Financial Accounting and Reporting Part 1 37

MODULE 2

NATURE AND FORMATION OF A PARTNERSHIP

Overview

This module introduces us to the definition and concepts about partnership form of
business. It also includes the different kind of partnership, how to form a partnership, and its
accounting entries.

Module Objectives

At the end of this module, the students should be able to:

1. Define and describe the nature and characteristics of a partnership -its advantages and
disadvantages.
2. Identify the different kinds of partnerships and the classes of partners.
3. Discuss the requirements in the formation of a partnership.
4. Discuss accounting for partners’ initial investments in a partnership.

Course Materials

A partnership is defined in Article 1767 of the Civil Code of the Philippines as “a contract
whereby two or more persons bind themselves to contribute money, property or industry into a
common fund with the intention of dividing profits among themselves.”

CHARACTERICTICS AND ELEMENTS OF A PARTNERSHIP

1. Mutual contribution – by its definition, the partners must contribute money, property and/or
industry to the common fund.

2. Mutual agency. Any partner can bind the other partners to a contract if he is acting within
the express or implied authority. may act as agent of the partnership in conducting its affairs.

3. Unlimited liability. The personal assets of any partner may be used to satisfy the
partnership creditors’ claims upon liquidation, if partnership assets are not enough to settle
the liabilities to outsiders.

4. Limited life. A partnership may be dissolved at any time by admission, death, incapacity, or
withdrawal of any partner or by expiration of the term specified in the partnership
agreement.

5. Division of profits and losses. It is the reason why a partnership was formed. The
element that distinguishes the partnership contract from a voluntary religious or social
38 Financial Accounting and Reporting Part 1

organization. A stipulation which excludes one or more partners from any share in the
profits or losses is void.

6. Legal entity. A partnership has legal personality separate and distinct from that of each the
partners.

7. Co-ownership of contributed assets. Property contributed to the partnerships are owned

by the partnership by virtue of its separate legal personality. Assets contributed by each
partner are joint assets of all partners.

8. Income tax. Partnerships, other than general professional partnerships (GPP) are subject
to the same tax of a corporation, 30% income tax. GPP are those organized for the exercise
of professions like CPA’s lawyers, engineers, etc. are exempt from income tax.

ADVANTAGES OF A PARTNERSHIP

1. It is easy to organize and less expensive than a corporation, as it is formed by a mere

agreement between two or more persons.

2. The unlimited liability of the partners makes it attractive to creditors.

3. With two or more partners will be a better opportunity to obtain additional funds than does a
single proprietorship.

4. More partners of different skills and expertise makes it possible to manage all the
partnership activities.

DISADVANTAGES OF A PARTNERSHIP

1. It is less stable because it can easily be dissolved (limited life).

2. Business partners are jointly and individually liable for the actions of the other partners
(Mutual agency).

3. The liability of the partnership will extend to the personal property of the partners (unlimited
liability).

4. Since decisions are shared, disagreement among partners may lead to dissolution.

5. A partner has to consult the other partners before a decision can be arrived at.

KINDS OF PARTNERSHIPS

1. As to liability of partners
a. General partnership – one consisting of general partners who are liable to the
extent of their separate properties for partnership debts.

b. Limited partnership – one formed by two or more persons having as members one
or more general partners and one or more limited partners. The limited partners are
not personally liable for the obligations of the partnership.
 Financial Accounting and Reporting Part 1 39

The word “LIMITED” or “LTD.” Is added to the name of the partnership to inform the
public that it is a limited partnership. There should be at least one general partner in
a limited partnership.

2. As to duration
a. Partnership at will – one for which no term is specified and is not formed for a
particular undertaking and which may be terminated any time by mutual agreement
of the partners or at the will of any one partner.

b. Partnership with fixed term – one in which the term for the existence of the
partnership is fixed or is agreed upon or one formed for a particular undertaking.

3. As to legality of existence
a. De jure partnership – one that has complied with all the requirements for its
establishments.

b. De facto partnership – one which has failed to comply with one or more of the legal
requirements for its establishment.

4. As to purpose or activity
a. Commercial or trading partnership – one whose main activity is the manufacture
and sale or the purchase and sale of goods.

b. Professional or Non-trading partnership – one formed for the exercise of

profession or for the purpose of rendering services.

