Partnership Formation 5l3w37
This document was ed by and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this report form. Report 3i3n4
Overview 26281t
& View Partnership Formation as PDF for free.
More details 6y5l6z
- Words: 1,364
- Pages: 8
PARTNERSHIP DEFINITION A CONTRACT WHEREBY TWO OR MORE PERSONS CONTRIBUTE MONEY OR INDUSTRY TO A COMMON FUND WITH THE INTENTION OF DIVIDING THE PROFITS AMONG THEMSELVES. (Art. 1767 Civil Code of the Philippines) -AN ASSOCIATION OF TWO OR MORE PERSONS WHO CO-OWN A BUSINESS FOR A PROFIT. CHARACTERISTICS 1.
Separate legal personality
2.
Mutual agency
3.
Limited life
4.
Unlimited liability
5.
Co-ownership of property
6.
Co-ownership of profits
ADVANTAGES ease of formation and dissolution unlimited liability better management flexibility in decision making greater capital compared to sole proprietorship
DISADVANTAGES easily dissolved/limited life unlimited liability difficulty in transferring ownership conflict among partners lesser capital compared to corporation
ARTICLES OF CO-PARTNERSHIP -this agreement is a framework which governs the formation, operations, dissolution and liquidation of the partnership. CONTENTS: 1.
Name and nature of the partnership.
2.
Date on which the partnership contract takes effect and duration of such contract.
3.
Names of partners, and partners’ investments.
4.
Authority, rights and duties of each partner.
5.
ing period to be applied, and ing and auditing of partnership books.
6.
Method of sharing profits and losses.
7.
Provision of the arbitration of disputes and liquidation of the partnership.
KINDS OF PARTNERSHIP Non-Trading Partnership Trading Partnership General Partnership Limited Partnership Universal Partnership of All Present Property Universal Partnership of All Profits Particular Partnership KINDS OF PARTNERS Capitalist Partner Industrial Partner (shares in the profits only) Capitalist- Industrial Partner General Partner Limited Partner Nominal Partner Secret Partner Silent Partner
PARTNER’S CAPITAL, DRAWING & LOAN S
PARTNER’S CAPITAL Decrease
Increase
Permanent withdrawal
Initial investment
Sale of equity
Additional Investment Payment of partnership liability from personal funds
PARTNER’S DRAWING Increase Temporary withdrawal
Decrease Share in Net Income
Share in Net Loss LOANS TO AND FROM PARTNERS Loan Receivable from Partner Loans Payable to Partner Withdrawal of substantial amount with the Money advanced to the partnership by a partner with the assumption of repayment assumption of its ultimate repayment
PARTNERSHIP FORMATION 1. formation of a partnership for the first time. 2. conversion of a sole proprietorship to a partnership. a. a sole proprietor allows another person, who has no business of his own to his business. b. two or more sole proprietors form a partnership. A. FORMATION FOR THE FIRST TIME Journal Entries Cash
Debit 200,000
Matthew, Capital To record Matthew’s investment Cash Merchandise Inventory Mark, Capital To record Mark’s investment
Cash Merchandise Inventory Land Building Furniture & Equipment Luke, Capital To record Luke’s investment
Credit 200,000
Debit 200,000 70,000
Credit 270,000
Debit 200,000 70,000 100,000 500,000 30,000
Credit
900,000
Industrial Partner Memo Entry: John is itted into the partnership as an industrial partner to share 10% in the partnership profit. B. CONVERSION OF SOLE PROPRIETORSHIP TO PARTNERSHIP Books of Sole Proprietorship 1. Adjust or revalue the assets of the sole proprietorship according to the agreement. Adjustments are made to the Proprietor’s Capital . • For every increase in asset value, there is corresponding increase in the proprietor’s capital . • For every decrease in asset value, there is corresponding decrease in the proprietor’s capital . • For every increase in liability, there is corresponding decrease in the proprietor’s capital . 2. Close the proprietor’s books (at adjusted amounts) Books of the Partnership 1. Record the investments of the Sole Proprietor.( at adjusted amounts) • Non-current assets are recorded at their carrying/fair values 2. Record the investments of other partners.
