of profits or losses

c. – admission of a new partner and

a. Ease of formation withdrawal, retirement or death of a partner

b. Separate legal personality d. – winding-up of affairs

c. Mutual agency
d. Co-ownership of property Value of contributions of partners
e. Co-ownership of profits ➢ Contributions of partners to the partnership
are initially measured at fair value.
f. Limited life
➢ – “the price that would be
g. Transfer of ownership
received to sell an asset or paid to transfer a
h. Unlimited liability liability in an orderly transaction between
market participants at the measurement
date.” (PFRS 13)
ACCOUNTING FOR
Type of Contribution Measurement
PARTNERSHIPS Cash and Cash Face amount (PAS 7)
Equivalents
➢ Accounting for assets and liabilities remains Inventory Lower of Cost and Net
the same, what changes is the accounting for realizable value
equity ➢ Net realizable
value (NRV) is
estimated selling
➢ Equity of a partnership is similar to equity of
price less
a sole proprietorship except that the former is estimated costs
subdivided into the partners’ capital balances of completion
and costs to sell.
(PAS 2)

’
a. Capital accounts
b. Drawings accounts
c. Receivable from/ Payable to a partner
• A bonus exists when the capital account of a
partner is credited for an amount greater than
or less than the fair value of his contributions.

• The bonus is treated as adjustment to the

capital accounts of the other partners.