•PARTNERS

HIP
• INTRODUCTION AND FORMATION

•pretest
• PARTNERSHIP
• PRETEST

1. Define partnership. (5 points)

• PRETEST
6. Which of the following is a
characteristic of most partnerships?
• Limited liability
• Division of contribution
• Unlimited life
• Mutual contribution
• PRETEST
7. What law governs partnerships in the
Philippines?
• Corporation Code
• Civil Code
• R.A. 9298
• New Corporation Law
• PRETEST
8. The ability of a partner to enter into
contract on behalf of all the partners is
called
• Partnership agency
• Voluntary association
• Partnership representation
• Mutual agency

• PRETEST
9. Which of the following accounts is
usually not carried forward to a new
partnership?
• Cash
• Accounts receivable
• Accumulated depreciation
• Inventory

• PRETEST
• A partnership which comprises all the
profits that the partners may acquire
by their industry or work during the
existence of the partnership is called
• Universal partnership
• Universal partnership of all profits
• For profit partnership
• Particular partnership

•answers
• PRETEST
• PRE-TEST

• Define partnership. (5 points)

Article 1767. By the contract of

partnership, two or more persons bind
themselves to contribute money,
property and industry to a common
fund with the intention of dividing the
profits among themselves.

Two or more persons may also form a

partnership for the exercise of a
profession. (1665a)
• PRE-TEST
6. Which of the following is a
characteristic of most partnerships?
• Limited liability
• Division of contribution
• Unlimited life
• Mutual contribution
• PRE-TEST
7. What law governs partnerships in the
Philippines?
• Corporation Code
• Civil Code
• R.A. 9298
• New Corporation Law
• PRE-TEST
8. The ability of a partner to enter into
contract on behalf of all the partners is
called
• Partnership agency
• Voluntary association
• Partnership representation
• Mutual agency

• PRE-TEST
9. Which of the following accounts is
usually not carried forward to a new
partnership?
• Cash
• Accounts receivable
• Accumulated depreciation
• Inventory

• PRE-TEST
• A partnership which comprises all the
profits that the partners may acquire
by their industry or work during the
existence of the partnership is called
• Universal partnership
• Universal partnership of all profits
• For profit partnership
• Particular partnership
• CHARACTERISTICS
• MUTUAL CONTRIBUTION
• Money, property, industry
• DIVISION OF P/L
• Essence of the partnership

• CO-OWNERSHIP
• Of contributed assets

• MUTUAL AGENCY
• The ability of the partner to enter into contract on
behalf of all the partners

• CLASSES OF PARTNERSHIP
• According to object
• Universal partnership of all
Present Property
- Partners contribute all the properties
which actually belong to each of them
at the time of the constitution of the
partnership

• Universal partnership of Profits

 - Comprises all that the partners may
acquire by their industry or work & the
usufruct of movable or immovable
property

• Particular Partnership
- Object of the partnership is
determinate

• CLASSES OF PARTNERSHIP
B. According to liability
• General
- All partners are liable to the
extent of their separate properties

• Limited
- Partnership with a limited
partner/s

• CLASSES OF PARTNERSHIP
C. According to duration
• Partnership at will
- No term is specified and is not
formed for any particular
undertaking

• Partnership with a fixed

term

• CLASSES OF PARTNERSHIP
D. According to legality of
existence
• De Facto Partnership
- Failed to comply with all the
legal requirements for its
establishment

• De Jure Partnership
• CLASSES OF PARTNERSHIP
E. According to representation
to others
• Ordinary Partnership
- actually exists among the
partners & as to third persons

• Ostensible Partnership /
Partnership by Estoppel
- Partnership only in relation to
those who by their conduct or
omission, are precluded to deny
or disprove the existence of the
partnership

• CLASSES OF PARTNERSHIP
F. According to publicity
 • Secret Partnership
- existence of certain persons as
partners are not made known to
others

• Open or Notorious
Partnership
- Partnership only in relation to
those who by their conduct or
omission, are precluded to deny
or disprove the existence of the
partnership

• CLASSES OF PARTNERSHIP
G. According to purpose
• Commercial or Trading
- Formed for the transaction of
business
 • Professional or Non-trading
- Formed for the exercise of a
profession
• KINDS OF PARTNERS
• CAPITALIST
• Contributed money or property

