PARTNERSHIP ACCOUNTING PARTNERSHIP Tl F = a contact belween two or more persons ( natycal andor juridical) who contribute money. Property, or industry fe a common fund w/ the inte OF dividing the profits among themelver TYPES OF PARTNERCHP leeica pat acai each partner is personally liable to the partnerchipi creditors if partnership assets are not Sufficient fo pay the creditere = general partners © Limited partnership - Onk one partner neede to be pi general pariner ; + feraning (pana can be limited partners —evbligations fo creditor are limited Pi 4o-theie “oApital conhibutione CLAGCES OF PARTHERE FEATURES OF GENERAL PARTNERSHIP Capitalist partner * Ease o{ Formation Y Mduitriot partner + Limite tie Capitalist-industria! parmer + Assignment of Partners Interest W Acte Wabitity, —<—— General partner . atte ability Limited partner + Mutual Agency: Ae to monagement —— ‘Managing poner + Separate ‘Legal Personality Silent partner + Shaving profits and Locres UNDERLYING EOWITY THEORIES » * agett -» belonging to proprietor + Wobilities > debte 0 proprittor + profitt + increase in the propricton’s copitat venir = bwiness if @ separate and distinct entity ACCOUNTING FOR PAPTNERGHIP DRAWING ACCOUNT Permanent witrdcawal — 2] Original investment 2 Porconal withdeedal Share in portnercip lor xv | Addinonalinvectment xv Debit balance of drowing Share in pattner hip account clced fo capital pot] profit PARTNERSHIP FORMATION Haln accounting issues’. Valuation of Contriloution Re-atignment of Capital PRRS (Reporting) VALUATION OF CONTRIBVITION v Money or cath Wo Face value Property or Non-cath Assets v 1 Agreed value; Fair market vaiye ; bork vole — Industry v Memorandum entry F opportinity coct - valuation x Y Hability 7 = asgumed by the partnerchip v Ww Present valve = ascumed by the partner (pertonal liabilily) x Cash xx LOAN ACCOUNTS ~ additional financing from pariner Non-cash Asses xX Loan from a partner (Dut 10 a partiier) -» Payable Viobitity xX ‘Loan vuctivable fam o partner (Due froma partner) rectivabie. X, Capital wf Nor cenit 0s Y» Capital XK Dare capRE-AUIGNMENT OF CAPITAL co AG xX fom fom 1 Net Investment Method Yom pM Tee = TAC EPL ce Bom AC a) Bonus method w) Cach setitement v x fom im 1M bo) Bonus method whout cas ceftlement ¥v Y 10M (1M) fh — magbivigay Cash Satiement - outcide the partnerctip (L, pertonal Hansactien of partners > me ce RM ae @) Withdrawal v tom x bY Revaluation downwards v Y ate el d co emt AC @) Additional Invest ment v X lM aM pM b> Revaluation upwards ¢ yo opm ope ©) Goodwill / unidentifiavle asret x Ry 2M uM Note: * original capitar = Agreed capital PARTNERSHIP BODES TO BE USED (for Arendal art reporting parece) I Individuatc w] no exiting business ———> new cet of books 1D Exiting burincis and another eitting buinecs —? New book Or existing booke Or Individuals wl no oticting buciness % Accumulated depreciation = 2° — derecaiig Aum at ay * Allowance ter Bad debtr © pwedeng meron Gs Expected credit lacePARTNERSHIP OPERATIONS AWOCATION OF PROFITS of LOSSES AG 10 CAPITALUT PARTNER ‘According 40 agrecment ® + Im proportion to their Copital contribution Fecording 40 agreement @ According to profit charing ratio ** © * In proportion to their Capital Contribution ‘AS TO INDUSTEIAL] © According 40 agreement | @ According 40 agreement PARTNER | @ * ust aad equitable’*'| @ # not Table for tosses ** Notes: oF In the abrence of agreement fF IF there i¢ mo agreenient as to toss chaing atin, but there Wan