EXAMPLES OF ADJUSTMENT/REVALUATION OF ASSETS 1. Adjustment of all assets without contra are debited/credited directly to such asset with corresponding debit/credit to proprietor’s . Example a. Equipment per ledger Agreed Valuation Adjustment Equipment Proprietor Capital To revalue the equipment.
P 100,000 120,000 20,000 20,000
b. Equipment per ledger Agreed Valuation Adjustment Proprietor Capital Equipment To revalue the equipment.
P100,000 80,000 20,000 20,000
2. Adjustment of all assets without contra are debited/credited to the related contra with corresponding debit/credit to proprietor’s . Example a. Equipment per ledger P 140,000 Accumulated Depreciation per ledger 10,000 Agreed Valuation 120,000 Adjustment Proprietor capital Accumulated Depreciation-Equipment To revalue the equipment.
10,000 10,000
b. Equipment per ledger P 140,000 Accumulated Depreciation per ledger 30,000 Agreed Valuation 120,000 Adjustment Accumulated Depreciation-Equipment Proprietor capital To revalue the equipment.
10,000 10,000
3. Adjustment of s Receivable with/without contra are debited/credited to the related contra with corresponding debit/credit to proprietor’s . Example a. s Receivable per ledger Agreed Valuation
P 140,000 120,000
Adjustment Proprietor capital 20,000 Allowance for Doubtful 20,000 To decrease the realizable value of s receivable b. s Receivable per ledger Allowance for Doubtful s Agreed Valuation
P 140,000 30,000 120,000
Adjustment Allowance for Doubtful 10,000 Proprietor capital 10,000 To increase the realizable value of s receivable
SAMPLE PROBLEM: Nadine, a sole proprietor invited Mark and Lark to form a trading partnership. Nadine will invest her existing business while Mark and Lark will both invest cash and non-cash assets. The Statement of Financial Position of Nadine Trading on September 15, 2010 showed the following: Cash 50,000 s Receivable 220,000 Allowance for Bad Debts 15,000 Merchandise Inventory 575,000 Office Equipment 150,000 Accumulated Depreciation-Office Equipment 50,000 Furniture and Fixture 100,000 s Payable 60,000 Notes Payable 270,000 Nadine, Capital 700,000 The partners agreed that the following adjustments be made in the books of Nadine: • Merchandise Inventory is to be recorded at its fair value of P550,000. • 10% of the s Receivable is estimated to be uncollectible. • The office equipment was estimated to have remaining value of P110,000 • The market value of the furniture amount to P120,000. • Accrued interest on notes of P13,500 should be set up. Required: 1. Adjust and close the books of Nadine 2. Open the books of the partnership 3. Prepare a statement of financial position
1. Adjustments/Revaluation of Assets: a. Adjustment: Merchandise Inventory is to be recorded at its fair value of P550,000. Adjusting Entry: Nadine, Capital 25,000 Merchandise Inventory To revalue the merchandise inventory. b. Adjustment: 10% of the s Receivable is estimated to be uncollectible. Adjusting Entry: Nadine, Capital 7,000 Allowance for Bad Debts To adjust bad debts allowance
25,000
7,000
c. Adjustment: The office equipment was estimated to have remaining value of P110,000 Adjusting Entry: Accumulated Depreciation 10,000 Nadine, Capital 10,000 To revalue the office equipment d. Adjustment: The market value of the furniture amount to P120,000. Adjusting Entry: Furniture and Fixtures Nadine Capital To revalue the furniture
20,000
e. Adjustment: Accrued interest on notes of P13,500 should be set up. Adjusting Entry: Nadine, Capital 13,500 Interest Payable To record accrued interest.