5. As to object
a. Universal partnership
1. Universal partnership of all present property – one in which each partners
contribute to the partnership at the time of its constitution. The properties were
contributed to a common fund with the intention of dividing the same among
themselves including it’s profits which they may acquire therewith.

All assets contributed to the partnership and subsequent acquisitions become

partnership assets.

2. Universal partnership of all profit – one which the usufruct or use of assets only
was contributed to the partnership, either at the time of it’s formation and/or during
the life of the partnership by which the partner may acquire thru industry or work. The
original movable or immovable property contributed do not become the common
partnership assets.

b. Particular partnership – one which has for its object a determinate thing, their use
or fruits, or a specific undertaking or the exercise of a profession or vocation.

6. As to representation to others
a. Ordinary partnership – one which actually exists among the partners and to the
third parties.
40 Financial Accounting and Reporting Part 1

b. Partnership by estoppel – one which on reality is not a partnership but is

considered as one only in relation to those who, by their conduct or omissions are
precluded to deny or disprove it’s partnership existence.

7. As to publicity
a. Secret partnership – one wherein the existence of certain person as partners is not
made known to the public by any of the partners.

b. Open partnership – one wherein the existence of certain persons as partners is

made known to the public by the members of the firm.

CLASS OF PARTNERS

1. As to contribution
a. Capitalist partner – one who contributes capital in cash (money) or property.

b. Industrial partner – one who contributes industry, labor, skill, talent or service.

c. Capitalist-industrial partner – one who contributes cash, property, and industry.

2. As to liability
a. General partner – one whose liability to third persons extends to his separate (private)
property.

b. Limited partner – one whose liability to third persons is limited only to the extent of his
capital contribution to the partnership.

3. As to management
a. Managing partner – one who manages actively the business of the partnership.

b. Silent partner - one who does not participate in the management of the partnership
affairs.

4. Other classifications
a. Liquidating partner – one who takes charge of the winding up of partnership affairs
upon dissolution.

b. Nominal partner – one who is not really a partner, not being a party to the partnership
agreement, but is made liable as a partner for the protection of innocent persons.

c. Ostensible partner –.one who takes active part int the management of the firm and is
known to the public as a partner in the business.

d. Secret partner - one who takes active part in the management of the business but
whose connection with the partnership is concealed or unknown to the public.

e. Dormant partner – one who does not take active part in the management of the
business and is nit known to the public as a partner; he is both a silent a secret partner.
 Financial Accounting and Reporting Part 1 41

PARTNERSHIP CONTRACT

A partnership is created by an oral or a written agreement. Since partnerships are required to be

registered with the Securities and Exchange Commissions, it is necessary that the agreement
be in writing. In this case misunderstandings and disputes among the partners relative to the
nature and terms of the contract may be avoided or minimized. The written agreement between
or among the partners governing the formation, operation and dissolution of the partnership is
referred to as the Articles of Co-Partnership.

The Articles of Co-Partnership contains the following information:

1. The name of the partnership;
2. The names and address of the partners, classes of partners, stating whether the partner is a
general or a limited partner;
3. The effective date of contract;
4. The purpose or purposes and principal office of the business;
5. The capital of the partnership stating the contributions of individual partners, their
description and agreed values;
6. The rights and duties of each partner;
7. The manner of dividing net income or loss among the partners, including salary allowance
and interest on capital;
8. The conditions under which the partners may withdraw money or other assets for personal
use;
9. The manner of keeping the books of accounts;
10. The causes for dissolution; and
11. The provision for arbitration in settling disputes.

ORGANIZING A PARTNERSHIP

To operate legally, the partnership has to comply with the registration requirements of the
following government offices:

Government Agencies

Securities and Exchange a duly filled-up Articles of Co-Partnership shall be filed to

commissions (SEC) SEC to secure license to operate a business
City or Municipality Mayor’s To secure Mayor’s Permit and License to Operate that the
Office business are in compliance with their ordinances and
standards.(renewable annually).

