DEFINITION ' 1 Ina contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profit among themselves." Two or more persons!may also form a partnership for the exercise of a profession (Civil Code of the Philippines, Article 1767). An association of two or more Persons to carry on, as co-owners, a business for profit (Uniform Partnership Act, Section 6). a The partnership has a juridical personality separate and distinct from that of each of the partners (Civil Code of the Philippines, Article 1768). Thus, for example, where Vincent Fabella and: Wilhelmina Neis-established ‘a partnership, three persons are involved, namely: the partnership and the partners, Fabella and Neis. Partnerships resemble sole proprietorships, except that there are two or more owners of the business. Each owner is called a partner. Partnerships are often formed to bring together various talents and knowledge. Partnerships provide a means of obtaining more equity capital than a single individual can obtain and.allow the sharing of risks for rapidly growing businesses. A profession is an occupation that involves a higher education or its equivalent, and mental rather than manual labor. Strictly speaking, the exercise of a profession is not a business or an enterprise for profit but the law allows two or more persons to’ act as partners in the practice of their profession. Partnerships are generally associated with the practice of law, public accounting, medicine and other professions. Partnerships of this nature are called general professional partnerships. On the other hand, service industries, retail trade, wholesale and manufacturing enterprises may also be organized as partnerships. a . CHARACTERISTICS OF A PARTNERSHIP The characteristics of partnerships are different from the sole proprietorships already studied in basic accounting. Some of-the more important characteristics are as follows: Mutual ‘Contribution. There caniot be a partnership without contribution of money, Property or industry (i.e. work or services which may ete be personal manual efforts or intellectual) to a common fund. . ¥ Division of Profits or Losses. The essence of partnership is that each partner must share in the profits or losses of the venture. : Chapter 1: Basic Considerations and Formation | 1-3Co-Ownership of Contributed Assets. All assets contributed into the Partnership ate owned by the partnership by virtue of its separate and distinct juridical Personality, ! one partner contributes an asset to the business, all partners jointly own itina Speci sense. Mutual Agency. Any partner can bind the other partners to a contract if he is acting within his express or implied authority. Limited Life. A partnership has a limited life. It may be dissolved by the admission death, insolvency, incapacity, withdrawal of a partner or expiration of the term specif, ed in the partnership agreement. . Unlimited Liability. All partners (except limited partners), including industrial Partners, are personally liable for all debts incurred by the partnership. If the partnership cannot settle its obligations, creditors’ claims will be satisfied from the personal assets of the partners without prejudice to the rights of the separate creditors of the partners. Income Taxes,. Partnerships, except general professional partnerships, are subject to tax at the rate of 25% (per R.A. No. 11534, CREATE Act) of taxable income. Partners’ Equity Accounts. Accounting for partnerships is much like accounting for sole proprietorships. The difference lies in the number of partners’ equity accounts. Each partner has a capital account and a withdrawal account that serve similar functions the related accounts for sole proprietorships. 7 ADVANTAGES AND DISADVANTAGES OF A PARTNERSHIP A partnership offers certain advantages over a sole proprietorship and a corporation. 1 also has a number of disadvantages. They are as follows: : Advantages versus Proprietorships 1. Brings greater financial capability to the business. 2. ‘Combines special skills, expertise and experience of the partners. 3. Offers relative freedom and flexibility of action in decision-making. Advantages versus Corporations . 1. Easier and less expensive to organize. 2. More personal and informal. Disadvantages 1. _ Easily dissolved and thus unstable compared to a corporation. 2, Mutual agency and unlimited liability may create personal obligations to partners- 3. Less effective than a corporation in raising large amounts of capital. ’ e fPARTNERSHIP DISTINGUISHED FROM CORPORATION Manner of Creation. A Partnershi f p is created by mere agreement of the partners while a corporation is created by operati ion of law. Number of Persons.. Two or More persons may form a partnership; in a corporation, not exceeding fifteen (15). A corporation with a single stockholder is considered a One Person Corporation (Sec. 10, Revised Corporation Code of the Philippines; in Chapter 5). Commencement of Juridical Personality, commences from the execution of the articles issuance of certificate of incorporation by the Management. in a Partnership, partners did not appoint a Managi on the Board of Directors. Extent of Liability. ina Partnership, each of the partners except a limited partner is liable to the extent