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ADVANCE
ACCOUNTING
SUBMITTED BY:
ABAGA, Jolina Grace
DUMALANTA, Leo Angelo L.
ROMULO, Patricia Jen C.
TANINGCO, Kient M.
SUBMITTED TO:
ALFRED CHRISTOPHER M. AGOOT, CPA
CHAPTER 1:
PARTNERSHIP
Partnership is a type of business organization where two or more
persons bind themselves to contribute money, property or industry to a
common fund with the intentions of dividing the profits among themselves.
a. Types of Partnership
1. General Partnership- may be formed expressly with a written
agreement or, in some states, impliedly from the conduct of the
parties. All partners in a general partnership are personally liable
for acts of the other partners.
2. Limited partnership- has at least one general partner and at least
one limited partner and usually must be registered with the state.
The general partners have management authority but are
personally liable for acts of the partnership, while limited
partners have limited liability but no management authority.
3. Limited-liability Partnerships- are the most popular of the
partnerships because all partners have the right to manage the
business directly.
b. Characteristics of a General Partnership( UMALESS)
1. Unlimited Liability – The term “general partnership” as presented
refers to a firm in which all the partners are responsible for
liabilities and have all the authority to act on his behalf.
Partnership creditors having difficulty in collecting from the
partnership may request from any other partner who has
personal assets in excess of their personal liability.
2. Mutual Agency- the partners are agents for the partnership. As
such, one partner may legally bind the partnership to a contract
or agreement that appears to be in line with the partnership's
operations.
3. Assignment of Partner’s Interest-Assignment of partner’s interest
does not automatically dissolve a partnership. Since a partner’s
relationship to the other partner is a personal one, an assignment
of a partner’s interest does not automatically admit the assignee
into the partnership. The asignee has no right to participate in
managing the affairs of the partnership, their right are only
limited in the allocation of profit and loss and the right to receive
the assignor’s interest in the event of dissolution.
4. Limited Life- The possibility that the operations of the
partnership could not continue after the withdrawal or death of
a partner was considered a major downside of this form of
business organization.
5. Ease of Formation- The partners merely put their agreement into
writing concerning who contributes assets or services, their role
and functions, and how profits and losses are allocated. This
written contract is called partnership agreement. Partnership can
also be formed through oral agreement.
6. Separate Legal Personality- Partnership law provides that
partnership has a juridical personality separate and distinct from
that of each partner.
7. Sharing Profits and Losses- Profit and losses are shared among
the partners in any manner to which they agree.
c. Accounting for Partnership Formation
Cash Investment- The invested capital of each partner is equal to
their initial cash investment.
Non-cash Investment- When non-cash assets are invested the
invested capital of the partners is equal to the current fair market
value of the assets invested less any liabilities to be assumed by the
partnership.
Sample Problem
Maria, Leonora and Theresa are friends and decided to
form a partnership engaging in selling furnitures named
FERNIES. Maria contributed cash in the amount of
P200000.00, Leonora also contributed P250000.00 cash and
Theresa contributed a delivery truck with a fair market value
of P290000.00 on the date of transfer.
Q1. How much is the total contributed capital of all partners?
Ans: P740000 (P200000.00+250000.00+290000.00)
Sample Problem
April 2, 2017, San and Gabriel formed a partnership
with each contributing the following assets:
San Gabriel
Sample Problem
Maria sold ¼ of her capital interest to Anabelle who is willin
to pay P65000.00.
Q1. How much is the total gain by the partnership from the sale of
capital interest by Maria to Anabelle?
Ans: -0-
Sample Problem
Maria, Leonora, Theresa and Anabelle with capital balances of
P150000, 250000.00, 290000.00 and 50000.00 respectively decided
to admit Billy as their new partner. (Profit and Loss Ratio,
Maria=20%, Leonora=30%, Theresa=40%, Anabelle=10%)
Case1: Billy will contribute cash of P85000 and computer with
a book value of P100000.00 and fair market value of the same
amount for a 20% interest on the total capital.
Case 2: Billy will contribute cash of P85000 and computer
with a book value of P100000.00 and fair market value of
P115000.00 for a 20% interest on the total capital.
