CHAPTER 1: FORMATION

VALUATION OF CONTRIBUTION OF PARTNERS

Agreed Value > Fair Value > Appraised Value > Book Value

Cash and cash equivalents = Face Amount

Inventory = LCNRV

Loan receivable - loan extended by the partnership to a partner

Loan payable - loan obtained by the partnership from a partner

Illustrative Problems

1. Adjusting capital accounts (according to the fair value)

2. Capital deficiency

A, Capital xx
Divide: P/L Ratio (A) %
Total xx
Multiply: P/L Ratio (B) %
Minimum capital req'd xx
B, Capital xx
Deficiency in A's capital xx / -

3. Bonus on initial investments

a. fair value (no bonus)
b. above FV (bonus to new partner)
c. below FV (bonus to other partners)

4. Variations to the bonus method

a. Cash settlement
- if nagtaas capital, siya naglabas ng pera
- total partnership capital divided by ilang partners, then,
yun ang equal interests
b. Additional investment (withdrawal of investment)
- computer for the agreed initial capital then multiply by
each p/l ratio ng partner

CHAPTER 2: Operations

No agreement = original capital investment

STIPULATION
1. Salaries (annual/monthly)
2. Bonuses
a. bonus after bonus
P - (P/(1+Br))
- profit after ____ but before deducting bonus
b. with limit
c. choice of profit sharing scheme
d. bonus before bonus
profit before ____ but after bonus xx
divide: 100% - Bonus rate %
Profit before _____, and bonus xx
multiply: bonus rate %
Bonus xx

3. Interest on capital contributions

a. beginning capital
b. average capital
Balances - Months Outstanding/12 - Weighted Average
 c. ending capital
d. with limit
Actual Bal. xx
Req'd Bal. xx
Excess/Deficiency xx
Multiply: Interest Rate %
Multiply: Months/12 (if annual) x/12
Interest to (From) xx

4. Reconstruction of Information (partnership profit)

- create a trial balance and work back to get the share in profit
Share in profit xx
Divide: P/L ratio %
Partnership profit xx

5. Reconstruction of information (required profit)

CHAPTER 3: Dissolution

1. Admission of a partner
a. Purchase of interest in the partnership
- transfer of capital
- proportionate share (partners share acc. to their p/l ratio)
- no gain/loss
b. Investment in the partnership

1. Revaluation Method
2. Goodwill Method
3. Bonus Method
- TCC = TAC
- TCC of a new partner > capital credit (bonus to old
partners)
- TCC of a new partner < capital credit (bonus to new
partner)
4. Amount of Investment
Net Assets Before Ad. xx
Divide: 100% - % interest %
Net Assets After Ad. xx
Multiply: % Interest %
Partner's Investment xx
2. Withdrawal, retirement, or death of a partner
3. Incorporation of a partnership