ACCOUNTING FOR SPECIAL TRANSACTIONS The drawing account is a nominal account that is closed to related
PARTNERSHIP - is an unincorporated associations of two or capital account at the end of the period. This account is contra
more individuals to carry on, as co-owners, as business with the equity account and has a normal debit balance.
intention of dividing profits among themselves.
Characteristics of a Partnership
a. Ease of formation- the formation of partnership requires less
formality
b. Separate legal entity- juridical personality separate distinct
from the partners
c. Mutual Agency- partners are the agents of the partnership for
the purpose of its business
d. Co-ownership of property- each has an equal right with his PARTNER’S LEDGER ACCOUNT (Receivable from/Payable
partners to possess specific partnership property for partnership to Partner)
purposes Illustration: Formation of partnership – Valuation of Capital
e. Co-ownership of profits- each partner is entitled his share in the A and B formed a partnership. The following are their
partnership profit. contributions:
f. Limited life
i. By express will of any partner
ii. By the termination of a definite term stipulates in the
articles of partnership
iii. By any event that makes it unlawful to carry put the
partnership
iv. When a specific thing which a partner has promised to
contribute perishes
v.Expulsion, death, insolvency or civil interdiction of a
partner Illustration: Formation of partnership – Valuation of Capital
g. Transfer of Ownership- whether to a new or existing partner Additional information:
requires the approval of the remaining partners a. Included in AR is an account amounting to P 20,000 which is
h. Unlimited Liability -may be held personally liable for deemed uncollectible.
partnership debt after all partnership assets have been exhausted. b. Inventory has an estimated selling prices of P 100,000 and
*General Partnership- all partners are individually liable estimated cost ot sell of P 10,000
*Limited Partnership- at least one partner is personally liable c. The partnership assumed a P 10,000 unpaid mortgage on the
land.
Major considerations accounting for the equity of a partnership: d. The building is under depreciated of P 25,000.
a. Formation accounting for initial investments to the e. There is an unpaid mortgage of P 15,000 on the building which
partnership B agreed to pay using his personal funds.
b. Operations - division of profits or losses f. The notes payable is stated at face amount. A proper valuation
c. Dissolution - admission of a new partner and withdrawal requires the recognition of P 15,000 discount on notes payable.
retirement or death of a partner g. A and B profit and loss ratio is 60:40.
d. Liquidation - winding-up of affairs
Compute for the adjusted balances of the partners capital account.
FORMATION OF PARTNERSHIP
Accordingly, all assets contributed to (and related liabilities
assumed by) the partnership are initially measured at FAIR
VALUE
ACCOUNTING FOR PARTNERSHIP
PARTNER’S LEDGER ACCOUNT (Capital and Drawing)
The partners' ledger accounts are:
a. Capital accounts Assume that a partner’s capital shall be increased accordingly by
b. Drawings accounts contributing additional cash to bring partners ’ capital balances
c. Receivable from/ Payable to a partner proportionate to profit loss ratio. Which partner should provide
additional cash and how much?
Adjusted Capital
A 165,000 37,500 202,500 60%
B 135,000 135,000 40%
337,500 100%
BONUS ON INITIAL INVESTMENTS
Illustration: A and B agreed to form a partnership. A contributed
P 40,000 cash while B contributed equipment with fair value of P
100,000. However, due to the expense that they should initially
have an equal interest in the partnership capital.
VARIATIONS TO BONUS METHOD
a. Cash settlement among the partners
b. Additional Investment or withdrawal of investment of a partner
Illustration: A B and C agreed to form a partnership. Their
contributions are as follows:
The equipment has an unpaid mortgage of P20,000.00, which the
partnership assumes to repay.
The partners agreed to equalize their interests. Cash settlements
among partners are to be made outside the partnership.
Which partner(s) shall receive cash payment from the other
partners(s)?
A and B agreed to forma partnership with the following
stipulations:
a. Initial capital of 140,000 (A contributed cash 100,000; B
contributed 40,000
b. 60:40 interest in the equity
Which partner shall provide additional investment?