agreement ov 4 prifite # + In case Hf Copifal-inducirial parmer, pis/her character at a Capitalist partner will chore: ‘in proportion to the capital contribu’ e#4 © Paviners choll determine What jut and equitable chare of indwtrial partner ic. But if they canner agree. the court will determine cuch. SALARIES = fo compensate the services Fendered by the parinene = time pnperhoned + silent: montny Jannvally —* compare {> ofner information given INTEREST = Compenration for Me amount of capital contributed by th partners ~ dime: proportioned Te Pet [Mints capi Bg et oo = cam be baled on different Capital bare GOK Y= GOK X Ny = Isok ided Qvy- and 80’). fo X and Y, respectively X = GOOX x.207 = DOK Y= GOK X £07 YeOK i ic Prafit is divided Inthe ratio of 4:2 te X and Y, respective XK © wok x Is > 200k Y= Gor x fs = Hook © Capital ratio (Original, Beginning. Ending, Average) Profit i¢ allocated bated on the BEGINNING CapiTAL ratio Tora Beq.Cap. = 2.5m + ISM = 4M X= WOOK X A4/y = 39cK ye Goon x fy = aark Profit 1¢ alecated ated on the ENDING CAPITAL VAC — paning accom not coded inomBoteg" ening cain Total bnd.cap. © 316M + FEM GacM K+ GOK x AR/yar > 381,820 Y* OOK age = aie, 160 Profit ic allocated baged on the AVERAGE CAPITAL RATIO Capital come at of ms pale J Period Cap. Bat. * wnchanged “ wanthe Average capital Jan. t= Mae. 31 2M 3 7M X + GOOE x Spe Apt. 1- Ap. 30 295M 4 295m = 381240 Hoy 1° Sep 30 2.050 s In.2¢m Och. 1- dec 1 ISM 3 4.450 3 bt 2 = 21945, 830 = alg, 310 Y- Capital Jon-4-May 31 SM 5 aM Jun 4 Aug. 31 130M 3 orm Gp 1 Noi-30 Lem 5 cM Dea t= Deca) eM 4 ew w TEAM = 12 © 159,000 iia Nevage 320,890 * CapitalWD Interest on capital and the balance on agreed ratio Each partner ic alowed ivi interest on ending capital and the remwining profit i divided Uoz, oz x Y__ Tehal Interest on ending capital eau 315M 107 aire FM x 10% We ACE ene i Gat n ork + © su 1 va SS © allocate bated on profit shating catio 1 Salovy otlowanves to partner and the balance on agreed ratio Y ig attonied sfalavies of Som and the remaining profit is divided in the ratio of! x ¥ ‘Total Salaries SOK SOK Remainder (1:4) 20K, BOR [00K Total 20k Stok 40K 1 Bons fo managing pariner and the balance on agreed ratio ¥ is allowed a bonus of 20% of profit BEFURE bonue and income tax and the remainder iv vied 1m the ratie of beginning capitat Wook = BSPNYB — insome befor tne Cs te rate 1 x Y Total ‘Bonus (863, 143 x 207) 17429 1 Remainder 4ae.srl x se 207A 801 x Ia Tua 26091 COMPUTATION OF BONUS USING OTHER ASSUMPTIONS (Acrume 20% bonus 5 307- tne vale ) ® Bonus If based on net income 1p Bonus if ated on income loefore bone, Salaries and interest wefore bonus but after income tax Bs doy x NE B= 207-[NE- (357% uI)] Bonus is based on net income MIGIBEAE IE after bonus but beer Salaries and intereat (0 Bonus is aed on income B = 207 (W-B) atter onus and incame tax Bs ae - B~ (are x NID] 1 Bonus it based on net income (wi elas (2e7)[= Ofter venus and salaries but before intercat B = 207. (E-B- S$) 1m Ronut it based on net income After wonus, salaries, and interest B+ doy. (NE- B-S-1) ——————-> caeuator wa | [= ][S J[=)[t JL< 1m onus it based on net income after salaries but bef vonus and intereat B= gop. (ME -S) ————————>_ [wn] [=] [S15 liao 1 Bonus if based on net income a after interest but befor, bonus and salaries femiindest: B= 207. (WL-1) aong after + deuck10 Order ef priority distribaion schemes Hf protitt are not sufficient fo cover the salary and interect