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Lesson 1

This document provides an overview of accounting for partnerships, including initial contributions of partners, partnership formation, valuation of contributions, partner's ledger accounts, and adjustments to realign partner's capital during formation. It discusses accounting treatments for capital investments, withdrawals, distribution of profits and losses, and dissolution and liquidation of partnerships. The objectives are to state the valuation of partner contributions, account for initial contributions, and identify the partnership account and transactions that affect it.

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51 views17 pages

Lesson 1

This document provides an overview of accounting for partnerships, including initial contributions of partners, partnership formation, valuation of contributions, partner's ledger accounts, and adjustments to realign partner's capital during formation. It discusses accounting treatments for capital investments, withdrawals, distribution of profits and losses, and dissolution and liquidation of partnerships. The objectives are to state the valuation of partner contributions, account for initial contributions, and identify the partnership account and transactions that affect it.

Uploaded by

Aceain So
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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I N G F OR S P E C I AL

ACCOUNT
TR A N S A C T I O N S
(LESSON 1)
LEARNING OBJECTIVES
• STATE THE VALUATION OF CONTRIBUTION OF
PARTNERS

• ACCOUNT FOR THE INITIAL CONTRIBUTIONS OF


PARTNERS

• STATE THE ACCOUNT USED IN PARTNERSHIP


AND IDENTIFY THE TRANSACTIONS THAT
AFFECTS THIS ACCOUNT.
PARTNERSHIP

Art.1767
an unincorporated association
of two or more individuals to By the contract of partnership two
carry on, as co-owners, as or more persons bind themselves
business, with the intention of to contribute money, property or
dividing the profits among industry to a common fund with
themselves the intention of dividing the
profits among themselves
CHARACTERISTICS OF 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
ADVANTAGES
* Ease of formation
* Shared responsibility of running the business
* Flexibility in decision making
* Greater capital compared to sole proprietorship
* Relative lack of regulation by the government as
ADVANTAGES compared to corporations

AND DISADVANTAGES
* Limited life/easily dissolved
DISADVANTAGES * Unlimited liability
* Conflict among partners
* Lesser capital compare to corporation
* Tax like a corporation (except GPP)
ACCOUNTING FOR
PARTNERSHIP

•THE CONCEPTUAL FOR FINANCIAL


REPORTING AND PFRS ARE APPLICABLE
TO ALL REPORTING ENTITIES
REGARDLESS OF THE TYPE OF
ORGANIZATION
ACCOUNTING FOR PARTNERSHIP

•FORMATION– INITIAL INVESTMENT


•OPERATIONS – DIVISION OF PROFIT OR LOSS
•DISSOLUTION – PROCESS THAT LEADS TO TERMINATION OF PARTNERSHIP
•LIQUIDATION – WINDING UP
ACCOUNTING FOR PARTNERSHIP

•TREATMENT FOR:
>CAPITAL INVESTMENTS AND WITHDRAWALS
>DISTRIBUTION OF PROFITS AND LOSSES
>DISSOLUTION AND LIQUIDATION
PARTNERSHIP FORMATION

•A CONTRACT OF PARTNERSHIP IS CONSENSUAL


•CAN BE CONSTITUTED AS ORAL OR WRITTEN
• ARTICLES OF PARTNERSHIP
PARTNERSHIP FORMATION

PARTNERSHIP MAY BE FORMED BY:


1. INDIVIDUALS WITH NO EXISTING BUSINESS FORM A PARTNERSHIP.
2. CONVERSION OF A SOLE PROPRIETORSHIP TO A PARTNERSHIP
A. SOLE PROPRIETOR AND AN INDIVIDUAL
B. TWO OR MORE SOLE PROPRIETOR
3. ADMISSION OR RETIREMENT OF A PARTNER
VALUATION PARTNER’S CONTRIBUTION
• NON – CASH ASSETS
* AGREED VALUE OF THE PROPERTY AT THE TIME OF INVESTMENT
* FAIR MARKET VALUE OF THE PROPERTY AT THE TIME OF INVESTMENT
* BOOK VALUE OR CARRYING VALUE
* COST OF PROPERTY

• CASH AND CASH EQUIVALENTS – FACE AMOUNT


• INVENTORY – LOWER OF COST AND NET REALIZABLE VALUE (LCNRCV)
• ALL ASSETS CONTRIBUTED AND RELATED LIABILITIES ASSUMED ARE INITIALLY RECORDED AT FAIR VALUE
ADJUSTMENT OF ACCOUNTS PRIOR TO
FORMATION

• ASSETS = LIABILITIES + EQUITY


• EACH PARTNER’S CONTRIBUTION SHALL BE ADJUSTED ACCORDINGLY BEFORE RECOGNITION IN THE
PARTNERSHIP’S BOOKS.
PARTNERS LEDGER ACCOUNTS

•CAPITAL ACCOUNTS
•DRAWINGS ACCOUNTS
• RECEIVABLE FROM/ PAYABLE TO A
PARTNER
PARTNER’S LEDGER ACCOUNTS
REALIGNING PARTNER’S CAPITAL IN THE PARTNERSHIP
FORMATION
• A PARTNER’S CAPITAL BALANCE IS NORMALLY CREDITED FOR THE FAIR VALUE OF HIS NET CONTRIBUTION
TO THE PARTNERSHIP

• IF A PARTNER’S CAPITAL BALANCE IS CREDITED FOR AN AMOUNT GREATER THAN OR LESS THAN THE FAIR
VALUE OF HIS NET CONTRIBUTION, THERE IS BONUS.

• UNDER BONUS METHOD, ANY INCREASE (DECREASE) IN THE CAPITAL CREDIT OF A PARTNER IS DEDUCTED
FROM (ADDED) TO THE CAPITAL CREDITS OF THE OTHER PARTNERS.

• THE TOTAL PARTNERSHIP CAPITAL REMAINS EQUAL TO THE FAIR VALUE OF THE PARTNERS’ NET
CONTRIBUTION TO THE PARTNERSHIP.
* Accounting for Special Transactions 2021 Edition by Zeus
Vernon Millan

BOOK * Advanced Accounting Vol. 1 2015 Edition by R.D.


Allocating, CPA, MBA
REFERENCES
THAN K YO U !
MRS. JULIE ANN RAMIREZ

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