PARTNERSHIP ACCOUNTING

Definition of Partnership

By the contract of partnership, two or more persons bind themselves to contribute money, property or
industry into a common fund for purpose of having profit and dividing profit among themselves.

Stages of Partnership:

I. Formation

A. Net Investment

B. Bonus

C. Goodwill (no longer applicable due to PFRS 3)

II. Operation

1. Sharing of partnership income or loss based on agreements as regards

Salaries; Bonus and the Remainder.

2. If the partners agreed on the profit ratio but silent as to the loss ratio, Article 1797 of the civil code
provides that losses shall be in the same proportion with profit.

3. In the absence of stipulation, same article provides that profits and losses shall generally be divided in
proportion to the partner's respective contribution.

III. Dissolution

A. By Retirement of a partner/s

B. By Admission of a partner/s

C. By Incorporation

D. By Death of a partner/s

IV. Liquidation

A. Lump Sum

B. Installment

1. using Cash Priority Program

2. using Schedule of Safe Payments

3. using Adjustment technique