20,000
13,500
2. CLOSING THE BOOKS OF NADINE Allowance for Bad Debts Accumulated Depreciation-Office Equipment s Payable Notes Payable Interest Payable Nadine, Capital Cash s Receivable Merchandise Inventory Office Equipment Furniture and Fixtures To close Nadine’s books
Debit 22,000 40,000 60,000 270,000 13,500 684,500
3. OPEN A NEW SET OF BOOKS FOR THE PARTNERSHIP A. RECORD THE INVESTMENT OF THE SOLE PROPRIETOR
Credit
50,000 220,000 550,000 150,000 120,000
Debit 50,000 220,000 550,000 110,000 120,000
Cash s Receivable Merchandise Inventory Office Equipment Furniture and Fixtures Allowance for Bad Debts s Payable Notes Payable Interest Payable Nadine, Capital To record Nadine’s investment.
Credit
22,000 60,000 270,000 13,500 684,500
B. RECORD THE INVESTMENTS OF OTHER PARTNERS Debit 100,000 100,000
Cash Merchandise Inventory Mark, Capital To record Marie’s investment
Credit 200,000
Debit 100,000 100,000 700,000
Cash Land Building Lark, Capital To record Lark’s investment
Credit
900,000
LMN Partnership Statement of Financial Position September 15,2010 Assets Note Current Assets Cash Trade and Other Receivables Merchandise Inventory P1,098,000
1
Non-Current Assets Property, Plant and Equipment 1,030,000
2
P250,000 198,000 650,000
Total Assets
P2,128,000 ======= Liabilities and Partners’ Equity
Current Liabilities Trade and Other Payables Partners’ Equity Lark, Capital Mark, Capital
3
P P 900,000 200,000
343,500
Nadine Capital 1,784,500 Total Liabilities and Partners’ Equity 2,128,000
684,500 P =======
=
Notes to Financial Statements Note 1 Trade and other Receivables s Receivable Less: Allowance for Bad Debts Net Realizable Value Note 2 Property, Plant and Equipment Land Building Office Equipment Furniture and Fixtures Total Note 3 Trade and other Payables s Payable Notes Payable Interest Payable Total
P 220,000 22,000 P 198,000 ======== P 100,000 700,000 110,000 120,000 P1,030,000 ======== P
60,000 270,000 13,500 P 343,500 =======
Separate legal personality
2.
Mutual agency
3.
Limited life
4.
Unlimited liability
5.
Co-ownership of property
6.
Co-ownership of profits
ADVANTAGES ease of formation and dissolution unlimited liability better management flexibility in decision making greater capital compared to sole proprietorship
DISADVANTAGES easily dissolved/limited life unlimited liability difficulty in transferring ownership conflict among partners lesser capital compared to corporation
ARTICLES OF CO-PARTNERSHIP -this agreement is a framework which governs the formation, operations, dissolution and liquidation of the partnership. CONTENTS: 1.
Name and nature of the partnership.
2.
Date on which the partnership contract takes effect and duration of such contract.
3.
Names of partners, and partners’ investments.
4.
Authority, rights and duties of each partner.
5.
ing period to be applied, and ing and auditing of partnership books.
6.
Method of sharing profits and losses.
7.
Provision of the arbitration of disputes and liquidation of the partnership.
