PARTNERSHIP

ACCOUNTING
Ms. Ellery de Leon
 PARTNERSHIP

1. FORMATION FORMATION
1. All contributions must recognized at its FV
2. OPERATION 2. If FV is not given, assume that the BV is equal to its FV
3. DISSOLUTION 3. Two methods of formation:
• ADMISSION 1. Net Investment – No given Capital Ratio; FV of
• RETIREMENT contribution is equal to its capital credit
• INCORPORATION 2. Bonus Method- With given Capital Ratio; FV of
4. LIQUIDATION contribution can be > < its capital credit
4. Liabilities must be assumed by the partnership to be
recognized
 PARTNERSHIP FORMATION
1 & 2 Net Investment Method

XEROX YVES ZEUS TOTAL

Assets P700,180 P 524,120 P488,820 P 1,713,120

Liabilities (124,000) (140,000) (168,720) (432,720)

Net assets 576,180 P384,120 P320,100 P1,280,400

45% 30% 25%
 3. Journal Entry
Cash P 400,000
Accounts Receivable 114,100
Inventory 257,000
PPE 942,020
Accounts payable P 120,000
Long-term debt 312,720
Xerox, Capital 576,180
Yves, Capital 384,120
Zeus, Capital 320,100
4. Bonus Method
Xerox (P1,280,400 * 40%) P 512,160
Yves (P 1,280,400 * 30%) 384,120
Zeus (P 1,280,400 * 30%) 384,120
TOTAL P1,280,400
5. Journal Entry
Cash P 400,000
Accounts Receivable 114,100
Inventory 257,000
PPE 942,020
Accounts payable P 120,000
Long-term debt 312,720
Xerox, Capital 512,160
Yves, Capital 384,120
Zeus Capital 384,120

TAC CNA DIFF

Xerox 512,160 576,180 (64,020)
Yves 384,120 384,120 -
Zeus 384,120 320,100 64,020
1,280,000 1,280,000 -
 GAAP WAY NON GAAP WAY
Default: NI is before S, I and B Default: NI is after S, I and B
Before - X After - X
After - ( - ) Before - ( + )

Bonus is 20% 0f the NI after S and I

but before B

Bonus is 10% 0f the NI after S, I and B

Bonus is 15% 0f the NI before S, I and B

Cap, End= Cap, Beg+ Addtl Inv- Withdrawals- Drawings +/- Share NI/NL
 PARTNERSHIP- OPERATIONS
* Average capitals and interests.

C: P 280,000 * 12/12 P280,000 N: P176,000*12 /12 P176,000

25,600 * 9/12 19,200 (40,000) * 6/12 (20,000)

( 3,200) * 3/12 ( 800) 74,400 * 4/12 24,800

6,400 * 0/12 -

Ave. Cap. P298,400 Ave. Cap. P180,800

5% 5%
Interest P 14,920 Interest P 9,040
PARTNERSHIP OPERATIONS
Net Income,
, P 324,960
CHRIS NIKKI TOTAL
Interest* P 14,920 P 9,040 P23,960
Salaries 24,000 24,000 48,000
Bonus* 23,000 23,000
Unallocated NI 138,000 92,000 230,000
Total P199,920 P125,040 P324,960

Bonus to CHRIS = 10% * (P324,960- 23,960- 48,000- Bonus)

= P 23,000
 CHRIS NIKKI TOTAL
Initial capital P 280,000 P176,000 P 456,000
Addl investment 25,600 80,800 106,400
Capital withdrawal ( 3,200) ( 40,000) ( 43,200)
Drawings ( 6,000) ( 6,000) ( 12,000)
Share in net income 199,920 125,040 324,960

Capitals, 12/31/20 P 496,320 P335,840 P 832,160

Cap, End= Cap, Beg+ Addtl Inv- Withdrawals- Drawings +/- Share NI/NL
 PARTNERSHIP DISSOLUTION
1. ADMISSION
1. PURCHASE METHOD- Total partnership capital will not change; payment goes directly to the
partner selling its interest; a transfer of capital interest of the old partner/s going to the newly
admitted partner
2. INVESTMENT- contribution goes into the partnership; Partnership capital will increase by the
amount Of the contribution
- NET INVESTMENT- Without Capital Interest; Contribution = Capital Credit
- BONUS METHOD- With Interest Ratio; Contribution .> < Capital Credit

2. RETIREMENT
1. Capital Balance Of The Retiring Partner Must Be Equal To Zero

* Capital Balances Must Be Adjusted By The Revaluation Increase Or Decrease And Allocation Of The
Net Income
DISSOLUTION: Admission of a New Partner
Purchase Method
1. A & B

ELMO LITO ROMY TOTAL

Beginning Balances 380,000 104,800 484,800
Revaluation Increase
(80,000 + 60,000) 84,000 56,000 140,000
Adjusted Balances 464,000 160,800 624,800
Purchase of Interest (46,400) (16,080) 62,480 -
Ending Balances 417,600 144,720 62,480 624,800
Admission by Purchase Method
Journal Entries
Inventory P 60,000
Land 80,000
ELMO, Capital P 84,000
LITO, Capital 56,000

ELMO, Capital (P464,000 x 10%) P 46,400

LITO, Capital (P160,800 x 10%) 16,080
ROMY, Capital 62,480
Admission by Purchase Method
Cash Received by Old Partners

ELMO: (P464,000 * 10%) P 46,400 (3,888) P 42,512

LITO: (P160,800 * 10%) 16,080 (2,592) 13,488

P 62,480 P (6,480) P 56,000
Admission by Investment Method
I/R PARTNERS TAC CNA DIFF
ELMO 456,752 464,000 (7,248)
LITO 155,968 160,800 (4,832)
10% ROMY 68,080 56,000 12,080
Total 680,800 680,800 0
Cash 56,000
ELMO, Capital 7,248
LITO, Capital 4,832
ROMY, Capital 68,080
 TONY LIZA CORY Total
Capitals P167,000 P107,500 P225,000 P499,500
Adjustments
(120,000 +
P120,000) 96,000 48,000 96,000 240,000

Adj Capital 263,000 155,500 321,000 739,500

Total cash paid
to TONY (252,500) - - (252,500)

Bonus (10,500) 3,500 7,000 -

Ending Capital - P159,000 P328,000 P487,000
 RETIREMENT OF PARTNER
Income summary P120,000
Other assets 120,000
Tony, Capital 96,000
48,000
Liza, Capital 96,000
Cory, Capital
Tony, Loan 20,500
Tony, Capital 263,000
Liza, Capital 3,500
Cory, Capital 7,000
Cash 273,000