allowances = If 4he partnership agreement gives salary allowances priority over Interest on capital balances, then PPAit would fit apply te salaries and the balances would be divided in ihe ratio of interect allowance ANd vice-versa - no “remainder” Other considerations B.I.S + Taxel - should be after tax (silent) Expense [nor an eepenst_] (silent) * Different profit, and los charing nel meome | after before + WI Otdor of priority (silent) + wl minimum prft share + More than JD Partners + BAS = Cuprted as an TypUNG Beginni ital Ma nate ‘Twestment (ea Withdrawal Evading capital before cloting Let: Drawings Add: Share Ww WL Lew: Chate in NL Ending capital after closing —> temporary account, but not in income statement bela xxxlt eePARTNERSHIP DISSOLUTION “DISSOLUTION the change in the relation Of the partners caused vy amy partner ceasing 10 be associated in the carrying out of the business. refers to the fermination OF the life of an existing partnership: = May be followed by: 10 the fe tion Of a new Partnershi jccojution al liquidation. 7 Uawdaton ae a ect ataet ot Caan windir No — Dissolution MOC Lt Cesare Retitement or withdrawal of @ partner Admmicsion of o new partner Incorporation of a partnership Death. incapacity, or barkruptcy Of A partner ADMI SAT Receret 5 fitch ond eat wf the pare. Wi ANE Settled tither by: ©) payment of cash 1) Transfur of non-cach aysetr ©) Recognition of @ liability for the full or the balaqce of the unpaid interest of the reiting partner amount af setfemem may be = pres © Purchare ite = book valne WII © Purchare price > book value — —* Bonus fo retiring v > Revaluation upwards ( ati | Goodwill (AI) epecificd x @& Purchare price < ork value Bonus to remaining v + Revaluation downwards Cal] cpecific) J DEATH OR INCAPACITY OF A PARTNER = aveounting procedures are similar te reltrement/ withdrawal of a partner fore After Je: who ? Partner Creditor Deceared partner, Capital — xc What? Capital —————>_ Liability Liability fo tne ESTATE Ke |nierest? Mol aan expente ———> expence INCORPORATION OF A PARTNERSHIP After who? Partners ———* Incerporatore what? Capital ————+ share CapitaPARTNERSHIP LIQUIDATION TUQWIDATION - termination of a businecs operation - winding Up of business activities, where partnerchip assets are Sold, the partnership Credifore (liabitifier) are paid and distribution of remaining cash fo the partnext - Uquidate = completely terminated + begins after diccolution; ends wi termination of activitior Wind No — Discolution wp a es Liquidation Rules in Seflling the Accounts between fartnexs after the Dissolution (Art. 1¢34) to The Assets of the Partnership are: #) Partnerchip. property 2D Additional conivibution of the partners necescary for the payment OF all liabilities MARSHALING OF ASSETS = involves the order of creditorc’ claims against partnership ascets and the personal assetc of each partner. ~ doctrine applied when dhe partnership ascets and one or more of the partners are ingolvent W ORDER OF APPLICATION OF ASceTs (OF THE ‘ofher than pactnerz ~ external ore ef fan for capital nd profity - ialernal ~+ petnerc: oan te the 5 ving er advance Yn teapect of capital 9) — FRR CAs |For baer epener In cespect of profits Dae fe ener (det 1834 (2), Ci Codey u,unoe, sce Fer Se fa ‘nor clo inst 4h tir of each parmner ia Rat ® Those owing io seperate (personal) creditore @ Those owing 10 partnersnip creditors ———* gem we sear poroer @ Thore owing fo parinat of way of contribution (CA 934 (4, ci