KINDS OF PARTNERSHIP Non-Trading Partnership Trading Partnership General Partnership Limited Partnership Universal Partnership of All Present Property Universal Partnership of All Profits Particular Partnership KINDS OF PARTNERS Capitalist Partner Industrial Partner (shares in the profits only) Capitalist- Industrial Partner General Partner Limited Partner Nominal Partner Secret Partner Silent Partner
PARTNER’S CAPITAL, DRAWING & LOAN S
PARTNER’S CAPITAL Decrease
Increase
Permanent withdrawal
Initial investment
Sale of equity
Additional Investment Payment of partnership liability from personal funds
PARTNER’S DRAWING Increase Temporary withdrawal
Decrease Share in Net Income
Share in Net Loss LOANS TO AND FROM PARTNERS Loan Receivable from Partner Loans Payable to Partner Withdrawal of substantial amount with the Money advanced to the partnership by a partner with the assumption of repayment assumption of its ultimate repayment
PARTNERSHIP FORMATION 1. formation of a partnership for the first time. 2. conversion of a sole proprietorship to a partnership. a. a sole proprietor allows another person, who has no business of his own to his business. b. two or more sole proprietors form a partnership. A. FORMATION FOR THE FIRST TIME Journal Entries Cash
Debit 200,000
Matthew, Capital To record Matthew’s investment Cash Merchandise Inventory Mark, Capital To record Mark’s investment
Cash Merchandise Inventory Land Building Furniture & Equipment Luke, Capital To record Luke’s investment
Credit 200,000
Debit 200,000 70,000
Credit 270,000
Debit 200,000 70,000 100,000 500,000 30,000
Credit
900,000
Industrial Partner Memo Entry: John is itted into the partnership as an industrial partner to share 10% in the partnership profit. B. CONVERSION OF SOLE PROPRIETORSHIP TO PARTNERSHIP Books of Sole Proprietorship 1. Adjust or revalue the assets of the sole proprietorship according to the agreement. Adjustments are made to the Proprietor’s Capital . • For every increase in asset value, there is corresponding increase in the proprietor’s capital . • For every decrease in asset value, there is corresponding decrease in the proprietor’s capital . • For every increase in liability, there is corresponding decrease in the proprietor’s capital . 2. Close the proprietor’s books (at adjusted amounts) Books of the Partnership 1. Record the investments of the Sole Proprietor.( at adjusted amounts) • Non-current assets are recorded at their carrying/fair values 2. Record the investments of other partners.
EXAMPLES OF ADJUSTMENT/REVALUATION OF ASSETS 1. Adjustment of all assets without contra are debited/credited directly to such asset with corresponding debit/credit to proprietor’s . Example a. Equipment per ledger Agreed Valuation Adjustment Equipment Proprietor Capital To revalue the equipment.
P 100,000 120,000 20,000 20,000
b. Equipment per ledger Agreed Valuation Adjustment Proprietor Capital Equipment To revalue the equipment.
P100,000 80,000 20,000 20,000
2. Adjustment of all assets without contra are debited/credited to the related contra with corresponding debit/credit to proprietor’s . Example a. Equipment per ledger P 140,000 Accumulated Depreciation per ledger 10,000 Agreed Valuation 120,000 Adjustment Proprietor capital Accumulated Depreciation-Equipment To revalue the equipment.
10,000 10,000
b. Equipment per ledger P 140,000 Accumulated Depreciation per ledger 30,000 Agreed Valuation 120,000 Adjustment Accumulated Depreciation-Equipment Proprietor capital To revalue the equipment.
10,000 10,000
3. Adjustment of s Receivable with/without contra are debited/credited to the related contra with corresponding debit/credit to proprietor’s . Example a. s Receivable per ledger Agreed Valuation
P 140,000 120,000
Adjustment Proprietor capital 20,000 Allowance for Doubtful 20,000 To decrease the realizable value of s receivable b. s Receivable per ledger Allowance for Doubtful s Agreed Valuation
P 140,000 30,000 120,000
Adjustment Allowance for Doubtful 10,000 Proprietor capital 10,000 To increase the realizable value of s receivable
