CAPITAL

1. CONTRIBUTION IN MONEY

Illustration 1 "Cash Contribution is Equal"

Messrs. M, N and O agreed to form a partnership with capital contributions of P300,000
each, with equal sharing in partnership net income or loss.

Journal entry:
Debit Credit
Cash (300k * 3 Partners) $900,000.00
M,Capital $300,000.00
N, Capital $300,000.00
O, Capital $300,000.00

Illustration
follows: Mr. 2P, cash"Cash contribution
of P1,000,000, Mr. isQ,Unequal"
cash of P1,000,000, and Mr. R, cash of P2,000,000
for a sharing in partnership net income or losses of 25% to P 25% to Q and 50% to R.

Journal entry:
Debit Credit
Cash (Add all contributions) $4,000,000.00
P,Capital $1,000,000.00
Q, Capital $1,000,000.00
R, Capital $2,000,000.00

2. CONTRIBUTION IN PROPERTY

The property investments of the partners will be recorded using the following values, in the
following order:

1. AGREED VALUE/ BASED ON AGREEMENT

2. FAIR MARKET VALUE OR APPRAISED VALUE
3. COST

If property to be contributed has an obligation which will be assumed by the partnership,

the property at the proper valuation will be recorded in the books of accounts of the partner-
ship. The obligation on it will also be recorded in the books of accounts.

Illustration 3 "Property/ Noncash asset is based on agreed value"

Messrs. S, T and U agreed to form a partnership with capital contributions of the partners, as
follows: Mr. S, cash of P1,000,000; Mr. T, cash of P1,000,000, and Mr. U, a piece of land. Messrs.
S, T and U agreed to give the land a value of P3,000,000.

Journal entry:
Debit Credit
Cash (Add all Cash Contribution) $2,000,000.00
Land $3,000,000.00
S,Capital $1,000,000.00
T, Capital $1,000,000.00
U, Capital $3,000,000.00

Illustration 4 "Property /Noncash asset based on order/priority"

Messrs. V, W and X agreed to form a partnership with contributions in cash and properties
Data on the contributions were (cash not included):

Partner Property Cost Fair Market Value Agreed value

(Priority No. 3) (Priority No. 2) (Priority No. 1)

V Furniture $10,000.00 $13,000.00 $12,500.00

W Equipment $16,000.00 $15,000.00 none
X Merchandise $11,000.00 none none

Journal entry:
Debit Credit
Furniture $12,500.00
Equipment $15,000.00
Merchandise $11,000.00
V, Capital $12,500.00
W, Capital $15,000.00
X, Capital $11,000.00

Illustration 5 "Liability is contributed"

Messrs. A, B and C agreed to form a partnership with capital contributions by the partners, as
follows: Mr. A, cash of P500,000, Mr. B, cash of P700,000, and Mr. C, land with a fair market
value of P1,500,000 but with a mortgage indebtedness of P400,000. The partnership agreed to
accept the property and assume the mortgage indebtedness on it.
Journal entry:
Debit Credit
Cash (500k+700k) $1,200,000.00
Land (@Fair Value) $1,500,000.00
Mortgage Payable $400,000.00
A, Capital $500,000.00
B, Capital $700,000.00
C, Capital $1,100,000.00

3. CONTRIBUTION IN SERVICES

A memorandum entry is made in the books of accounts of the partnership.

Illustration 6 "Contributed Services"

Pursuant to the Articles of Partnership, Mr. D contributed services as manager of the partner-
ship, for a 20% share in the annual profits

Journal entry:

No Journal Entry and only a memorandum entry is recorded.

"Mr. D, partner, is to act as manager,

for a 20% share in the profits."
 C, Capital
Amount Transactions(Decreases) Transactions (Increases) Amount
$400,000.00 Liability Contribution Asset Contribution $1,500,000.00
$0.00 Withdrawal Additional Investment $0.00
$0.00 Share in Loss Share in Profit $0.00
$400,000.00 Total Debits Total Credits $1,500,000.00
Ending Balance $1,100,000.00
 EXERCISES
Exercise 1.
Messrs. C and D formed a partnership with equal sharing in the partnership income
and losses, with contributions, as follows:
C- P1,000,000;
D- P1,000,000.
Give the journal entry.

Cash $2,000,000.00
C, Capital $1,000,000.00
D, Capital $1,000,000.00
#
Exercise 2.
Mesdames E, F and G formed a partnership with distribution of profits and losses at
50%. 25% and 25%, with cash contributions, as follows:
E - P2,000,000;
F - P1,000,000;
G - P1,000,000;
Give the journal entry.