ACCOUNTING FOR PARTNERSHIPS

Accounting for a partnership is the same as with single proprietorship except that there are
more owners. There should be as many any capital accounts and as many drawing accounts as
there are partners. (meaning, one capital account and one drawing account is maintained for
each partner).
42 Financial Accounting and Reporting Part 1

PARTNER’S CAPITAL ACCOUNT

1. Permanent withdrawal (decrease) of 1. Original investment by a partner
capital
2. Share in partnership loss from partner 2. Additional investment by a partner
3. Closing entry of drawing account 3. Share in partnership profits from
operations

PARTNER’S DRAWING ACCOUNT

1. Personal withdrawal by a partner 1. Share in partnership profits from
2. Share in partnership loss form operations (this may be credited
operations (this may be deducted directly to the partner’s capital account
directly to the partner’s capital account)

OPENING ENTRIES

Partners may contribute cash, property, or industry to the partnership. Appropriate asset
accounts are debited for the assets contributed and partner’s capital accounts are credited for the
total amount of assets contributed.

If the assets contributed is in the form of cash, it is recorded on the partnership books at face
value, if the asset contributed is in the form of property or non-cash asset, it is recorded at
agreed value, or in the absence of an agreement, at fair market value. When industry is
contributed into the partnership, a memorandum entry is prepared.

PARTNERSHIP FORMATION

A. TWO OR MORE PERSONS FORM A PARTNESHIP FOR THE FIRST TIME.

ALL PARTNERS ARE NEW IN THE BUSINESS.

1. Cash Contributions (Capitalist Partners)

Amado and Agustin agreed to form a partnership by contributing P200,000 cash each.

The entry to record the contributions in the partnership is:

Cash 800,000
Amado, capital 400,000
Agustin, capital 400,000

2. Cash and Non-cash Contributions (Capitalist Partners)

Bicen and Bunque made the following contributions in the partnership:

Bicen Bunque
Cash P200,000 P300,000
Inventories 300,000
Equipment 400,000
 Financial Accounting and Reporting Part 1 43

The entry to record the contributions of the partners follows:

Cash 500,000
Inventories 300,000
Equipment 400,000
Bicen, capital 500,000
Bunque, capital 700,000

3. Contributions in the form of Cash, Non-cash Assets, and Industry (Capital and Industrial
Partners)

Cindy, Carla, and Carmen formed a partnership. Cindy contributed P200,000 cash, Carla
contributed P150,000 cash and equipment valued at P350,000; Carmen is an industrial
partner to contribute her special skills and talents to the partnership. Profit or loss to be shared
equally among the partners.

The entry to record the contributions of partners Cindy and Carla follows:

Cash 350,000
Equipment 350,000
Cindy, capital 200,000
Carla, capital 500,000

The memorandum entry to record the contribution of partner Carmen follows:

Carmen is admitted into the partnership as an industrial partner to share one-third

in the partnership profit.

B. A SOLE PROPRIETOR AND AN INDIVIDUAL FORM A PARTNERSHIP

When one of the prospective partners is already engaged in business prior to the formation of
the partnership. That partner may transfer his/ her net assets (assets net of liabilities) to the
partnerships at agreed values or at fair market values if no agreed values. The partnership may
either: (1) use the books of the sole proprietor, (2) open a new set of books.

It is a common practice that a new sets of books be opened for any new business undertaking.

When the individual set of books are kept by each partner or by any of the partners, adjusting
entries are made on the separate books of the partners to update the recorded values. These are
made through the capital accounts. The capital account is credited for any increase in the value of
net assets and is debited for any decrease in the value of net assets.

Alternatively, a Capital Adjustment Account may also be used. The balance of this account,
after recording all the necessary adjustments is transferred to the capital accounts.

Illustrative Problem 1.) Mejia and Reyes formed a partnership wherein Mejia is to contribute
cash while Reyes is to transfer the assets and liabilities (net assets) of his business. Account
balances on the books of Reyes are as follows:
Debit Credit
Cash 300,000
44 Financial Accounting and Reporting Part 1

Accounts Receivable 250,000

Inventories 200,000
Accounts Payable 80,000
Reyes, Capital 670,000

The partners agreed on the following conditions:

1. An allowance for uncollectible accounts of P12,000 is to be established.

2. The inventories are to be valued at their current replacement cost of P220,000.

3. Prepaid expenses of P7,000 and accrued expenses of P4,000 are to be recognized.

4. Reyes is to be credited for an amount equal to the net assets transferred.

5. Mejia is to contribute sufficient cash to have an equal interest in the partnership.

Assumption 1 – The partnership will use the books of the sole proprietor

The following procedures should be followed in accounting for this type of formation:

1. Adjust the books of the sole proprietor to bring account balances to agreed values.
2. Record the investment of the other partner.

