PARTNERSHIP

A. FORMATION
1. closing of temporary withdrawals @ year-end  to capital account
2. advances to partners (pship receivable) vs. advances from partners (pship liability)
3. capital ratio vs. profit ratio
4. NCA measurement hierarchy: (AFAC)
i. agreed value
ii. FMV
iii. appraised value
iv. carrying value/BV
5. services = memo entry
6. TCC = TAC  full investment approach / bonus method
TCC > TAC
TCC < TAC
7. Industrial partner = GR: NO share in net LOSS;
except: if waived
profit = i. agreement
ii. just and equitable share
8. accumulated depreciation = NOT carried forward  0

B. OPERATION
1. salaries and interest = time proportioned
2. bonus  basis: positive
3. if B/I/S = profit distribution, (NY = before deduction of B/I/S)
if B/I/S = treated as expense, (NY = after deduction of B/I/S)
 share in NY = no B/I/S
 total income in partnership = included B/I/S
o share in NY = B/I/S is not included in computation
o capital balance = B/I/S is included in computation

4. Beginning Capital Total adjusted capital

add: Additional investments add: adjusted liabilities
less: Capital withdrawals (permanent) Total Assets
Ending Capital after closing
5. Weighted Average Capital computation: let “n” be:
Investment (Permanent Withdrawal) no. of months to 12/31 Total
xx (xx) n/12 xxx

6. “WAC” vs “Annual WAC”

**illustration: March to December
WAC = n/10 x interest% x 10/12
AWAC = n/12 x interest%
7. if remainder = negative:
i. agreement
ii. loss ratio
iii. profit ratio
8. allocation of profit (order of priority; insofar as available)
upto extent of NY only (no remainder)
9. if silent, bonus = before S/I/B
10. if 2 years:
Year 2
Y2 (A-L)  ending beginning  Y1
Y1 + Y2  permanent drawings additional investments  Y1 + Y2
Net Income, Y1 & Y2 (cumulative)
divide by : 2 = NY per year (for profit distribution)
11. if bonus% = separated (2 or more partners)
 add both, one computation only; then divide accordingly to P/L ratio
12. if there is minimum amount for share in NY:
 NY is given = squeeze
 NY is being asked = allocate to other partners
13. after allocation of allowances (problem 25 PDJ)
14. if there are 2 options (problem 12 & 13 PDJ)

C. DISSOLUTION
1. ADMISSION OF A PARTNER
(i) No Dissolution - Assignment of Interest
A(80%) B(20%) C(¼) TOTAL
ax bx xxx
(¼ax) ¼ax 0
axx bxx cxx xxx

(ii) Dissolution - Admission by Purchase [“purchased”, “invests but money goes to original partners” ]
A(80%) B(20%) C(¼) TOTAL
ax bx xxx
(¼ax) (¼bx) ¼ab 0
axx bxx cxx xxx

**revaluation/adjustments are recognized

A(80%) B(20%) C(¼) TOTAL paid by C
ax bx xxx  x 1/4 = C’s interest (C’s interest)
reval80% reval20% revaluation gain ➗ ¼ = revaluation

axx bxx xxx ***if loss = no revaluation (0)

(¼ax) (¼bx) cash paid 0
 axx bxx cxx xxx
(iii) Dissolution - Admission by Investment
A(80%) B(20%) C(¼) TOTAL
TIC ax bx invested xxx
bonus -- + bonus 80% ; 20% -- + diff 0
TAC axx bxx ¼xxx xxx

2. RETIREMENT OF A PARTNER
o sell to outsider
o sell to remaining partner(s)
o sell to the partnership
interest of retiring partner:
 capital balance (addtl investement & withdrawals)
 P/L from last closing
 loans and advances to (from ) the partnership
 correction of accounting errors
 revaluation of pship assets

3. DEATH OR INCAPACITY OF A PARTNER

4. INCORPORATION OF PARTNERSHIP