ACCOUNTING FOR SPECIAL TRANSACTIONS TAKE NOTE: Profit and Loss Ratio is ONLY use on distribution of Profit

and Loss. It is not use to determine capital interest UNLESS it is

TOPIC: VALUATION OF CONTRIBUTION OF PARTNERSHIP stated.
Partnership

Article 1767 of the Civil Code provides that by a contract of Net Investment Method (Illustration)
partnership, two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention TCC /TPC TAC
of dividing the profits among themselves. 50,000 50,000
100,000 100,000
Two or more persons may also form a partnership for the exercise of 150,000 150,000
a profession.

Bonus Method (Illustration)

How to record the partner’s contribution? P or L = 5:5 (there is an agreement to use PL ration to determine
capital interest)
1. Money = Face Value (convert to peso)
2. Property/Non-cash Asset TCC /TPC TAC
50,000 25,000 75,000
Level of Priority
100,000 (25,000) 75,000
a) Agreed Value 150,000 150,000
b) Fair Value
c) Book Value
Revaluation Method (Illustration)
3. Industry = Memorandum Entry TCC /TPC TAC
50,000
100,000

Notes 😊
150,000 150,000 300,000

 The stipulation is void if stated na hindi magshshare sa

profit and loss (unless industrial partner) ang isa sa mga
partner
 If there’s adjustment in formation of partnership, sa capital
account na siya gagalawin.
 In formation of partnership, the book of partner who has
existing business, dapat wala ng nominal account.
New Set of Books (ACIC)
Adjust the book of Sole Proprietor
 Record Adjustments to get the Adjusted Capital of Sole
Proprietor
Close the book of Sole Proprietor

 Closing Entries (reverse normal balance)

1. Net Investment Method
Record Investment
 Total Partnership Contribution (TPC) is EQUAL to Total
Agreed Capital (TAC)/Capital Interest/Capital Credit  DO NOT deduct Allowance for Doubtful Accounts UNLESS
proven uncollectible.
2. Bonus Method  Accounts Receivable (GROSS METHOD)
 Total Partnership Contribution (TPC) is NOT EQUAL to Total  Asset with Depreciation (NET METHOD) *deduct
Agreed Capital Accumulated Depreciation
 Transfer of Capital Interest from one interest to another
partner for it to be equal to agreed capital Consolidate Investment

3. Revaluation Method  Allowance for Doubtful Account should be DEDUCTED na

a) Undervaluation (Positive) sa step na to
 Assets are understated then capital will increase
 Total Capital Contribution is LESS THAN Total Agreed
 It should be ADDED Books of Sole Proprietor will be use (AIC)
b) Overvaluation (Negative)
 Assets are overstated, then capital will decrease Adjust the book of Sole Proprietor
 Total Capital Contribution is MORE THAN Total Agreed Record Investment (investment of other partner lang ang irerecord)
 It should be DEDUCTED
c) SILENT (but stated that method is REVALUATION) Consolidate Investment
 Use Positive Method

If the problem is silent? (there’s no method stated at all)

 Net Investment Method

If there is a change in Capital Contribution?

 Bonus Method
*** pertaining to to problem 7 (page 45)

1st Step

4th Step

2nd Step

3rd Step