• INDUSTRIAL
• Contributes industry or services

• GENERAL
• Liable to the extent of his personal property

• LIMITED
• Liable only to his capital contribution

• KINDS OF PARTNERS
• CONTINUING PARTNER
• continues the business after it has been dissolved

• SURVIVING PARTNER
 • remains after dissolution by death of a partner

• SUBPARTNER
• not a member of the partnership but merely acts as
a representative of one partner

• KINDS OF PARTNERS
• ORIGINAL PARTNER
• member of the partnership from the time
of the organization

• INCOMING PARTNER
• about to be taken into the partnership as a
member

• RETIRING PARTNER
• withdrawing partner
• FORMATION
1. Individuals with no existing business
form a Partnership
2. Conversion of a sole proprietorship
into a Partnership
 -Sole proprietor + individual
-Sole proprietor + sole proprietor
3. Admission or Retirement

• FORMATION
Assets xxx
Liabilities xxx
A, Capital xxx
B, Capital xxx

Assets: Cash @ face value

Non-cash @agreed values; if not
available fair value

• FORMATION
Assets xxx
Liabilities xxx
A, Capital xxx
B, Capital xxx
Liabilities: @ CA; & only if assumed by
the partnership

• FORMATION
Assets xxx
Liabilities xxx
A, Capital xxx
B, Capital xxx

Capital accounts: For each partner’s

corresponding net
investment

• INDIVIDUALS WITH NO
EXISTING BUSINESS FORM A
PARTNERSHIP
Alma and Anna formed a partnership.
Alma contributed P600,000 cash, Anna
contributed P300,000 cash and land with
 a fair market value of P450,000 with
P20,000 mortgage to be assumed by the
partnership.

• Conversion of a sole proprietorship

to a partnership
Aguilar and Angeles formed a partnership wherein
Aguilar is to contribute cash while Angeles is to transfer
the assets and liabilities of his business. Account balances
on the books of Angeles are as follows:
Debit Credit
Cash 300,000
AR 450,000
Inventories 240,000
Accounts Payable 90,000
Angeles, capital 900,000

Aguilar and Angeles formed a partnership wherein

Aguilar is to contribute cash while Angeles is to transfer
the assets and liabilities of his business. Account balances
on the books of Angeles are as follows:
Debit Credit
Cash 300,000
AR 450,000
Inventories 240,000
Accounts Payable 90,000
Angeles, capital 900,000

• Conversion of a sole proprietorship

to a partnership
• Conversion of a sole proprietorship
to a partnership
• Conversion of a sole proprietorship
to a partnership

•QUIZ
• PARNTNERSHIP FORMATION
• PROBLEM 1
Ashley and Ashton formed a partnership
on December 25, 2017. Ashley’s
contribution consisted of her
proprietorship net assets with current
value of ₱60,000. Ashton contributed
enough cash to secure a one-fourth
interest in the partnership. If Ashley is
 allowed a bonus credit equal to 12% of
Ashton’s initial capital, how much will
Ashley’s initial capital be?
• PROBLEM 2
AA and BB formed AB Partnership
on May 31, 2019. AA’s contribution
consisted of his net assets should be
recorded at P66,000 due to his charisma
which will be useful to the partnership
according to him. Reluctantly, BB
agreed to AA’s condition. BB, on the
other hand, contributed enough cash to
secure a one-fourth interest in the
partnership. Additionally, AA is
allowed a bonus credit equal to 30% of
his total invested capital. Record the
transaction using one journal entry.

