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01 Introduction and Formation

The document discusses the formation of partnerships under Philippine law. It defines a partnership as an agreement between two or more persons to contribute money, property, or skills to a common fund with the intention of sharing profits. Key characteristics include consent of the partners, contribution to a common fund, lawful purpose, intention to share profits, new legal personality, mutual agency, co-ownership of assets, and unlimited liability. The document also discusses types of partnerships, roles of partners, required partnership articles, accounting treatments, and examples of forming partnerships with journal entries.

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205 views

01 Introduction and Formation

The document discusses the formation of partnerships under Philippine law. It defines a partnership as an agreement between two or more persons to contribute money, property, or skills to a common fund with the intention of sharing profits. Key characteristics include consent of the partners, contribution to a common fund, lawful purpose, intention to share profits, new legal personality, mutual agency, co-ownership of assets, and unlimited liability. The document also discusses types of partnerships, roles of partners, required partnership articles, accounting treatments, and examples of forming partnerships with journal entries.

Uploaded by

m_kobayashi
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Partnerships: Introduction and Formation

Definition
By the contract of partnership two or more persons bind themselves to contribute

money, property or industry to a common fund, with the intention of dividing the profits
among themselves. Two or more persons may also form a partnership for the exercise of a profession (Art. 1767, Civil Code of the Philippines)

Partnerships: Introduction and Formation


Characteristics of a contract of partnership
1. Consensual perfected by mere consent 2. Contribution of money, property or industry to a common fund 3. Lawful object (Art. 1770) 4. Intention of dividing the profit among the partners (Art. 1799) 5. New personality separate from owners (Art. 1768)

6. Voluntary association
7. Mutual agency (Art. 1818) 8. Co-ownership of partnership property (Art. 1811) 9. Unlimited liability

Partnerships: Introduction and Formation


Advantages of a partnership
1. Ease of formation and dissolution 2. Greater amount of capital 3. Wider network 4. Freedom and flexibility in decision-making 5. Better management

Disadvantages of a partnership
1. Lack of business continuity 2. Difficulty in transferring ownership interest

3. Likelihood of disagreement among partners


4. Limited amount of capital 5. Unlimited liability

Partnerships: Introduction and Formation


Kinds of partnerships
According to activity 1.Service 2.Trading 3.Manufacturing According to liability

1.General
2.Limited According to object 1.Universal partnership of all present property (Art. 1778) 2.Universal partnership of profits (Art. 1780) 3.Particular partnership

Partnerships: Introduction and Formation


Kinds of partnerships
According to purpose 1.Commercial 2.General professional

Partnerships: Introduction and Formation


Kinds of partners
According to investment 1. Capitalist 2. Industrial According to liability 1. General

2. Limited
According to participation 1. Nominal 2. Silent 3. Managing

Partnerships: Introduction and Formation


Articles of partnership
voluntary contract between or among partners to place their capital, labor and skills in business with the understanding that there will be a sharing of the profits and losses between or among themselves a contractual agreement that establishes the legal relationship between partners

Partnerships: Introduction and Formation


Content
1. Name of the partnership 2. Principal office of the partnership 3. Names, citizenship and residence of partners 4. Term or duration of existence 5. Purpose/s

6. Resources/assets contributed by each partner


7. Name of managing partner

Partnership accounting
1. Plurality of capital and drawing accounts
2. Partners loans and borrowings 3. Division of profits and losses

Partnerships: Introduction and Formation


Guidelines on formation of a partnership
1. Cash investments are recorded at face value. 2. Non-cash investments are recorded at fair value. 3. When a sole proprietorship is converted into a partnership, its books will be closed whether or not its books will be used by the partnership. 4. All partners must agree to the values assigned.

Partnerships: Introduction and Formation


At the start of the year, Nick Lazzarini, Blake McGrath and Ashle Dawson decided to form LMD Company, a general partnership. Lazzarini contributed cash amounting to P700 000. McGrath invested an office building in the partnership. The building originally costs P1.5M, and a useful life of 20 years with no residual value. At the time of the formation, the building had a remaining life of 17 years, but its fair value was P1.3M. Dawson was appointed the managing partner of the firm, and only her expertise will be invested in it.

