ELEMENTS OF MANUFACTURING COSTS

1. DIRECT MATERIALS – becomes physical part of

the finished product
2. DIRECT LABOR – compensation of the
employees/workers who physically convert raw
materials into finished goods.
3. MANUFACTURING OVERHEAD – Indirect
materials & supplies, indirect labor costs, other
indirect mfg costs
PRIME COSTS – direct materials and direct labor
CONVERSION COSTS – direct labor and mfg overhead
MANUFACTURING INVENTORY ACCOUNTS
(REPORTED AS CURRENT ASSETS)
1. FINISHED GOODS INVENTORY – cost of
completed goods that have remained unsold
2. WORK IN PROCESS INVENTORY – goods that
are in the mfg process but are not yet complete
3. RAW MATERIALS INVENTORY – direct
materials on hand that will be used in mfg process
4. FACTORY SUPPLIES INVENTORY – unused
indirect materials

ACCOUNTING FOR MFG ACTIVITIES

COST SYSTEM – perpetual records of the costs of RM,

WIP & FGI (provides more timely information)
NON-COST SYSTEM – based on periodic inventory
system (does not provide for a detailed flow of costs)
 STATEMENT OF COST OF GOODS
MANUFACTURED
 STATEMENT OF COST OF GOODS SOLD
 CHAPTER 1
BRIEF HISTORY
 2200 B.C. (King of Babylon, Hammurabi)
 Societa (Ancient Rome)
 Middle Ages (Italy) as limited partners
 Partnership Act of 1890 (US)
 Uniform Partnership Act (1914) and Uniform Limited
Partnership Act (1916) was approved
PHILIPPINES
 Before Civil Code (Aug 30, 1915) 2 types of
partnership:
1. Commercial/Mercantile – governed by the Code
of Commerce
2. Civil/Non-commercial – governed by old civil
code
DEFINITION
 (Civil Code of the Philippines, Article 1767)
 two or more persons bind themselves to contribute
money, property or industry to a common fund,
with the intention of dividing the profit among
themselves.
 partnership is distinct from that of each partner
(Civil Code of the Phils 1768)
 can be constituted orally or in writing
Partner – co-owner of a partnership
General Professional Partnership – practice of law, public
accounting, medicine and other professions

CHARACTERISTICS OF A PARTNERSHIP
1. MUTUAL CONTRIBUTION – money, property or
industry
2. DIVISION OF PROFITS OR LOSSES
3. CO-OWNERSHIP OF CONTRIBUTED ASSETS –
all assets contributed are co-owned by the partnership.
4. MUTUAL AGENCY – any partner can bind other
partners to a contract if he is acting within his express
or implied authority.
5. LIMITED LIFE – It may be dissolved by the
admission, death, insolvency, incapacity, withdrawal of
a partner
6. UNLIMITED LIABILITY – all partners (except
limited partners) incl. Industrial Partners are personally
liable for all debts incurred by the partnership.
7. INCOME TAXES – partnerships (except gen prof
partnerships) are subject to 30% tax (per RA # 9337)
8. PARTNER’S EQUITY ACCOUNTS – each partners
has a capital and withdrawal account

ADVANTAGES AND DISADVANTAGES OF A

PARTNERSHIP
Versus Proprietorships
1. Brings greater financial capability to the business.
2. Combines special skills, expertise and experience of the
partners.
3. Offers relative freedom and flexibility of action in
decision-making.
Versus Corporations
1. Easier and less expensive to organize
2. More personal and informal
Disadvantages
1. Easily dissolved and thus unstable compared to a
corporation.
2. Mutual agency & Unlimited Liab may create personal
obligations to partners.
3. Less effective than a corporation in raising large
amounts of capital.

PARTNERSHIP DISTINGUISHED FROM CORP

1. MANNER OF CREATION – P created by mere

agreement), C created by my operation of law
2. NUMBER OF PERSONS – P 2 or more persons, C at
least 5 persons, not exceeding 15
3. COMMENCEMENT OF JURIDICAL
PERSONALITY – P execution of the articles of
partnership, C issuance of cert of incorporations by the
SEC
4. MANAGEMENT – P every partner is an agent if no
managing partner, C management is vested on the BOD
5. EXTENT OF LIABILITY – P unlimited liab, C extent
of their interest/investment in the corp.
6. RIGHT OF SUCCESSION – P there is no right of
succession, C there is.
7. TERMS OF EXISTENCE – P for any period of time
stipulated by partners, C not to exceed 50 yrs but
subject for extension.