SAMPLE PROBLEM: Nadine, a sole proprietor invited Mark and Lark to form a trading partnership. Nadine will invest her existing business while Mark and Lark will both invest cash and non-cash assets. The Statement of Financial Position of Nadine Trading on September 15, 2010 showed the following: Cash 50,000 s Receivable 220,000 Allowance for Bad Debts 15,000 Merchandise Inventory 575,000 Office Equipment 150,000 Accumulated Depreciation-Office Equipment 50,000 Furniture and Fixture 100,000 s Payable 60,000 Notes Payable 270,000 Nadine, Capital 700,000 The partners agreed that the following adjustments be made in the books of Nadine: • Merchandise Inventory is to be recorded at its fair value of P550,000. • 10% of the s Receivable is estimated to be uncollectible. • The office equipment was estimated to have remaining value of P110,000 • The market value of the furniture amount to P120,000. • Accrued interest on notes of P13,500 should be set up. Required: 1. Adjust and close the books of Nadine 2. Open the books of the partnership 3. Prepare a statement of financial position
1. Adjustments/Revaluation of Assets: a. Adjustment: Merchandise Inventory is to be recorded at its fair value of P550,000. Adjusting Entry: Nadine, Capital 25,000 Merchandise Inventory To revalue the merchandise inventory. b. Adjustment: 10% of the s Receivable is estimated to be uncollectible. Adjusting Entry: Nadine, Capital 7,000 Allowance for Bad Debts To adjust bad debts allowance
25,000
7,000
c. Adjustment: The office equipment was estimated to have remaining value of P110,000 Adjusting Entry: Accumulated Depreciation 10,000 Nadine, Capital 10,000 To revalue the office equipment d. Adjustment: The market value of the furniture amount to P120,000. Adjusting Entry: Furniture and Fixtures Nadine Capital To revalue the furniture
20,000
e. Adjustment: Accrued interest on notes of P13,500 should be set up. Adjusting Entry: Nadine, Capital 13,500 Interest Payable To record accrued interest.
20,000
13,500
2. CLOSING THE BOOKS OF NADINE Allowance for Bad Debts Accumulated Depreciation-Office Equipment s Payable Notes Payable Interest Payable Nadine, Capital Cash s Receivable Merchandise Inventory Office Equipment Furniture and Fixtures To close Nadine’s books
Debit 22,000 40,000 60,000 270,000 13,500 684,500
3. OPEN A NEW SET OF BOOKS FOR THE PARTNERSHIP A. RECORD THE INVESTMENT OF THE SOLE PROPRIETOR
Credit
50,000 220,000 550,000 150,000 120,000
Debit 50,000 220,000 550,000 110,000 120,000
Cash s Receivable Merchandise Inventory Office Equipment Furniture and Fixtures Allowance for Bad Debts s Payable Notes Payable Interest Payable Nadine, Capital To record Nadine’s investment.
Credit
22,000 60,000 270,000 13,500 684,500
B. RECORD THE INVESTMENTS OF OTHER PARTNERS Debit 100,000 100,000
Cash Merchandise Inventory Mark, Capital To record Marie’s investment
Credit 200,000
Debit 100,000 100,000 700,000
Cash Land Building Lark, Capital To record Lark’s investment
Credit
900,000
LMN Partnership Statement of Financial Position September 15,2010 Assets Note Current Assets Cash Trade and Other Receivables Merchandise Inventory P1,098,000
1
Non-Current Assets Property, Plant and Equipment 1,030,000
2
P250,000 198,000 650,000
Total Assets
P2,128,000 ======= Liabilities and Partners’ Equity
Current Liabilities Trade and Other Payables Partners’ Equity Lark, Capital Mark, Capital
3
P P 900,000 200,000
343,500
Nadine Capital 1,784,500 Total Liabilities and Partners’ Equity 2,128,000
684,500 P =======
=
Notes to Financial Statements Note 1 Trade and other Receivables s Receivable Less: Allowance for Bad Debts Net Realizable Value Note 2 Property, Plant and Equipment Land Building Office Equipment Furniture and Fixtures Total Note 3 Trade and other Payables s Payable Notes Payable Interest Payable Total
P 220,000 22,000 P 198,000 ======== P 100,000 700,000 110,000 120,000 P1,030,000 ======== P
60,000 270,000 13,500 P 343,500 =======
Related Documents 3h463d
Partnership Formation 5l3w37
November 2019 59
Partnership Formation Lecture Notes 44344y
November 2019 38
Chapter 2 - Partnership Formation 314l2a
April 2021 0
Partnership Formation And Operation-exercise 391um
January 2022 0
Quiz-chapter1 Partnership Formation And Operations 1t5d35
January 2022 0