PARTNERSHIPS

CH 5
INCORPORATION OF A PARTNERSHIPS
& JOINT VENTURE
 INCORPORATION OF A PARTNERSHIPS

At a Incorporation, the partnerships is terminated, and the assets an liabilities are

revalued to their fair values. The gain or loss on revaluation is allocated to the
partners’ capital account in their sharing account.
Illustration :
Cash 10.000 Liabilities 42.000
Non Cash Assets 90.000 A, Capital 40% 34.000
B, Capital 40% 10.000
C, Capital 20% 14.000
Total 100.000 Total 100.000

1. P is a new corporation partnerships. Non cash assets have an $80.000 fair

value.
2. The partnerships net assets has fair value of $ 48.000. The corps. Issues 4.600
shares of $1 par C/S in exchange for assets and liabilities of the ABC
partnerships.
1. A, Capital 4.000
B, Capital 4.000
C, Capital 2.000
Non Cash Assets 10.000

3. Cash 10.000
Non Cash Assets 80.000
Liabilities 42.000
C/S 4.600
PIC in excess of par 43.400
4. Investment in P 48.000
Liabilities 42.000
Cash 10.000
Non Cash Assets 80.000
5. A, Capital 30.000
B, Capital 6.000
C, Capital 12.000
Investment in P 48.000
 JOINT VENTURES
A special commercial undertaking by 2 or more individuals or
business units that is terminated upon the fulfillment of established
objective, such as developments, sale of the tract of land,
construction of dam or bridge, etc.

There are 2 methods of accounting for joint venture;

A. Separate books are maintained, transaction are recorded on the
separate books exactly the same manner as for partnership
relationship ships discussed earlier.
B. Separate books are not maintained, activities of the venture will
have no summarized on the partners’ individual books.
 ILLUSTRATION
A, B and C enter into joint venture. A is designed as a managing partner, upon
termination of the joint venture, special compensation of $5.000 is to be allowed to A
and the balance of the profit is to be divided in the ratio of the partners’ investment.
1.A transferred land to the joint venture at greed current value $100.000, land cost
A$75.000.
2.B made settlement on contracts for grading, land scaping, water and sewer
$60.000.
3.C transferred cash to A for joint venture purposes $40.000.
4.A paid advertising, commissions and other selling expenses $37.500.
5.The lots were sold $250.000; $50.000 in cash and the balance is installment notes.
6.Installment notes at 10% discount.

7.. $
Net Income 32.500
Special Compensation A 5.000
Balance $27,500 devided 100:60:40 to A, B, C
A 13.750
B 8.250
C 5.500
32.500
8. A distributed cash in final settlement of the joint venture.
A. PARTNERSHIPS BOOKS

1 Land 100.000
A, Capital 100.000
2. Land 60.000
B, Capital 60.000
3. Cash 40.000
C, Capital 40.000
4. Selling Expenses 37.500
Cash 37.500
5. Cash 50.000
Notes Receivable 200.000
Land 160.000
Gain on sale of Land 90.000
6. Cash 180.000
Interest Exp. 20.000
Notes Receivable 200.000
7. Gain on sale of Land 90.000
Selling Exp. 37.500
Interest Exp. 20.000
A, Capital 18.750
B, Capital 8.250
C, Capital 5.500
8. A, Capital 118.750
B, Capital 68.250
C, Capital 45.500
Cash 232.500
BOOKS of A
1. Investment in ABC 100.000
Land 75.000
Gain on transfer of Land to JV 25.000
7. Investment in ABC 18.750
Income from ABC 18.750
8. Cash 118.750
Investment in ABC 118.750

BOOKS of B
2. Investment in ABC 60.000
Cash 60.000
7. Investment in ABC 8.250
Income from ABC 8.250
8. Cash 68.250
Investment in ABC 68.250

BOOKS of C
3. Investment in ABC 40.000
Cash 40.000
7. Investment in ABC 5.500
Income from ABC 5.500
8. Cash 45.500
Investment in ABC 45.500
B. BOOKS of A (Managing Participant)

1 Joint Venture 100.000

Land 75.000
Gain on sale transfer of Land to JV 25.000
2. Joint Venture 60.000
B, Capital 60.000
3. Joint Venture 40.000
C, Capital 40.000
4. Joint Venture 37.500
Joint Venture Cash 37.500
5. Joint Venture Cash 50.000
Joint Venture Notes Receivable 200.000
Joint Venture 250.000
6. Joint Venture Cash 180.000
Joint Venture 20.000
Joint Venture Notes Receivable 200.000
7. Joint Venture 32.500
Income from Joint Venture 18.750
B, Capital 8.250
C, Capital 5.500
8. Cash 118.750
B, Capital 68.250
C, Capital 45.500
Joint Venture Cash 232.500
B. BOOKS of B

1 Joint Venture 100.000

A 100.000
2. Joint Venture 60.000
Cash 60.000
3. A, Capital 40.000
C, Capital 40.000
4. Joint Venture 37.500
A, Capital 37.500
5. A, Capital 250.000
Joint Venture 250.000
6. Joint Venture 20.000
A, Capital 20.000
7. Joint Venture 32.500
Income from Joint Venture 8.250
A, Capital 18.750
C, Capital 5.500
8. Cash 68.250
C, Capital 45.500
A, Capital 113.750
B. BOOKS of C

1 Joint Venture 100.000

A 100.000
2. Joint Venture 60.000
B 60.000
3. A, Capital 40.000
Cash 40.000
4. Joint Venture 37.500
A, Capital 37.500
5. A, Capital 250.000
Joint Venture 250.000
6. Joint Venture 20.000
A, Capital 20.000
7. Joint Venture 32.500
Income from Joint Venture 5.500
A, Capital 18.750
B, Capital 8.250
8. Cash 45.500
B, Capital 68.250
A, Capital 113.750
FINISH