Practical Accounting, Part 2

EVALUATION EXAM DIVISION:

1. Partnership and Corporation – Revenue Recognition
2. Home Office, Branch and Agency – Business Combination w/o Consolidated FS
3. Consolidated FS – Small Topics
4. Cost Accounting

PARTNERSHIP AND CORPORATION

Partnership
- Two or more persons
- Money, property or industry
- Dividing profits among themselves
- “trust and confidence”

I. FORMATION
a. Recognition of Distribution
i. Cash - @ face value
ii. Non-cash
1. @ agreed value
2. @ fair market value
iii. Industry – memorandum entry
b. Way to form
i. New to business and New to business
ii. New to business and Sole proprietor
iii. Sole proprietor and Sole proprietor
c. Type of Partnership
i. General Partnership – unlimited liability, all of the partners are general partner
ii. Limited Partnership – at least one general partner
II. OPERATION – profit sharing
a. Equally
b. Ratio
i. Arbitrary
ii. Fraction
iii. Percentage
 Agreement – shown in the Articles of Partnership
c. Capital
i. Beginning capital
Based on Calendar or
ii. Ending capital Fiscal Year Balance
iii. Average capital - weighted average
iv. Original contributed capital – just and equitable to industrial partner
d. Other
i. Salaries – not valid expense
ii. Interest – investment (rate (%) is always per annum)

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Practical Accounting, Part 2

iii. Bonus – managing partner / industrial partner

III. DISSOLUTION – change in ownership
a. Additional partner
i. Investment - partnership transaction
1. Bonus
2. Agreed upon
 Overstatement of Asset
No agreement is needed
 Understatement
 Understatement of Asset
Agreed - upon
 Overstatement of Liability
 Total Agreed Capital ≠ Total Contributed Capital → Asset Revaluation
 Total Agreed Capital = Total Contributed Capital → Bonus
ii. Withdrawal – voluntary
iii. Death / Incapacity – involuntary (interest %)
iv. Incorporation
IV. LIQUIDATION – winding-up
a. Lump-sum
b. Installment
i. Right of offset
ii. Marshalling of asset
1. Personal Asset > Personal Liability → Solvent Partnership
2. Personal Asset < Personal Liability → Insolvent Partnership
c. Steps of Liquidation
i. Close profit or loss
ii. Adjust assets and liabilities
iii. Sell non-cash assets
iv. Pay liabilities and liquidation expense or cash withheld
v. Pay partner
1. If a partner has a capital deficiency
a. Right of offset
b. Investment
c. Absorption