• PROBLEM 3
Zhee admits Kuya Rex as a partner in
business. Accounts in the ledger for Mr.
Zhee on November 30, 2012 just before
the admission of Kuya Rex, show the
following balances:
Cash
…………………………………………
…………….. 6,800
Accounts
receivable………………………….
14,200
Merhandise Inventory
…………………….. 20,000
Accounts
Payable………………………………
8,000
Mr. Zhee, capital
…………………………………
33,000
 It is agreed that for that for the purposes
of establishing Mr. Zhee’s interest, the
following adjustments shall be made:
- An allowance for doubtful accounts
of 3% of accounts receivable is to be
established.
- The merchandise inventory is to be
valued at 23,000.
- Prepaid salary expenses of 6,000 and
accrued rent expense of 8,000 are to be
recognized.
Kuya Rex is to invest sufficient cash to
obtain a 1/3 interest in the partnership.
Compute for: (1) Mr. Zhee’s adjusted
capital balance before the admission
of Kuya Rex; and (2) the amount of
cash investment by Kuya Rex (3)
total capital of the partnership after
formation.
•answers
• PARTNERSHIP FORMATION
• ANSWER PROBLEM 1
T = (60,000 + 0.12A)+ 0.25T
T = (60,000 + 0.12(0.25T))+ 0.25T
T = 60,000 + 0.03T + 0.25T
T = 60,000 + 0.28T
0.72T = 60,000
T = 83,333.33
0.12(0.25T) = 2,500
Ashley = 60,000 + 2,500 = 62,500
• ANSWER PROBLEM 2
Net Assets 66,000
Cash 48,400
AA, Capital 85,800
BB, Capital 28,600
• ANSWER PROBLEM 3
Adjustments:
1. Mr. Zhee, Capital 426
 ADA 426
2. Mer. Inventory 3,000
Mr. Zhee, Capital 3,000
3. Prep. Expense 6,000
Mr. Zhee, Capital 2,000
Expense Payable 8,000

•PARTNERS
HIP
• OPERATIONS
• PARTNERSHIP OPERATIONS
Accounting Problems for partnership
operations:
• Distribution of Profits or Losses
• Preparation of Financial Statements
• Changes in the Profit and Loss ratios
• Correction of net income (loss) of
prior years
• DISTRIBUTION OF PROFITS OR
LOSSES
IF there is a Net Profit:
DISTRIBUTE using:
1. Stipulation agreed upon by the
partners;
2. If there is no No. 1, use the partners’
original capital contribution.

If there is a Net Loss:

DISTRIBUTE using:
1. Stipulation agreed upon by the
partners;
2. If there is no No. 1, use the stipulation
as to the sharing of profits;
3. If there is no 1 & 2, use the partners’
original capital contribution
• DISTRIBUTION OF PROFITS OR
LOSSES
METHODS OF DIVIDING
NET INCOME OR LOSS
AMONG PARTNERS MAY BE
SUMMARIZED AS
FOLLOWS:
• Equally
• Unequal or Arbitrary Ratio
• Partners’ Capital Balances
a. Original Capital Contributions
b. Beginning Capital Balances
• DISTRIBUTION OF PROFITS OR
LOSSES
c. Ending Capital Balances
d. Average Capital Balances
 i. Simple Average
Method
ii. Peso-Month/Peso-
Day Method
• Interest on partners’ capital
balances and dividing the
remaining income or loss in a
specified ratio.
• Salaries to partners and
dividing the remaining
income or loss in a specified
ratio.
• Bonus to managing partner
based on net income.
• example
Assume that Agnes, Xander and
Kate formed “Waray Forever
Partnership” on January 1, 2015
with Agnes contributing a land
in La Presa with a fair value of
500,000, Xander and Kate
investing cash 300,000 and
200,000, respectively. On
December 31, 2015, after
closing all income and expense
accounts, the I/S shows a credit
balance of 150,000 representing
the net profit for the year 2015.
• example
Changes in the capital accounts during
2013 are summarized as follows:

• Sharing the profit equally

150,000/3=
50,000 each
Journal entry:
Income Summary 150,000
Agnes, Capital 50,000
Xander, Capital 50,000
Kate, Capital 50,000

• Division of Profit and Losses in an

Arbitrary (unequal) Ratio
Assume that the partners agreed to divide
profits and losses in the ratio of 50% to
Agnes, 30% to Xander and the balance to
Kate.
Journal Entry
Income Summary 150,000
Agnes, Capital 75,000
(150,000*.5)
Xander, Capital 45,000
(150,000*.3)
Kate, Capital 30,000 (150,000*.2)

