Name: Kimberly Anne P.

Caballes
BSA – III

1. What is Partnership?

 Define as “a contract whereby 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.”

2. What are the types of partners? Discuss each of them.

Classification of Partners:

A. As to Contribution

 Capitalist Partner – contributes money/property

 Industrial Partner – contribute only his personal services and shares
profit but not loss
 Capitalist-Industrial Partner – contributes not only money/property
but personal services as well

B. As to Liability

 General Partner – liable for partnership debts to extent to his

personal assets
 Limited Partner – liable for partnership debt to extent of his interest in
partnership only.
- may contribute cash/property but not services

3. How does a partnership being formed? Discuss your answer.

The members of a partnership may enter into a written contractual or oral

agreement, to form a partnership. It may be form in oral agreement unless not
included in the stipulation that must be in writing.

It may be need in writing and same shall appear in public instrument to be

recorded in Office if the SEC (Securities and Exchange Commission) referred to
as “Articles of Co-Partnership” when:

 Capital of partnership is 3,000 pesos or more in money/property

 Immovable property or real rights are contributed into the partnership
As far as division of profits and losses are concerned, the agreement is being
stipulated on the partnership contract and in case failure to provide such
agreement, the provision of the law shall apply and that is “profit and loss divided
based on proportion to their capital contribution.”
 A partnership may be formed in any of the following ways:

 Starting a business (the would-be partners are engaging in business for

the first time)
- Open a partnership book
 Sole Proprietorship business converted into Partnership
- When either one of the partners or all of the prospective
partners are sole proprietors who have agreed to form a
partnership, their respective sole proprietorship books are
closed and new set of books will be opened by the partnership.

Before closing sole proprietor’s books of accounts, adjustments

are needed in order to fairly and reasonably establish the
equities of the sole proprietors on the net assets (assets less
liabilities) transferred because their adjusted balances will be
carried in the book of the partnerships which greatly effect on
their agreement to divide profits or losses. The adjustments will
include:

 Non-cash assets are revalued to conform with their fair

market values
 Recognition of liability and other adjustments which may
be deemed necessary

4. Discuss Accounting for Partnership Formation

Formation of a partnership involves investment by the partners in the partnership

either in the form of cash or in the form of assets. When partners introduce cash
or any other asset, cash or the other asset account is debited at the value agreed
by the partners and the corresponding partner's capital account is credited by the
same amount.

Reasons for Partnership Formation

There are many reasons for building a partnership firm. Most common are:

 larger amount of capital can be raised because more than one persons
invest in the business,
 it is very easy to form a partnership, even you can set it up in a day.
 partners contribute diverse skills, expertise and ideas into the business.
 workload is shared among partners, so each partner can focus on its
specific areas.