Case 3: Billy will contribute cash of P85000 and computer
with a book value of P100000.00 and fair market value of P60000.00
for a 20% interest on the total capital.
Case 4: Billy will contribute cash of P85000 and computer
with a book value of P100000.00 and fair market value of
P115000.00 for a 20% interest on the total capital. During the
admission of Billy the entity revalued the delivery truck with a
current fair market value of P350000.00.
Q: Compute for the total capital of the partnership after admission
of Billy using each assumption.
Answer Case1.
Total Contributed Capital Total Agreed Capital
Maria P 150000.00 Maria P
Leonora Leonora 150000.00
Theresa 250000.00 Theresa
Anabelle Anabelle
Billy 290000.00 = Billy 250000.00
50000.00
290000.00
185000.00
50000.00
185000.00
P 925000.00 P 925000.00
50000.00 51500.00
200000.00 185000.00
50000.00 46000.00
145000.00 185000.00
(Since Billy will receive 20% interest on partnership capital, it is
assumed that the total capital of Maria, Leonaa, Theresa and
Anabelle which is 740000.00 constitutes 80% so by dividing it by
80% we will get the total agreed capital of 925000.00. Then multiply
it by 20% to get the agreed capital of Billy of 185000.00.The
investment of Billy is less than his agreed capital which leads to
bonus to new partner.)
Answer Case 4:
Total Revaluation Capital Bonus Total
Contributed After Agreed
Capital Revaluation Capital
Maria 150000.00 12000.00 162000.00 (11000.00) P151000.00
Leonora 18000.00 268000.00 (16500.00) 251500.00
Theresa 24000.00 314000.00 (22000.00) 292000.00
Anabelle 250000.00 6000.00 56000.00 ( 5500.00) 50500.00
Billy -0- -0- 55000.00 200000.00
290000.00
50000.00
145000.00
Sample Problem
On January 1, 2017, Zeep and Beep have capital
balances of P20000 and P16000 respectively. On July
1, 2017 Zeep invests an additional P4000 and Beep
withdraws P1600. Profit and Losses are divided as
follows:
i. Beep is the managing partner and as such shall
receive P16000 salary and Zeep shall receive
P7200.
ii. Both partners shall receive interest of 10% on
their beginning capital balances to offset
whatever difference in capital investments they
have and any remainder shall be divided equally
Answer:
Zeep Beep Total
Salaries P7200 P16000 P23200
Interests 2000 1600 3600
Balance (8600) (8600) (16600)
Total P600 P9000 P9600
Sample Problem
On January 1, 2017 David and Enrile decided to
form a partnership. At the end of the year, the
partnership made a net income of P120000. The capital
accounts of the partnership show the following
transactions.
David, Capital Enrile, Capital
Dr Cr Dr Cr
Jan 1 - P40000 - P25000
Apr 1 P5000 - - -
Jun 1 - - - 10000
Aug 1 - 10000 - -
Sep 1 - - P3000 -
Oct 1 - 5000 1000 -
Dec 1 - 4000 - 5000
They receive interest of 20% per annum based on
their average capital and the balance of the profits is
divided equally, the sharing of the profits will be?
Answer:
Capital Months Peso Months
Balances Unchanged
David
Jan 1 P40000 3 P120000
Apr 1 35000 4 140000
Aug 1 45000 2 90000
Oct 1 50000 2 100000
Dec 1 54000 1 54000
P224000 P504000
Enrile
Jan 1 P25000 5 P125000
Jun 1 35000 3 105000
Sep 1 32000 1 32000
Oct 1 31000 2 62000
Dec 1 36000 1 36000
P139000 P360000
Average Capital:
David: P504000/12= P42000
Enrile: P360000/12= P30000
Then disribute the profit as follows:
David Enrile Total
20%interest on P8400 P6000 P14400
average capital
Balance, Equally 52800 52800 105600
Total P61200 P58800 P120000
Sample Problem
L, M, and N are partners in an accounting firm.
