PARTNERSHIP FORMATION

FORMATION
Single prop – one and only
Partnership – 2 or more… (unlimited)
Corporation – not less than 5 not more than 15 (incorporators – original owners)

Accounting for Partnership – equity section

1. F – ormation: initial investments
2. O – peration: division of profits or losses
3. D – issolution: admission of a new partner and withdrawal, retirement or death of a partner
4. L – iquidation: winding up of affairs

FORMATION
Measurement (how much?) – Valuation of partners contribution
1. fair market value / fair value
2. (appraisal value)

Types of contribution
1. Cash – face value
2. Non cash assets
a. A/R (NRV)
b. Inventory (LCM / LCN)
c. PPE (fair value)
3. Industry (based on agreement)

Partners’ ledger account

1. Capital accounts
2. Drawings accounts
3. Receivable from (A/R - Asset)
4. Payable to a partner (A/P - Liability)

SCOE
Capital Beg
+ Net Income
+ Add’l Investment
Total
- Net loss
- Withdrawals
Capital End
COMPREHENSIVE PROBLEM
PROBLEM 1
Macho & Noreen formed a partnership on January 1, 2021 called MachoNoreen
Partnership. Their B/S as of this date is as follows:
Macho Noreen
ASSETS
Cash 65,625 164,063
A/R, net 1,487,500 896,875
Invty 875,000 885,938
PPE, net 656,250 1,268,750
TOTAL 3,084,375 3,215,625

LIAB &
CAPITAL
Payables 459,375 1,159,375
Macho, Capital 2,625,000
Noreen,
Capital 2,056,250
TOTAL 3,084,375 3,215,625

Upon due diligence and as agreed upon by the new partners;

the following adjustments needs to be made:
1. AFDA needs to be increased by P297,500 for Macho and
P196,875 for Noreen
2. Some of the invty was already obsolete and deemed to be
worthless on the books by P21,875 for Macho and P15,312 for Noreen
3. PPE of Macho is underdepreciated by P87,500 while the PPE of
Noreen is overdepreciated by 131,250
4. Macho and Noreen agreed that their profit and loss ratio will be
70:30.
Requirement:
A. Compute the adjusted "total assets"; adjusted "net assets; adjusted "capital"
of
Macho and Noreen; and adjusted capital of the MachoNoreen Partnership
B. Compute their beginning capital assuming that they agreed to use the:
a) P&L ratio; b) Capital Contribution; c) Equally

ASSIGNMENT:
1. Read chapter 1 – from page 1-12
2. Answer problem 1 – true or false numbers 1-10