ACCOUNTING FOR SPECIAL

TRANSACTIONS
(Advanced Accounting 1)

LECTURE AID

2020

ZEUS VERNON B. MILLAN

Chapter 1 Partnership Formation

Learning Objectives

• State the valuation of contributions of

partners.
• Account for the initial investments of
the partners to the partnership.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Partnership

• A partnership is an unincorporated association of two or

more individuals to carry on, as co-owners, a business,
with the intention of dividing the profits among
themselves.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Characteristics of a partnership

1. Ease of formation 
2. Separate legal personality  
3. Mutual agency
4. Co-ownership of property
5. Co-ownership of profits
6. Limited life
7. Transfer of ownership
8. Unlimited liability (this is applicable to a general
partnership)
ACCOUNTING FOR SPECIAL
TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Accounting for partnerships

• The following are the major considerations in the

accounting for the equity of a partnership:
1. Formation – accounting for initial investments to the
partnership
2. Operation – division of profits or losses
3. Dissolution – admission of a new partner and withdrawal,
retirement or death of a partner
4. Liquidation – winding-up of affairs

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Valuation of contributions of partners

• All assets contributed to (and related liabilities

assumed by) the partnership shall be measured
at fair value.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Bonus on initial investments

• 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.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Chapter 2 Partnership Operations

Learning Objectives

• State the items that affect the division

of a partnership’s profits or losses
among the partners.
• Compute for the share of a partner in
the partnership’s profit or loss.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Division of profits and losses

• The partners shall share in the profits or losses of a

partnership in accordance with the partnership
agreement.
• IF NO AGREEMENT IS MADE, profits and losses are to
be divided according to their ORIGINAL CAPITAL
CONTRIBUTIONS, if the AVERAGE CAPITAL
BALANCES cannot be computed, but the industrial
partner shall not be liable for the losses.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Division of profits and losses (Continuation)

• If only the share of each partner in the profits has been

agreed upon, the share of each in the losses shall be in the
same proportion.
• If only the share of each partner in the losses has been
agreed upon, the share of profit shall be in the ratio of their
original capital contributions.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
 Other stipulations that affect division of P/L
1. Salaries – normally, an industrial partner shall receive salary, in addition to his
share in the partnership’s profits, as compensation for his services to the
partnership.
2. Bonuses – the partnership agreement may stipulate a bonus to be given to a
managing partner to encourage excellent management performance. Unlike for
salaries though, a partner is entitled to a bonus only if the partnership earns profit.
3. Interest on capital contributions – the partnership agreement may stipulate
that each partner may be entitled to a per annum interest computed on his capital
contributions.
 
• The above-mentioned items are normally provided first to the respective partners
and any remaining amount of the profit or loss is shared based on the stipulated
profit or loss ratio.
ACCOUNTING FOR SPECIAL
TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
 OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:

MILLAN)
 APPLICATION OF CONCEPTS
 

ANSWER THE PRACTICE SET

ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:

MILLAN)