FINANCIAL ACCOUNTING

&
REPORTING
(Fundamentals)

ZEUS VERNON B. MILLAN

Chapter 12: Partnership Operations (FAR
by: Millan)
 Chapter 12
Partnership Operations
Learning Objectives
1. State the items that affect the division of a
partnership’s profits or losses among the
partners.
2. Compute for the share of a partner in the
partnership’s profit or loss.

Chapter 12: Partnership Operations (FAR

by: Millan)
 Division of profits and losses
• The partners shall share in the profits or losses of a
partnership in accordance with the partnership agreement.

Chapter 12: Partnership Operations (FAR

by: Millan)
 Division of profits and losses
(Continuation)
• If only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same
proportion.
• In the absence of stipulation, the share of each partner in the
profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the
losses. (Art. 1797 of the Philippine Civil Code)
• The designation of losses and profits cannot be entrusted to one
of the partners (Art. 1798).
• A stipulation which excludes one or more partners from any share
in the profits or losses is void (Art. 1799).

Chapter 12: Partnership Operations (FAR

by: Millan)
 Other stipulations that affect division of P/L
1. Salaries – normally, an industrial partner shall receive salary, in
addition to his share in the partnership’s profits, as
compensation for his services to the partnership.
2. Bonuses – the partnership agreement may stipulate a bonus to
be given to a managing partner to encourage excellent
management performance. Unlike for salaries though, a
partner is entitled to a bonus only if the partnership earns
profit.
3. Interest on capital contributions – the partnership agreement
may stipulate that each partner may be entitled to a per
annum interest computed on his capital contributions.

• The above-mentioned items are normally provided first to the

respective partners and any remaining amount of the profit or
loss is shared based on the stipulated profit or loss ratio.

Chapter 12: Partnership Operations (FAR

by: Millan)
 APPLICATION OF
CONCEPTS

PROBLEM 2: FOR CLASSROOM DISCUSSION

Chapter 12: Partnership Operations (FAR by: Millan)

 QUESTIONS????
 REACTIONS!!!!!

Chapter 12: Partnership Operations (FAR

by: Millan)
END

Chapter 12: Partnership Operations (FAR

by: Millan)