CLASSIFICATIONS OF PARTNERSHIPS

1. ACCORDING TO OBJECT
A. Universal Partnership of all present property
B. Universal partnership of profits
C. Particular partnership
2. ACCORDING TO LIABILITY
A. General (unlimited liab)
B. Limited (limited accdg to contributions)
3. ACCORDING TO DURATION
A. Partnership w/ a fixed term for a particular
undertaking
B. Partnership at will (no term specified)
4. ACCORDING TO PURPOSE
A. Commercial or Trading Partnership
B. Professional or Non-Trading Partnership
5. ACCORDING TO LEGALITY OF EXISTENCE
A. De Jure Partnership (complied with all the legal
requirements)
B. De Facto Partnership (failed to comply)

KINDS OF PARTNERS

1. GENERAL PARTNERS – unlimited liability

2. LIMITED PARTNERS – limited liability
3. CAPITALIST PARTNER – contributes
money/property
4. INDUSTRIAL PARTNER – contributes
knowledge/service
5. MANAGING PARTNER – appointed as manager
6. LIQUIDATING PARTNER – tasked to liquidate
after dissolution
7. DORMANT PARTNER – not active and is not
known as partner
8. SILENT PARTNER – not active thought may be
known
9. SECRET PARTNER – active but is not known
10. NOMINAL PARTNER/PARTNER BY
ESTOPPEL – not a partner but act as one

ARTICLES OF PARTNERSHIP
1. The partnership name, nature, purpose and location.
2. The names, citizenship and residence of the partners.
3. The date of formation and duration of the partnership.
4. The capital contribution of each partner, procedure for
valuing non-cash investments, treatment of excess
contribution (as capital or as loan) and the penalties for
a partner’s failure to invest and maintain the agreed
capital.
5. The rights and duties of each partner.
6. The accounting period to be adopted, the nature of
accounting records, financial statements and audits by
independent public accountants.
7. The method of sharing profit/loss, frequency of income
measurement and distribution, incl any provisions for
the recognition of differences in contributions.
8. The drawings/salaries to be allowed to partners
9. The provision for arbitration of disputes, dissolution,
and liquidation.

SEC REGISTRATION
- Capital of 3,000/more (money/property) must be
recorded with SEC, even not registered
- SEC shall not register any corp for public practice
- Purpose (to set a condition for the issuance of the
licenses to engage in business/trade.” (Dean
Capistrano, IV Civil Code of the Phils)

STEPS TO REGISTER
- Have your proposed business name verified (Co,
Ltd, Company, Assoc or Partners-SEC Memo
Circular 5, series of 2008)
- Submit the requirements:
 Articles of partnership
 Verification slip for business name
 TIN of each partner and/or of the partnership
- Pay fees (Filing fee - 1% of the partnership
capital, not less than 1000 and legal research fee-
1% of the filing fee)
- Forward docs to SEC Commissioner for signature

ACCOUNTING FOR PARTNERSHIPS

Permanent Withdrawals – to permanently decrease the

partner’s capital acct
Temporary Withdrawals – regular advances made by the
partners in anticipation of their share in profit
 PARTNERSHIP FORMATION
1. VALUATION OF ASSETS (basis is fair market
value)
2. ADJUSTMENT OF ACCOUNTS PRIOR TO
FORMATION
3. OPENING ENTRIES OF A PARTNERSHIP
UPON FORMATION

A partnership may be formed in the ff:

1. Individuals w/ no existing business form a partnership.
2. Conversion of sole proprietorship to a partnership:
a. A sole proprietor and an individual w/o an
existing business for a partnership.
 Books of sole proprietor
Adjust the assets & liab
Close the books
 Books of the Partnership
 Separately record the investment of the
partners
b. Two/more sole proprietors form a partnership.
 Books of each sole proprietor
Adjust the assets & liab of the partners
Close the books
 Books of the Partnership
Separately record the investment of the
partners
c. Admission/Retirement of a partner
LIMITED LIABILITY COMPANY
- Hybrid form of business combines the best
features of partnership & corp.
- Limited liab to owners
- Owners are called members (can be indi,
partnerships, corps or other entities)
LIMITED LIABILITY PARTNERSHIP
- Investment is restricted to professionals
- KPMG, Ernst & Young, PricewaterhouseCoopers
& Deloitte Touche are examples
 CHAPTER 2

FACTORS TO CONSIDER IN ARRIVING AT A PLAN

FOR DIVIDING PROFITS/LOSSES:
1. MONEY, PROPERTY OF INDUSTRY
- The amt of capital invested, time devoted, and
other contributions
- A partner has considerable personal financial
resources, thus giving the partnership a very strong
credit rating. In general, partners have unlimited
liab. A very solvent partner will make the
partnership attractive to creditors.
- A partner who is well known in a
profession/industry may contribute immensely to
the success of the partnership although he may not
participate actively in the operations of the prtshp.
2. PERFORMANCE METHODS
(Allocation of profits on performance based or bonus)
- Chargeable hours
- Total billings
- Write-offs
- Promotional & civic activities
- Profits in excess of specified levels
RULES FOR DISTRIBUTION OF PROFITS/LOSSES

PROFITS
a. According to partner’s agreement
b. If no agreement, according to their capital
contributions (ratio of orig investment, if none
capital balances at the beg of the year)
c. For industrial partner, receive share before the
capitalist partners shall divide the profit.

LOSSES
a. According to partner’s agreement
b. If no agreement, according to profit ratio
d. In absence:
 capitalist partners – accdg to capital
contributions (ratio of orig investment, if
none capital balances at the beg of the year)
 purely industrial partner – shall not be liable
for any losses.

DISTRIBUTION OF PROFITS/LOSSES BASED ON

PARTNER’S AGREEMENT

1. Equally or in agreed ratio

2. Based on partner’s capital contributions:
a. Ratio of original investments
b. Ratio of capital balances at the beg of the year
c. Ratio of capital balances at the end of the year
d. Ratio of average capital balances
3. By allowing interest on partner’s capital & the
balances in an agreed ratio
4. By allowing salaries to partners & the balances in an
agreed ratio
5. By allowing bonus to the managing partner based on
Profit & the balances in an agreed ratio
6. By allowing salaries interest on partner’s capital,
bonus to the managing partner & the balances in an
agreed ratio

FINANCIAL REPORTING

PURPOSE OF FINANCIAL STATEMENTS

- Provide information about the financial position,
financial performance and cash flows of an entity
that is useful to a wide range of users in making
economic decisions.

OVERALL CONSIDERATIONS
1. Fair presentation and compliance with international
reporting standards
2. Going concern
3. Accrual basis of Accounting
4. Materiality and aggregation
5. Offsetting
6. Frequency of reporting and comparative information
7. Consistency of presentation
8. Identification of the financial statements
- Name of the reporting entity
- Individual entity or group of entities
- Date of the end of the reporting period/period
covered by the financial statements
- Presentation currency
 - Level of rounding used in presenting amounts

COMPLETE SET OF FINANCIAL STATEMENTS

a. Statement of Financial Position (as at the end of the
period)
b. Statement of Comprehensive Income for the period
c. Statement of Changes in Equity for the period
d. Statement of Cash Flows for the period
e. Notes, comprising a summary of significant acctg
principles and other explanatory informations
f. Statement of Financial Position (beg of the earliest
comparative period, retrospective restatement)

CHAPTER 3
DISSOLUTION

DISSOLUTION
 change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business of the
partnership.
 Partnership is not terminated

CAUSES OF DISSOLUTION
1. Admission of a Partner
 Delectus Personae (no one becomes a member
w/o the consent of all members)
a. Purchase of an interest from one or more of the
existing partners
 A.1 Payment to old partners is equal to interest
purchased
A.2 Payment to old partners is less than the
interest purchased
A.3 Payment to old partners is more than the
interest purchased
b.
2. Withdrawal or retirement of a partner
3. Death of a partner
4. Incorporation of the partnership