one) Personal Aceh vc. Perconal Liabitity —> areas ott gee pric PA > PL» Solvent —» ate difference can cf ve wed os payment to creditort PA < PL» ingolvent — if protem ic tt as to svency PA = PL Pariner s Capital ood eis oe Payable pminee Semen z Receivable fren partner (1) saan Equity/interest 2x.) Rigit of offck a alt tw a partner ett aun Bethe seas litle? peerless Payabie an bone PE ets | a Me pov: i To From hha @ higher Portnersvip To Frome ] Partner ny Rian From 19, Yolae' t's we eae = zu Pee ote rn To ] Partnenthip To FromTYPES/METHODS OF LIGUIDATION )Lump-cum ~ lictroution of cash to pariners afler al non-cash astett are tealized and the gain fies has been dictributed and al lavititier of the partnerchip are Seilled PROCEDUREC: 1) Realization of assets and dliciibution of gsin/ lors on realization among the partners bared on the profit and to ratin - 2) Payment of expenses Expencts of liquidation are allocated 40 poriners' capital accounts in their Pil vatio 5) Payment of liabilities 4) Elimination of partnert capital deficiencies. If after the distribution of locs on ralization, a partner meats © capital deficiency, shit deficiency must be eliminated by wing one of the following methick, in dhe iri @) Wthe deficlent partner hay a loan valance, exercite the right of offset b) Hf tne deficient partner is Solvent, make him invest cash +0 eliminate his deficiency oH the deficient partner is insolvent, ict the other partners absorn hic Atficienoy #) Payment te partners (in order of privrity) imaeae 8) loan accounts ¥) Capital accounts 2) INSTALMENT ~ asset are realized on and cath ic distributed on a periodic bovis AS it becomes auailable , that ven before all nen-cavn autete are Converted into cath — cash will be dictriluted 4° partnere in accordance wi the = = concervaticm ela ~ unique characteristics: femaining non-cash asrete amount of W assumed loss (Hheorefical [ees ) aroun Le ph raie cath withheld fer contingent expence avicipntee iuidation_expene ob Tuntecorded Rae ~ Unique characteristics: 1m Loss absorption power) capacity / Petentiat Ls Ranking = Vulnerability (least fo most ) + priority PRoceowres : ¥) Record the realization of assets and distribute the realized gains} lores among the partners wing the Profit and [oss ratio 2) Pry liquidation expunter and unrecorded liabilities, Hf there are omy, and dictrivute there among the partners wing profit and tats ratio 3) Pay the liabititier “fo outsiders po tet at 4) Distribute cash 40 the partners atler postitie fuhire lower have been apportioned te partners or in accordance w] a cath ditfribwion program Note: Eliminate amy capital deficcionoy only before final payment’ te partnertfava To x yale fo partner ~ Receivable Fen eacier rea Tne = @ Compute for she Cash auailable for Distribution (caro). Cash, beginning ye Proceed [Receipts xe Disbueementi: External liabitities (we) wat midation expenses (ay) incl <— Cach withheld: : i) Unpaid eternal \iatviliry (9) Contingent expense, bey CARD we QOU/TE ys. CAFO Partner AA BB Total lump Install Jets Wyte me pd *« Actwal v Gnd onenes — TOLE (PLL) a xe) << Accumd = x v carD x Cx) xe : Absorb a) ~ IF Warning: > nena Cantribation & La xe Concimetive woreboek CARD ss ss WS: Reconstructive —" spprsen = absorbed by ofher partners w) positine capital balance (General / Limited) Contribute (Gena! and Solvent) 1b) ABserbed by other partners with + pocibive Capital balance + negative capital balance (general ana sowent) "9 4