Cash $4,000,000.00
E, Capital $2,000,000.00
F, Capital $1,000,000.00
G, Capital $1,000,000.00
#
Exercise 3.
Messrs. H and I formed a partnership, with capital contributions, as follows:
H - Cash of P1,000,000,
I - Building with an agreed value of P1,500,000.
Give the journal entry.

Cash $1,000,000.00
Building $1,500,000.00
H, Capital $1,000,000.00
I, Capital $1,500,000.00

Exercise 4.
Messrs. J, K and L formed a partnership with contributions as follows:
J- Cash of P1,000,000.
Properties of:

Partner Property Cost Fair Market Value Agreed value

 K Equipment $500,000.00 $600,000.00 $520,000.00
L Land $2,000,000.00 $3,000,000.00 none

Give the journal entry.

Cash $1,000,000.00
Equipment $520,000.00
Land $3,000,000.00
J, Capital $1,000,000.00
K, Capital $520,000.00
L, Capital $3,000,000.00
Exercise 5.
M and N formed a partnership, with capital contributions as follows:
M - Cash of P2,000,000;
N- Land with a fair market value of P2,600,000 but with a mortgage of P500,000 to
be assumed by the partnership.

Give the journal entry.

Cash $2,000,000.00
Land $2,600,000.00
Mortgage Payable $500,000.00
M, Capital $2,000,000.00
N, Capital $2,100,000.00
#
Exercise 6.
O entered into a partnership He contribute services as manager with a 25% share in
the partnership net income.

Give the journal entry.

"Mr. O, partner, is to act as manager,

for a 25% share in the profits."
CAPITAL

1. On contribution of partner to partnership capitalization.

The law:
contribute thereto.
A person who has undertaken to contribute a sum of money and fails to do so
becomes a debtor for the interest and charges from the time he should have complied
with his obligation.

Illustration.
In the partnership agreement of A, B and C, each was to contribute P1,000 000 on the date the
Articles of Partnership is signed. The partnership agreement was signed on July 1, 2017, with the
following payments to the partnership:
A 1,000,000;
B 1,000,000;
C 750,000

The agreement was that Mr. C will pay the balance in one year, delay in which he will be
subject to 6% interest per annum from July 1, 2017.

If the balance of P250,000 was paid late, on July 1, 2019, how much was the payment of Mr.
C? P280,000, computed as follows:

The principal 250,000

Interest at 6% per annum for two years 30,000
Total 280,000

2. On partner's payment of partnership obligation.

Illustration.
An indebtedness of the partnership of P200,000 to Mr. Q was paid by Partner A from his own
personal funds. The agreement was that the partnership will not reimburse Mr. A for the amount

Journal entry:
Debit
Accounts Payable $200,000.00
A,Capital

3. On partner's collection of partnership receivable.

Illustration
A partnership receivable of P100,000 from Mr. W was collected by Partner X, and it was agreed
between the partnership and Partner X that the cash will be retained by him

Journal entry:
Debit
X, Capital $100,000.00
Accounts Receivable

4. On partnership loans to partners.

Illustration.
April 5, 2017: The partnership lent Partner A, P100 000;
July 5, 2017: The partnership lent Partner B, P150,000
July 25, 2017: The partnership collected P70,000 from Mr. B
November 15, 2017: The partnership arrived at a conclusion that the P80,000 lent to Partner B is permanently
uncollectible.

Journal entry:
Debit
April 5, 2017 Receivable from A $100,000.00
Cash

July 05, 2017 Receivable from B $150,000.00

Cash

July 25, 2017 Cash $70,000.00

Receivable from A

November 15, 2017 B, Capital $80,000.00

Receivable from B

TRANSACTIONS WITH THIRD PARTIES.

On dealings by the partnership with buyers of its goods and services, the recording in
the books of accounts of the partnership will be the same as that in the books of
accounts of a single proprietorship.
 (250,000 * 6%)
Per year = 15000
x 2 years
Interest $30,000.00

Credit

$200,000.00
 Credit

$100,000.00

artner B is permanently

Credit

$100,000.00

$150,000.00

$70,000.00

$80,000.00
Example #1: Individuals with no existing business form a partnership.

ILLUSTRATION:
On July 01, 2018, Nilo Co and Dina Bee agreed to form a partnership. The partnership agreement
specified that Co is to invest cash of P700, 000 and Bee is to contribute land with a fair market value of
P1,300,000 with P300,000 mortgage to be assumed by the partnership.