The adjusting entries necessary to update the balances to agreed values upon partnership
formation are recorded through the capital accounts of the partners. A capital adjustment account
may also be used and its balance is transferred to the capital accounts after all adjustments in the
net assets are made.

The following rules will be helpful in making the necessary adjusting entries:
Debit asset and credit capital for increase in asset values
Debit capital and credit asset for decreases in asset values
Debit capital and credit liabilities for increases in liability balances
Debit liabilities and credit capital for decreases in liability balances

In the case of contra asset accounts, the following rules shall apply:
Debit contra asset account and credit capital for increases in asset values
Debit capital and credit contra asset account for decreases in asset values

Hence, the information on the partnership of Mejia and Reyes will be accounted for as follows:

Step 1: Adjust the books of the sole proprietor Reyes to agreed values

a. Reyes, Capital 12,000

Allowance for Uncollectible Accounts 12,000

b. Inventories 20,000
Reyes, Capital 20,000

c. Prepaid Expenses 7,000

 Financial Accounting and Reporting Part 1 45

Expenses Payable 4,000

Reyes, Capital 3,000

The balance of the capital account of Angeles after the three adjusting entries are posted is
P681,000 (P670,000 –P12,000 + P20,000 + 3,000).

Step 2: Record the investment of the other partner, Aguilar

Cash 681,000
Mejia, Capital 681,000

Assumption 2: - The partnership will open a new set of books

When a new set of books are opened for the partnership, the entry required on the new books
of the firm is the recording of the investment of the partners at agreed values. The opening
entries on the new partnership book using the data given in Illustrative Problem A are shown as
follows:

a. Cash 300,000
Accounts Receivable 250,000
Inventories 220,000
Prepaid Expenses 7,000
Allowance for Uncollectible Accounts 12,000
Accounts Payable 80,000
Expenses Payable 4,000
Reyes, capital 681,000
To record the investment if Angeles

b. Cash 681,000
Mejia, Capital 681,000
To record the investment of Aguilar

Alternatively, a compound entry may be prepared to record the investments of the two partners.

Entries to adjust and close the accounts are made in the separate books of the sole proprietor
but not in the new books of the partnership. Using the same illustrative problem, the adjusting
and closing entries on the books of Reyes are as follows:

a. Reyes, Capital 12,000

Allowance for Uncollectible Accounts 12,000

b. Inventories 20,000
Reyes, Capital 20,000

c. Prepaid Expense 7,000

Expense Payable 4,000
Reyes, capita 3,000

d. Reyes, Capital 681,000

Expense Payable 4,000
46 Financial Accounting and Reporting Part 1

Accounts Payable 80,000

Allowance for Uncollectible Accounts 12,000
Cash 300,000
Accounts Receivable 250,000
Inventories 220,000
Prepaid Expenses 7,000
To close the books of Reyes

C. TWO OR MORE SOLE PROPRIETORS FORM A PARTNERSHIP

When all the prospective partners are already in business, they made decide to transfer their
asset and liabilities (net assets) to the partnership at value agreed upon or at fair market values,
in the absence of agreed values, The partnership may either: (1) use the books of the sole
proprietors, or (2) open a new set of books for the partnership. As mentioned earlier,
however, it is more common to open a new set of books for the partnership.

Illustrative Problem B: Villegas, owner of Villegas Variety Store, and Valdez, owner of Valdez
Trading decided to combine their business on July 1, 2020. Each is to transfer business assets
and liabilities (net assets) at agreed values. Statements of financial position for two proprietors
are presented below.

Villegas Variety Store

Statement of Financial Position
July 1, 2020

Assets
Cash P 130,000
Accounts Receivable P 75,000
Less Allowance for Uncollectible Accounts 5,000 70,000
Merchandise Inventory 300,000
Store Equipment P 630,000
Less Accumulated Depreciation 35,000 595,000
Total Assets P1,095,000
Liabilities and Capital
Accounts Payable P 150,000
Villegas, Capital 945,000
Total Liabilities and Capital P1,095,000
 Financial Accounting and Reporting Part 1 47

