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PARTNERSHIP
By the contract of Partnership, two or more persons
bind themselves to contribute money property and
industry to a common fund with the intention of
dividing the profits among themselves
Advantages:
Goodwill Method
1.
Easy to Form
Higher Capital than Sole
2.
decrease in Capital
Proprietorship
3.
4.
4.
TCC
Life of a Partnership
1.
2.
3.
TAC
Goodwill
CONTRIBUTIO
Capital
NS
A:200k
Non-Cash
Assets 300k,
Capital B
Liabilities 100k
400k
40k
B: Cash=360K
Capital
C: Non-Cash
Assets
400k410k, 10k
liabilities 20k
Formation
Operation
Dissolution
a. Admission of new Partner/s
b. Retirement of existing partner/s
Liquidation
FORMATION
1M Capital50k
AGREED
Ratio
ABC
Cash
@Face
Value
Non-Cash
Assets
(Liabilitie
s)
(1) @Agreed
Value
(2) @Fair Value
(1) @Agreed
TCC
360k
C
B Capital
C Capital
TCC*AC%
TCC*AC%
TCC*AC%
40%
390k
40%
950k <
Cash---------------------------------------------360k
Non-Cash Assets (300k+410k)
------------710k
Goodwill (40k+10k)
---------------------------50k
Liabilities (100k+20k)
---------------- 120k
Partner A
TAC
900k) x
Partner C
Value
A Capital
20%
Value
(2)
@Fair/Present
200k
Journal Entry:
After formation
A=20% B=40%
Bonus Method
1.
2.
If Recorded
Goodwill
Method
If Not Recorded
Bonus Method
Used if the Problem is
Silent
CONTRIBUTIO
3. Total Contributed Capital [TCC] = [TAC] Total
NS
Agreed Capital
A: Non-Cash
4. All Bonuses(to/from Partners) always offsets to
Assets 300k,
ZERO
Liabilities 100k
B: Cash=360K,
Goodwill 40k
C: Non-Cash
TCC
Assets 420k
TAC
Bonus
(including
Goodwill of
10k), liabilities
20k
AGREED Capital
K.B.
ADVANCED FINANCIAL ACCOUNTING and REPORTING
Capital A
190k
200k
2.
20%
150k
Capital B
(50k)
Capital C
380k
380k
360k
40%
390k
40%
(100k)
950k
950k
0
Journal Entry:
Cash---------------------------------------------360k
Non-Cash Assets (300k+410k)
------------710k
Liabilities (100k+20k)
---------------- 120k
A Capital---------------------------------
(NI/1+b %)
NI before S after IB
b=b%(NI-
I/1+b%)
NI before I after SB
S/1+b%)
NI after SIB
--------
b=b%(NIb=b%(NI-
SI/1+b%)
--- b=b%(NI)
OPERATION
b.
(remainder)
b.
4.
Comprehensive Problem
May 1, 20xA
During the year, A invested the
Machinery he purchased for 100k
and has an AD of 30k. FV of
Machinery is 60k. C invested Cash for
50k. A and B withdrew 50k and 20k
cash respectively.
Their Profit and Loss Ratio is 1:2:1
respectively. Their agreement includes
the following :
b.
675k
CASE C Operating Expenses =
980k
A
C
25%
850k
Total
Capital
150k
25%
5/1
300k
400k
50%
K.B.
ADVANCED FINANCIAL ACCOUNTING and REPORTING
50k
Addl Investment
110k
60k
Withdrawals
-
(50k)
(20k)
310k
380k
(70k)
Unadj. Capital 12/31
200k
890k
CASE A
Salaries
50k
Interest
-Bonus
--
62k
76k
138k
1,333 2,667
138,333
Total
51,333
75k
125k
1,333
78,667
5,333
268,333
Remaining
7,917
15,833
7,917
31,667
146,250
59,250
310k
200k
890k__
Adj. Capital 12/31
259,250
456,250
94, 500
380k
Salaries
75k
--
125k
Interest
--
--
--
--
--
--
(insufficient)
--
Bonus
(insufficient)
75k
(Interest ratio)
44,928
--
119,928
Inc&Exp Summary------300k
A Capital------------------
Inc&Exp Summary------225k
A Capital------------------
380k
429,928
CASE C
75k
--
62k
76k
125k
138k
--
Total
-137k
B Capital------------------55,072
C Capital--------------------
-76k
Fair
435,072
1.115M
Salaries
119,928
Sales------------------------2.2M
Inc&Exp Summary--------80k
Cost of
Sales------------------1.3M
55,072
890k__
Interest
-Bonus
Expenses----------------------675k
Inc&Exp
Summary-----------225k
59,250
55,072
310k
50k
Expenses----------------------600k
Inc&Exp
Summary-----------300k
C Capital--------------------
--
125k
Remaining
250k
Sales------------------------2.2M
Cost of
Sales------------------1.3M
B Capital-------------------
100k
200k
Sales------------------------2.2M
Cost of
Sales------------------1.3M
94, 500
Total
50k
146,250
--___
50k
474,500
1.19M
CASE B
50k
-50k
Expenses----------------------- Value----------------------------------------xx
980k
Book Value of Net
Assets-------------------------- (xx)
B Capital--------------------95.5k
Fair Value
C Capital--------------------35.75k
Inc&Exp
Summary-----------80k
A
Capital---------------------51.25k
263k
Unadj.
(85,750)
(35,750)
Loss
200k
(171,500)
51,250
310k
(95, 500)
380k
890k__
Adj. Capital 12/31
164,250
(85,750)
(bal.fig.)