The entries:
Cash 700,000
Land 1,300,000
Mortgage Payable 300,000
N. Co, Capital 700,000
D. Bee, Capital 1,000,000
To record the initial investments
of Co and Bee
After the formation, the statement of financial position of the partnership is:

Co and Bee
Statement of Financial Position
31-Jul-18

Assets
Cash 700,000
Land 1,300,000
Total Assets: 2,000,000
Liabilities and Owner's Equity
Mortgage Payable 300,000
Nilo Co, Capital 700,000
Dina Bee, Capital 1,000,000
Liabilities and Owner's Equity 2,000,000
The partnership agreement
nd with a fair market value of
e partnership.
Example #2: A SOLE PROPRIETORSHIP AND ANOTHER INDIVIDUAL FORM A PARTNERSHIP

ILLUSTRATION:
The statement of financial position of Galicano Del Mundo on October 01, 2018,
before accepting Christine Resultay as a partner is shown as follows:

Galicano Del Mundo

Statement of Financial Position
31-Oct-18

Assets
Cash 60,000
Notes Receivable 30,000
Accounts Receivable 240,000
Less: Allowance for Uncollectible Accts. 10,000 230,000
Merchandise Inventory 80,000
Furnitures and Fixtures 60,000
Less: Accumulated Depreciation 6,000 54,000
Total Assets: 454,000

Liabilities and Owner's Equity

Notes Payable 40,000
Accounts Payable 100,000
Galicano D. M., Capital 314,000
Total Liabilities and OE 454,000
ARTNERSHIP
Adjustments:

1. Merchandise Inventory, per ledger 80,000

Merchandise Inventory, as agreed 74,000
Decrease in Merchandise Inventory 6,000

2. Accounts receivable, net per Ledger 230,000

Accounts Receivable, net as agreed
95% 228,000
2,000

3. Interest accrued on Notes Receivable;

On P10,000 10,000 X 12% X 3/12 300
On P20,000 20,000 X 12% X 2/12 400
700

4. Interest accrued on Notes Payable: 2,800

On P40,000 40,000 X 14% X 6/12 2,800

5. Furnitures and Fixtures, net per Ledger 54,000

Furnitures and Fixtures, net as agreed 46,000
8,000
Entries: Close of the books.

Del Mundo, Capital 6,000 Book of Galicano Del Mundo: (1)

Merchandise Inventory 6,000

Del Mundo, Capital 2,000

Allowance for Uncollectible Accounts 2,000

Interest Receivable 700

Del Mundo Capital 700

Book of Galicano Del Mundo: (2) Close t

Del Mundo, Capital 2,800
Interest Payable 2,800

Del Mundo, Capital 8,000

Accumulated Depreciation 8,000

Office Supplies 4,000

Del Mundo, Capital 4,000

Net Effect of Adjustments on Capital:

(6,000)
(2,000)
700
(2,800)
(8,000)
4,000
(14,100)
Close of the books. Galicano D
Statement of Fin
Book of Galicano Del Mundo: (1) 31-O

G. Del Mundo 14,100

Office Supplies 4,000
Interest Receivable 700
Merchandise Inventory 6,000
Allowance for Uncollectible Accounts 2,000
Interest Payable 2,800
Accum. Depreciation 8,000
To record adjustments to restate
Del Mundo's capital.

Book of Galicano Del Mundo: (2) Close the Books

Notes Payable 40,000

Accounts Payable 100,000
Interest Payable 2,800
Allowance for Uncollectible Accts 12,000
Accum. Depreciation 14,000
G. Del Mundo, Capital 299,900
Cash 60,000
Notes Receivable 30,000
Accounts Receivable 240,000
Interest Receivable 700
Merchandise Inventory 74,000
Office Supplies 4,000
Furnitures and Fixtures 60,000
To close the books of Del Mundo
 Galicano Del Mundo Book of the Partnership:
Statement of Financial Position 1
31-Oct-18

Assets
Cash 60,000
Notes Receivable 30,000
Accounts Receivable 240,000
Less: Allowance for Uncollectible Accts. 10,000 230,000
Merchandise Inventory 80,000
Furnitures and Fixtures 60,000
Less: Accumulated Depreciation 6,000 54,000
Total Assets: 454,000

Liabilities and Owner's Equity

Notes Payable 40,000
Accounts Payable 100,000
Galicano D. M., Capital 314,000 2
Total Liabilities and OE 454,000
Book of the Partnership: Galicano Del Mundo an
Statement of Fin
Cash 60,000 31-Oc
Notes Receivable 30,000
Accounts Receivable 240,000
Interest Receivable 700
Merchandise Inventory 74,000
Office Supplies 4,000
Furnitures and Fixtures 60,000
Notes Payable 40,000
Accounts Payable 100,000
Interest Payable 2,800
Allowance for Uncollectibel Accts 12,000
Accum. Depreciation 14,000
G. Del Mundo, Capital 299,900
To record the investment Del Mundo