Their capital account balances at year- end were: A,
P90000; B, P110000; C, P50000. They share profits and
losses in a 4:4:2 ratios, after the following special terms:
(1) Partner N is to receive a bonus of 10% of net income
after bonus
(2) Interest of 10% shall be paid on that portion of a
partner’s capital in excess of P100000.
(3) Salaries of P10000 and P12000 shall be paid to
partners L and N, respectively.
Assume a net income of P44000 for the year what
are the profit shares of L, M and N?
Answer:
A B C Total
Bonus to C - - P4000 P4000
Interest - 1000 - 1000
Salaries 10000 - 12000 22000
Balance, 4:4:2 6800 6800 3400 17000
Total P16800 P7800 P19400 P44000
Sample Problem
Jaime Dizon, a partner in an accounting firm, decided
to withdraw from the partnership. Dizon’s share of the profits
and losses was 20%. Upon withdrawing from the partnership
he was paid P74000 in final settlement of his interest. The
total of the partners’ capital accounts before recognition of
partnership goodwill prior to Dizon’s withdrawal was
P210000. After his withdrawal the remaining partners’ capital
accounts, excluding their share of goodwill, totaled P160000.
The implied goodwill of the firm was?
Answer:
Sample Problem
Rita, Sisa and Tina are partners with capital balances
on June 30, 2017 of P60000, P60000 and P40000
respectively. Profits and losses are shared equally. Tina
withdraws from the partnership. The partners agree that Tina
is to take certain furniture at their second hand value of
P2400 and cash for the balance of her interest. The furniture
is carried on the books as fully depreciated.
The amount of cash to be paid to Tina and the capital balances
of the remaining partners after retirement of Tina are?
Rita Sisa Tina
Capital balances P60000 P60000 P40000
Adjustment of
furniture,P2400 800 800 800
Total Interest P60800 P60800 P40800
Settlement:Furniture (2400)
Cash P38400
CHAPTER 2:
PARTNERSHIP LIQUIDATION
PARTNERSHIP LIQUIDATION
Lump-Sum Liquidation- one in which all assets are converted into cash
within a very short time, outside creditors are paid, and a single, lump-
sum payment is made to the partners for their total interests.
Example
Partners W, X, Y, and Z have conducted business together for a
number of years; they divide all profits and losses in the ratio 5:2:2:1. On
October 31, 2015, they decide to wind up the partnership by collecting
their receivables and selling all of the remaining assets of the business. A
summarized balance sheet of the partner-ship on this date in the next
page:
WXYZ COMPANY
BALANCE SHEET
October 31, 2015
During the month of November the miscellaneous assets realize P48, 000
in cash, the resulting P12, 000 loss is allocated to the partners, the
liabilities are paid in full, and the remaining P43,000 in cash is
distributed to the partners. The liquidation schedule for WXYZ Company
is shown below.
After all noncash assets are sold, and after any losses or gains are
distributed to the partners and after all liabilities have been paid in full,
the cash on hand is equal to the total of the partners’ capital accounts.
Cash is distributed to the partners in accordance with the credit balances
in their capital accounts and not in accordance with their profit and loss
sharing ratios.
WXYZ COMPANY
SCHEDULE OF PARTNERSHIP LIQUIDATION
Month of November, 2015
Asset
Cash s Liab. W X Y Z
Balance before
liquidation 5,000 60,000 10,000 16,000 18,500 13,000 7,500
Sale of assets and
distribution of loss 48,000 (60,000) — (6,000) (2,4000) (2,400) (1,200)
Pay liabilities (10,000) — (10,000) — — — —
Balances 43,000 –0– –0– 10,000 16,100 10,600 6,300
Final payment to
partners (43,000) — — (10,000) (16,100) (10,600) (6,300)
Balances –0– –0– –0– –0– –0– –0– –0–
Cash 48,000
W capital (50% × 12,000) 6,000
X capital (20% × 12,000) 2,400
Y capital (20% × 12,000) 2,400
Z capital (10% × 12,000) 1,200
Miscellaneous assets 60,000
Sale of assets and distribution of P12,000 loss to partners
Liabilities 10,000
Cash 10,000
Payment made to creditors
W capital 10,000
X capital 16,100
Y capital 10,600
Z capital 6,300
Cash 43,000
Cash distribution to partners
Debit Credit
Cash P10,000 —
L capital (50%) 6,000 —
M capital (30%) — 9,000
O capital (20%) — 7,000
P16,000 P16,000
Partner L has refused to invest enough cash into the business to
bring his capital balance to zero. Partners M and O will have to
absorb the debit balance of L in the ratio of 6:4, after which they
can individually take legal action against L for recovery of their
share of the loss. The journal entry to allocate L’s debit balance is
as follows:
EFGH COMPANY
BALANCE SHEET
March 31, 2006
E capital 800
F capital 24,050
G capital 16,900
H capital 9,750 51,500
P84,500 P84,500
The four partners, who share profits and losses in the ratio of
5:2:2:1, have decided to wind up their business and sell the assets
on a piecemeal basis. The goodwill is considered to be worthless.