Prepare the necessary journal entries to record the formation of LMD.

Partnerships: Introduction and Formation


On Jan. 1, 2012, Travis Wall and Benjie Schwimmer decided to forma a partnership and contributed the following assets: Wall Carrying Value Building Furniture Equipment 1 680 000 120 000 Fair Value 2 000 000 100 000 150 000 200 000 Schwimmer Carrying Value Fair Value

Wall and Schwimmer agreed to assume the mortgage on the building amounting to P600T, and that Schwimmer will invest cash to make his capital equal to 25% of the total equity. Prepare the journal entries to record the formation of the partnership.

Partnerships: Introduction and Formation


Daniel Baker, Eliana Girard and Chehon Wespi-Tschopp formed a partnership at the start of the year, known as BGW and Co. Bakers statement of financial position before the formation of the partnership is as follows:

Partnerships: Introduction and Formation


Debit Cash Accounts receivable Allowance for doubtful accounts Inventory 1 500 000 200 000 400 000 25 000 Credit

Prepaid insurance Property, plant and equipment


Accumulated depreciation Trademark Accounts payable Unearned revenue Notes payable Baker, capital Total

100 000 3 500 000


1 100 000 2 500 000 200 000 775 000 100 000 6 000 000 8 200 000 8 200 000

Partnerships: Introduction and Formation


Other information: 1.Bakers allowance for doubtful accounts should be increased to 10% of its A/R balance. 2.Bakers inventory has a fair market value of P2M. 3.The partners agreed to increase the carrying value of Bakers PPE by P100 000. 4.Bakers trademark has a current fair market value of P1 915 000. 5.Baker will have a 50% interest in the partnership equity.

6.Girard contributed office equipment that has a carrying value of P2.5M and a fair value of
P2M to the partnership. 7.Girard will invest additional cash to make her investment equal to 30% of the total partnership capital 8.Wespi-Tschopp will contribute cash equal to his interest in BGW. 9.The accounts used by Baker will be used by the partnership.

Partnerships: Introduction and Formation


Required: 1. Prepare the necessary entries to adjust Bakers financial statement. 2. Prepare the entries to close Daniels books. 3. Prepare the entries to record the partnership formation. 4. Prepare the partnerships initial statement of financial position.

Partnerships: Introduction and Formation


At the beginning of the year, Neil Haskell, Joshua Allen and Evan Kasprzak formed HAK, Ltd. Before the partnership was formed, each ahs the following accounts in their statement of financial position. Haskell Cash A/R 400 000 200 000 Allen 250 000 250 000 Kasprzak 100 000 180 000

Inventory Supplies
Equipment A/D Eqpt Furniture A/D Furniture Accounts payable

600 000 50 000


1 600 000 200 000 600 000 100 000 100 000

400 000 100 000


1 200 000 400 000 800 000 200 000 200 000

500 000 80 000


800 000 50 000 1 000 000 300 000 350 000

Partnerships: Introduction and Formation


Other information: 1. The partners have agreed to set up an allowance for uncollectible accounts equal to 10% of their A/R balance. 2. Haskells and Kasprzaks inventory is understated by P50T and P40T, respectively, while Allens inventory is overstated by P30T. 3. The fair value of Haskells equipment is P1.8M. Allens and Kasprzaks equipment both

have a fair value of P800T.


4. The partners have agreed to record the furniture contributed by each at P700T. 5. Haskell will have a 40% interest in the partnership, while Allen and Kasprzak will each have a 30% interest in it. 6. Allen and Kasprzak will contribute additional cash to make their initial capital balance equal to their interest in the company.

Partnerships: Introduction and Formation


Required: 1. Prepare the entries to adjust the books of each partner. 2. Prepare the entries to close the books of each partner. 3. Prepare the entries to record the formation of the partnership. 4. Prepare the partnerships initial statement of financial position.

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