Cash 149,950
Christine Resultay, Capital 149,950
To record the investment of Resultay
 Galicano Del Mundo and Christine Resultay
Statement of Financial Position
31-Oct-18

Assets
Cash 209,950
Notes Receivable 30,000
Accounts Receivable 240,000
Less: Allowance for Uncollectible Accts. 12,000 228,000
Interest Receivable 700
Merchandise Inventory 74,000
Office Supplies 4,000
Furniture and Fixtures 46,000
Total Assets 592,650

Liabilities and Owner's Equity

Notes Payable 40,000
Accounts Payable 100,000
Interest Payable 2,800
Del Mundo, Capital 299,900
Resultay, Capital 149,950
Total Liabilities and OE 592,650
ILLUSTRATION:
On June 30, 2018, Deogracia Corpuz and Esterlina Gevera, friendly competitors
in a certain line of business, decided to combine their talents and capital to form
a partnership.
Deogracia Corpuz
Statement of Financial Position
30-Jun-18

Assets
Cash 50,000
Accounts Receivable 100,000
Merchandise Inventory 80,000
Furnitures and Fixtures 60,000
Total Assets: 290,000

Liabilities and Owner's Equity

Accounts Payable 30,000
Deogracia Corpuz, Capital 260,000
Total Liabilities and OE 290,000

Esterlina Gevera
Statement of Financial Position
30-Jun-18

Assets
Cash 40,000
Accounts Receivable 80,000
Merchandise Inventory 100,000
Delivery Equipment 90,000
Total Assets: 310,000

Liabilities and Owner's Equity

Accounts Payable 60,000
Gevera, Capital 250,000
Total Liabilities and OE 310,000
Book of Deogracia Corpuz Book of Esterlina Gevera

1 D. Corpuz, Capital 3,500 1

Cash 3,500

2 D. Corpuz, Capital 10,000 2

Allowance for Uncollectible Accounts 10,000

3 3

4 D. Corpuz, Capital 6,000 4

Accum. Depreciation 6,000

5 5

Book of Deogracia Corpuz Book of Esterlina Gevera

1 1
D. Corpuz, Capital 19,500
Cash 3,500
Allowance for Uncollectible Accounts 10,000
Accum. Depreciation 6,000
To record adjustments to restate
D. Corpuz's capital.

2 Accounts Payable 30,000 2

Allowance for Uncollectible Accounts 10,000
Accum. Depreciation 6,000
D. Corpuz, Capital 240,500
Cash 46,500
Accounts Receivable 100,000
Merchandise Inventory 80,000
Furnitures and Fixtures 60,000
To close the books of Corpuz
Book of Esterlina Gevera Book of the Partnership
1

E. Gevera, Capital 8,000

Allowance for Uncollectible Accounts 8,000

Merchandise Inventory 10,000

E. Gevera, Capital 10,000

E. Gevera, Capital 9,000

Accum. Depreciation 9,000

Book of Esterlina Gevera

Merchandise Inventory 10,000

E. Gevera, Capital 7,000
Allowance for Uncollectible Accounts 8,000
Accum. Depreciation 9,000
To record adjustments to restate
D. Gevera's capital.

Accounts Payable 60,000

Allowance for Uncollectible Accounts 8,000
Accum. Depreciation 9,000
E. Gevera, Capital 243,000
Cash 40,000
Accounts Receivable 80,000
Merchandise Inventory 110,000
Delivery Equipment 90,000
To close the books of Gevera
Book of the Partnership Corpuz and
Cash 46,500 Statement of Fina
Accounts Receivable 100,000 30-Jun
Merchandise Inventory 80,000
Furnitures and Fixtures 54,000
Accounts Payable 30,000
Allowance for Uncollectible Accounts 10,000
D. Corpuz, Capital 240,500
To record investment of Corpuz.

Cash 40,000
Accounts Receivable 80,000
Merchandise Inventory 110,000
Delivery Equipment 81,000
Accounts Payable 60,000
Allowance for Uncollectible Accounts 8,000
E. Gevera, Capital 243,000
To record investment of Gevera.
 Corpuz and Gevera
Statement of Financial Position
30-Jun-18

Assets
Cash 86,500
Accounts Receivable 180,000
Less: Allowance for Uncollectible Accts. 18,000 162,000
Merchandise Inventory 190,000
Furniture and Fixture 54,000
Delivery Equipment 81,000
Total Assets 573,500

Liabilities and Owner's Equity

Accounts Payable 90,000
D. Corpuz, Capital 240,500
E. Gevera, Capital 243,000
Total Liabilities and OE 573,500