• SHARING PROFITS BASED ON

PARTNERS’ CAPITAL BALANCES
• ORIGINAL CAPITAL
CONTRIBUTION
Agnes- (500,000/1,000,000)*150,000=
75,000
Xander- (300,000/1,000,000)*150,000=
45,000
Kate- (200,000/1,000,000)*150,000=
30,000
• BEGINNING CAPITAL
BALANCES
Agnes- (500,000/1,000,000)*150,000=
75,000
Xander- (300,000/1,000,000)*150,000=
45,000
Kate- (200,000/1,000,000)*150,000=
30,000
• SHARING PROFITS BASED ON
PARTNERS’ CAPITAL BALANCES
• ENDING CAPITAL
BALANCES
Agnes- (690,000/1,200,000)*150,000=
86,250
Xander- (330,000/1,200,000)*150,000=
41,250
Kate- (180,000/1,200,000)*150,000=
22,500
• AVERAGE CAPITAL
BALANCES
• SIMPLE AVERAGE METHOD
Agnes-
(595,000/1,100,000)*150,000=
81,136.36
Xander-
(315,000/1,100,000)*150,000=
42954.55
Kate-
(190,000/1,100,000)*150,000=
25909.09

• SHARING PROFITS BASED ON

PARTNERS’ CAPITAL BALANCES
• PESO-MONTH/PESO-DAY
METHOD
• SHARING PROFITS BASED ON
PARTNERS’ CAPITAL BALANCES
• PESO-MONTH/PESO-DAY
METHOD
• SHARING PROFITS BASED ON
PARTNERS’ CAPITAL BALANCES
• PESO-MONTH/PESO-DAY
METHOD
• SHARING PROFITS BASED ON
PARTNERS’ CAPITAL BALANCES
• PESO-MONTH/PESO-DAY
METHOD

Agnes- (590,000/ 1,103,333 )

*150,000= 80,211.48
Xander- (320,000/ 1,103,333 )
*150,000= 43,504.54
Kate- (193,333/ 1,103,333 )*150,000=
26,284.00
• Interest Allowed on
Partners’ Capital with
Remaining Profit or Loss
Divided in an Agreed
Ratio
Assume that the partnership agreement
allows interest on partners’ ending capital
balances at 5%, with remaining profit or
loss to be divided 3:2:1.

• Interest Allowed on
Partners’ Capital with
Remaining Profit or Loss
Divided in an Agreed
Ratio
Assume that the partnership operation
results at a loss of P50,000. If the
agreement provides to allow interest on
capital account balances, the provision
must be enforced regardless of whether
operating results is a profit or loss.

• Salary and Bonus Allowances

Partner salary allowances like interest
allowances on capital account balances
are not expenses in the determination of
partnership income.

Net Income: Assume that the partnership

agreement provides for an annual salary
of P15,000 to Agnes and P10,000 to
Xander, with the resulting net income or
loss divided at 4:2:2.
• Salary and Bonus Allowances
• Salary and Bonus Allowances
• Bonus to Managing Partner Based
on Net Income
The partnership contract provides the
following:
• Salaries to Agnes and Xander,
P30,000 and 45,000, respectively
• Interest on capital account balances:
5% of original capital contribution
• Bonus to Agnes, 15% of net income
• Remaining profit or loss after
salaries, interest and bonus, equally.

Assume partnership income is P300,000.

• BONUS BASED ON Net

Income BEFORE Allowances
 for Salaries, Interest and
Bonus.
Net income before salaries

Interest and bonus P300,000

Bonus percentage 15%
Bonus P 45,000

• BONUS BASED ON Net

Income BEFORE Allowances
for Salaries, Interest BUT
AFTER Bonus.
B = .15 (NI-B)
B = .15 (300,000 – B)
B = 45,000 - .15B
1.15B = 45,000
1.15
 B = 39,130.43

• BONUS BASED ON Net

Income AFTER Allowances
for Salaries, Interest BUT
BEFORE Bonus.
B = .15 (NI-S-I)
B = .15 (300,000 – 75,000 –
50,000)
B = .15 (175,000)
B = 26,250

• BONUS BASED ON Net

Income AFTER Allowances
 for Salaries, Interest AND
Bonus.
B = .15 (NI – S – I –B )
B = .15 (300,000 – 30,000 – 45,000 –
50,000ˢ – B)
B = .15 (175,000 – B)
B = 26,250 - .15B
1.15B = 26,250
1.15
B = 22,826.09

ˢ(500,000+300,000+200,000)*.05

•QUIZ
• PARNTNERSHIP OPERATIONS
•answers
• PARTNERSHIP OPERATIONS
• Ending balances
• WEIGHTED AVERAGE CAPITAL
•1

•2

•3