Valdez Trading
Statement of Financial Position
July 1, 2020

Assets
Cash P 35,000
Accounts Receivable P350,000
Less Allowance for Uncollectible Accounts 25,000 325,000
Merchandise Inventory 1,250,000
Delivery Equipment P 470,000
Less Accumulated Depreciation 8,000 462,000
Total Assets P2,072,000
Liabilities and Capital
Accounts Payable P 345,000
Valdez, Capital 1,727,000
Total Liabilities and Capital P 2,072,000

The partners Villegas and Valdez agreed on the following conditions, respectively:

1. Partner’s capital in the partnership shall be equal to the adjusted net assets transferred.
2. Adjustments are to be made as follows:
a. Allowance for Uncollectible Accounts shall be P7,500 and P32,000, respectively.
b. Inventories are to be valued at 110% of their recorded values.
c. Both store and delivery equipment are 5% depreciated.

Assumption 1 – The partnership will use the books of the sole proprietor

The procedures to be followed under his assumption are similar to the procedures discussed
under Formation B – Assumption 1. Thus, if the books of Valdez Trading will be used by the
partnership, the following procedures will be followed:

1. Adjust the books of Valdez Trading to bring the balances of accounts to agreed values.
2. Record the investment of Villegas.

Step 1: Adjust the books of Valdez Trading

a. Valdez, Capital 7,000

Allowance for Uncollectible Accounts 7,000
P32,000 – P25,000 = P7,000
b. Merchandise Inventory 125,000
Valdez, Capital 125,000
P1,250,000 x 10%= P125,000

c. Valdez, Capital 15,500

Accumulated Depreciation – Delivery Equipment 8,000
Delivery Equipment 23,500
P470,000 x 5% = P23,500
P462,000 NBV old – (P470,000 x 95%)NBV new = P15,500
48 Financial Accounting and Reporting Part 1

Step 2: Record the investment of Villegas

a. Cash 130,000
Accounts Receivable 75,000
Merchandise Inventory (P300,000 x 110%) 330,000
Store Equipment (P630,000 x 95%) 598,500
Allowance for Uncollectible Accounts 7,500
Accounts Payable 150,000
Villegas, Capital 976,000

The Adjustments on the account balances of Villegas Variety Store are not taken up on the
books of Valdez Trading which are now the partnership books. Instead the following adjusting
and
closing entries are prepared separately on the books of Villegas Variety Store:

a. Villegas, Capital 2,500

Allowance for Uncollectible Accounts 2,500
P7,500 - P5,000 =P2,500

b. Merchandising Inventory 30,000

Villegas, Capital 30,000

Accumulated depreciation-Store equipment 35,000

Store equip 31,500
Villegas, capital 3,500
P630,000 x 5% = P31,500
P595,000 nbv old – (P630,000 x 95%) nbv new = P3,500

c. Allowances for Uncollectible Accounts 7,500

Accounts Payable 150,000
Villegas, Capital 976,000
Cash 130,000
Accounts Receivable 75,000
Merchandise Inventory 330,000
Store Equipment 598,500

Assumption 2: The partnership will use a new sets of books

When a new set of books are opened for the partnership, entries are prepared to record the
investment of the partners at agreed values. The opening entries on the new partnership books
using the data given in Illustrative Problem B are shown below:

a. Cash 130,000
Accounts Receivable 75,000
Merchandise Inventory (P300,000 x 110%) 330,000
Store Equipment (P630,000 x 95%) 598,500
Allowance for Uncollectible Accounts 7,500
Accounts Payable 150,000
 Financial Accounting and Reporting Part 1 49

Villegas. Capital 976,000

To record the investment of Villegas

b. Cash 35,000
Accounts Receivable 350,000
Merchandise Inventory (P1,250,000 x 110%) 1,375,000
Delivery equipment (470,000 x 95%) 446,500
Allowance for Uncollectible Accounts 32,000
Accounts Payable 345,000
Valdez, Capital 1,829,500

The new partnership may prepare a separate entry for each partner’s contribution as shown or a
compound entry that shows the contributions of all the partners.

The plant assets transferred to the books of the new partnership are recorded net of
depreciation. The account accumulated depreciation is not carried on the partnership books. The
net amount, being the agreed value, represents the cost of the plant assets to the partnership and
such amount becomes the basis for the future depreciation of the partnership.