(343k)
Share in Net Loss
(80k)
361,250
284,500
810k
DISSOLUTION
Change in Partnership Ownership
Interest. New Partner Joins, or existing Partner
Leaves the Partnership, or Dies. Capital
Accounts of Existing Partners should be
Adjusted (if in-between B/S date) before
Dissolution as if the Partnership is closing and
starting again as a New Partnership.
SOLUTIONS
Gross Income: 2.2M 1.3M = 900k
Net Income/Loss:
Case A: 900k 600k = 300k
Case B: 900k 675k = 225k
Case C: 900k 980k = (80k)
Salaries: (Case A, B, & C)
Partner A = 112.5k*8/12 = 75k
Partner C = 75k*8/12 = 50k
a.
Personal Transaction
Payment of New Partner to the
Existing Partner/s
Cash received by partner/s and
gain/loss from the purchase of
K.B.
ADVANCED FINANCIAL ACCOUNTING and REPORTING
capital interest are not
recorded in the Partnership
Books, only the transfer of
capital from existing partner/s
to the new partner.
In-between BS Date
Transferred
Excess(BTO)/Deficiency(BTN)
Revaluation Method is
Used
3. TCC=TCC
Capital
(Impairment Loss)
Capital Adjustment
(Bonus to Capital)
Silent Problems:
Agreement: Non-Revaluation
ABCD Co.
--------------------------->
BCD Co.
(A is Leaving the Partnership)
Method
Undervaluation: Bonus
Method
2. Admission by Direct
Investment
Contribution/Investment of the
New Partner to the Partnership
Similar to Partnership Formation,
Admission by Direct Investment
also uses Goodwill or Bonus
Method in Accepting the new
D__
Capital Beg.
xx
xx
Loans/Investment/Drawings
xx
Share in NI/(NL)
xx
xx
Under/(Over)valuation
xx_
Adj. Capital Balance
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
K.B.
ADVANCED FINANCIAL ACCOUNTING and REPORTING
(xx)____ -
xx
xx
(xx)
xx
xx
xx
RETIREMENT/WITHDRAWAL/DE
ATH
ADMISSION
Closing
Entries
Closing
Entries
Share
in in
Net
Income/Loss
Share
Net
Income/Loss
In In
Between
B/S
Date
Between
B/S
Date
Sales---------------------------------------xx
Sales---------------------------------------xx
Cost
of of
Sales--------------------------------------------xx
Cost
Sales--------------------------------------------xx
Expenses------------------------------------------------xx
Expenses------------------------------------------------xx
Inc&Exp
Summary------------------------------------xx
Inc&Exp
Summary------------------------------------xx
Inc&Exp
Summary-------------------xx
Inc&Exp
Summary-------------------xx
A Capital-----------------------------------------------xx xx
A Capital-----------------------------------------------B Capital-----------------------------------------------xx xx
B Capital-----------------------------------------------C Capital-----------------------------------------------xx xx
C Capital-----------------------------------------------D Capital------------------------------------------------xx
Additional Investment
Additional Investment
Withdrawals
Withdrawals
A/B/C Capital--------------------------xx
A/B/C/DA/B/C
Capital-----------------------xx
Drawings----------------------------------------xx
A/B/C/D Drawings-------------------------------------xx
Loans Payable--------------------------xx
Loans Payable--------------------------xx
A/B/C Capital-------------------------------------------xx
A/B/C/D
Capital----------------------------------------xx
A/B/C
Capital---------------------------xx
A/B/C/DLoans
Capital------------------------xx
Receivable--------------------------------------xx
Loans Receivable--------------------------------------xx
REVALUATION
REVALUATION
LIQUIDATION
Transfer of Capital
(@Purchase Price)
SETTLEMENT
of
PARTNERS
are Settled
andRETIRING
Assets of the
Company are
A Capital
(old) --------------------xx
distributed toCAPITAL
the Partners.
Procedures
Asset/s)
Realization ofxx
Non-Cash Assets
Net Asset1.
(Contribution)--------Gain/Loss
is
Allocated
to each
D Capital (new)------------------xx
Partners Capital via their PL%. Unsold
Non-Cash
Assets
(incl.
Goodwill) are
Record Goodwill
or Bonus
to/from
Partners
Loss
also via their PL%
New Partnerdistributed
CC > AC as
(ABC
Capital
Undervalued)
Goodwill/D Capital (bonus from) ------------xx
A Capital (old) (bonus to) ----------------xx
B Capital (old) (bonus to) ----------------xx
C Capital (old) (bonus to) ----------------xx
K.B.
ADVANCED FINANCIAL ACCOUNTING and REPORTING
2. Loan Offsetting Loan/s of the
Partnership from a Partner and vice
versa are offsetted on that Partners
Capital Account
3. Asset Distribution
a. Settlement of Partnership
Liabilities
Offsetted Loan/s to/from
Partner/s are not included in
Loan settlements
b. Settlement of Partnership
Capitals
Limited Partnership
party
4. Liabilities to Limited
Partners other than
Capital and Profit
5. Liabilities to Limited
Partner for his Profit
6. Liabilities to Limited
Partner for his
Capital
7. Liabilities to General
Partner other than
Capital and Profit
8. Liabilities to General
Partner for his Profit
9. Liabilities to General
Partner for his
Capital
b. Installment Liquidation
Piecemeal / Multiple Realizations and
Distributions of Partnership assets.
Under/Overvaluation of
Distributed Non-Cash Asset/s
(Book Value vs Fair Value)
Distributed to All Partners as
Gain/Loss adjustment to Capital via
PL% before the distribution of the
K.B.
ADVANCED FINANCIAL ACCOUNTING and REPORTING
K.B.
ADVANCED FINANCIAL ACCOUNTING and REPORTING