During April, 2006, the sale of all of the miscellaneous assets yielded
cash of P31,000, and the amount owing to outside creditors was
paid in full. After expenses incurred in the liquidation process of P4,
200 were paid, the remaining cash of P20, 300 was distributed to
the partners.
SCHEDULE OF PARTNERSHIP LIQUIDATION
Month of April, 2006
Example
Let us now return to the EFGH Company example. The cash sale
proceeds and expenses are the same as before, but this time we
assume that the assets are sold over a two-month period as follows:
Cash Book
proceeds value Loss
Month of April, 2006 P16,400 P22,000 P 5,600
Month of May, 2006 14,600 56,000 41,400
P31,000 P78,000 P47,000
Because the total proceeds from the sale of assets (P31,000) are the
same as in the previous example, the total cash distributed to the
partners over the two-month period should be identical to the
previous single distribution.
EFGH COMPANY
SCHEDULE OF PARTNERSHIP LIQUIDATION
Months of April and May, 2006
Liabilities 4,000
Cash 4,000
Partial payment of liabilities
F capital 4,717
H capital 83
Cash 4,800
Instalment payment to partners
May,2006 entries:
Cash 14,600
E capital 20,700
F capital 8,280
G capital 8,280
H capital 4,140
Miscellaneous assets 46,000
Goodwill 10,000
Sale of assets, write-off of goodwill, and distribution of resulting loss to partners
Liabilities 9,000
Cash 9,000
Payment of balance of liabilities
E capital 2,100
F capital 840
G capital 840
H capital 420
Cash 4,200
Allocation and payment of liquidation expenses
F capital 1,920
G capital 1,920
H capital 960
E capital 4,800
Allocation of partner E’s debit balance
F capital 7,173
G capital 4,740
H capital 3,587
Cash 15,500
Final payment to partners
The account balances on the first line of the calculation are carried
forward from the schedule of liquidation. The possible future losses from
asset sales and liquidation expenses are allocated to the partners, and
cash equal to the liabilities is held back. This leaves the P4, 800 cash on
hand equal to total partners’ capitals; but E has a debit balance of P12,
550 that is allocated to F, G, and H in the ratio of 2:2:1. This allocation
results in a debit balance of P1,460 in the capital of partner G, which is
allocated to part-ners F and H in the ratio of 2:1. The cash instalment is
paid in accordance with the credit balances remaining in partners’ capital
accounts.
EFGH COMPANY
PLAN OF CASH DISTRIBUTION TO PARTNERS
March 31, 2006
Step 1
Step 2
After a cash sum has been set aside to discharge all obligations to
outside creditors and any estimated future expenses, payments to
partners can be made as follows:
E F G H
First P 4,550 0 100% 0 0
Next 3,900 0 2 0 1
Next 21,450 0 4 4 2
Above 29,900 5 2 2 1
We can demonstrate that this plan will produce the desired results by
returning to our example of EFGH Company. The April and May
payments to partners can be determined as shown in the following
tables
April
22,900
18,900
Liabilities 9,000
Paid to partners as
follows P 4,800
E F G H
May
28,700
Payments:
Liabilities 9,000