On the other hand, both accounts receivable and the corresponding allowance for uncollectible
accounts are recorded on the partnership books. The allowance for uncollectible accounts is
carried on the partnership books because of the possibility of collection. However, if there are
specific accounts receivable which are deemed worthless, such must be written off and removed
permanently from the outstanding accounts receivable.

A statement of financial position prepared immediately after the formation of the partnership of
Antonio and Albano is shown below.

Villegas And Valdez

Statement of Financial Position
July 1, 2020

Assets
Cash P 165,000
Accounts Receivable P 425,000
Less Allowance for Uncollectible Accounts 39,500 385,500
Merchandise Inventory 1,705,000
Store Equipment 598,500
Delivery Equipment 446,500
Total Assets P3,300,500
Liabilities and Capital
Accounts Payable P 495,000
Villegas, capital ,976,000
Valdez, capital 1,829,500
Total Liabilities and Capital P3,300,500

Readings:
• Chapter 2, Accounting for Partnership and Corporation, 2011 Edition, Gloria J.
Tolentino- Baysa and Ma. Concepcion Yamat Lupisan
50 Financial Accounting and Reporting Part 1

Assessment:

Exercise 2 – 1 (Cash and Non-cash Contributions)

Journalize the investment of Marco into the partnership under the following independent
assumptions:

a. Cash of P250,000

b. Inventories that cost P200,000 using the moving average method accepted by the

partnership at its FIFO value of 750% of average cost.

c. Accounts receivable of P450,000 with an allowance for uncollectible accounts of P20,000.

d. Equipment that cost P800,000 with a book value of P300,000 after four years of use without

salvage value. The equipment should have been over a 10-year useful life.

Exercise 2 – 2 (Cash and Net Asset Contribution)

Elma and Lara have decided to form a partnership. Elma invests the assets presented below at
their agreed valuation, and also transfers his liabilities to the new firm.
Ledger Agreed
Balances Valuation
Cash P400,000 P400,000
Accounts Receivable 170,000 170,000
Allowance for Uncollectible Accounts (13,000) (10,000)
Merchandise Inventory 320,000 280,000
Equipment 175,000 125,000
Accumulated Depreciation 30,000 ------
Accounts Payable 102,000 102,000

Notes Payable 95,000 95,000

Lara agrees to invest cash for a one-third interest in the firm.

Instructions:
1. Prepare the entries to record the investments of Elma and Lara in the partnership’s new set
of books.
2. Prepare the entries to adjust and close the balances of accounts on the books of Elma.
Exercise 2 – 3 (An Individual and a Previous Sole Proprietor)
Amor admits Andrea to a partnership interest in his business. Accounts in the ledger of Amor on
January 1, 2020 before the admission Andrea, show the following:
Debit Credit
Cash P 205,000
Accounts Receivable 450,000
Merchandise Inventory 1,450,000
Accounts Payable P 495,000
Amores, Capital 1,610,000
 Financial Accounting and Reporting Part 1 51

It is agreed that for the purpose of establishing the interest if Amor, the following adjustment
shall be made:

a. An allowance for uncollectible accounts of P22,000 is to be established.

b. The merchandise is to be valued at P1,500,000.
c. Prepaid expenses of P70,000 and unrecorded liability of P98,000 are to be recognized.

Andrea is to invest sufficient cash for an equal interest in the partnership.

Instructions:

1. Assuming the new partnership will use the books of Amor, give the entries to adjust the
account balances of Amor and to record the investment of Andrea.
2. Assuming the new partnership will open new set of books, give the entries to record the
investment of Amor and Andrea.
3. Prepare a statement of financial position for the new partnership.

Exercise 2 – 4 (Cash and Non-cash Contributions; Bonus)

Aguas and Ara have decided to form a partnership. Aguirre contributes cash of
P800,000 and Ara contributes land with a fair market value of P600,000 and a building with a
fair market value of P1,300,000. Ara purchased the land and building five years ago for
P750,000. Aras’ book value of the land is P275,000 and the book value of the building is
P650,000. The P1,300,000 mortgage on the land and building is to be assumed by the
partnership. The partners agree to share profits and losses in the ratio of 3:2 respectively.

Instructions: Prepare the journal entries to record the formation of the partnership under each
of the following independent assumptions:

1. Each partner is credited for the full amount of net assets invested.
2. Each partner initially is to have equal interest in partnership capital.
3. Each partner is credited in accordance with their P& L ratio.