of his personal assets; in a corporation, stockholders are liable only to the extent of their interest or investment in the corporation. In a partnership, juridical ‘personality of partnership; in a corporation, from the Securities and Exchange Commission. every partner is an agent of the partnership if the ing partner;.in a corporation, management is vested Right of Succession. Ina partnership, there is no right of succession; in a corporation, there is right of succession. A corporation has the capacity of continued existence regardless of the death, withdrawal, insolvency or incapacity of its directors or stockholders. Terms of Existence. In a partnership, for any period of time stipulated by the partners; in a corporation, shall have perpetual existence unless its articles of incorporation provides otherwise (Sec. 11, Revised Corporation Code of the Philippines). CLASSIFICATIONS OF PARTNERSHIPS 1. According to object: A. Universal partnership of all present property. All contributions become part of the partnership fund. ; B. Universal partnership of profits. All that the partners may acquire by their ‘industry or work during the existence of the partnership: and the use of whatever the partners contributed at the time of the institution of the contract belong to the partnership. If the articles of universal partnership did not Specify its nature, it will considered a universal partnership of profits. C. Particular partnership. The object of the partnership is determinate—its use or fruit, specific undertaking, or the exercise of a profession or vocation. 2. According to liability: A. General. All partners are liable to the extent of their separate properties.Je only to-the extent ‘of their Perso, the law states that there shajj bet ‘ B. Limited. The limited partners are liab! | ? contributions. In a limited partnership, least one general partner. 3. According to duration: ; val A. Partnership with a fixed'term or for a particular undertaking. ined ands not fon B. Partnership at'will. One in which no term is specified and is not formed foray particular undertaking. , 4. According to purpose: A. Commercial or trading partnership. One formed for the transaction 6 , f business. B. Pfofessional ér non-trading partnership. ‘One formed for the exercise 4 profession. 5. “according to legality of existence: ° ; A. De jure partnership. One which has complied with all the legal requirement for its establishment. # lo B. De facto partnership. One which has failed, to comply with all the legal requirements for its establishment. i KINDS OF PARTNERS ~ ‘ f 1.’ General Partner. One who is liable to-the extent of his separate property after al the assets of the partnership are exhausted. e ; 2. Limited partner. One who is liable only to the extent of his capital contribution. He is not allowed to contribute industry or services only. 3. Capitalist Partner. One who contributes money or Property to the common fund of the partnership. 4. Industrial partner. One who contributes his knowledge or personal service to the partnership. . . a 5. Managing partner. One whom the partners has appointed as manager of the Partnership.« , 4 6. Liquidating partner. One who is designated: to wind up ‘or settle the affairs of th partnership after dissolution. ‘ a Dormant partner. One who does not take active Part in the business of the Partnership and is not known as a partner. 8. Silent partner. ‘One who does not take active Part in the business of the Partnership though may be known aS a partner. 9. Secret partner. One who takes active ii i i part in the business but tobea Partner by outside parties, poem 1-6 | WIN Ballada’s Partnership and Corporation Accounting 2024 Eqition10. Nominal partner or partner by estoppel. One who is actually not a partner but who represents himself as one. ‘ ARTICLES OF PARTNERSHIP A partnership may be constituted:orally or in writing: In the latter case, partnership agreements.are embodied inthe Articles of Partnership. The following essential provisions may be contained:in the agreement: 1, The partnership name, nature, purpose and location; 2. The names, citizenship and residences of the partners; 3. The date of formation and the duration of the partnership; 4. The capital contribution of each partner, the procedure for valuing non-cash investments, treatment of excess contribution (as capital or as loan) and the penalties for a partner's failure to invest and maintain the agreed capital; The rights and duties of each partner; “ The accounting period to be adopted, the nature of accounting records, . financial statements and audits by independent public accountants; * The method of sharing profit or loss, frequency of income measurement and distribution, including any provisions for the recognition of differences in contributions; 8. The drawings or salaries to be allowed to partners; 9. The provision for arbitration of disputes, dissolution, and liquidation: A contract of partnership is void whenever’ immovable: property or-real rights are contributed and a signed inventory of the said property is not made and attached to a public instrument. SEC REGISTRATION . When the partnership capital is P3,000 or more, in money or property, the public instrument must be recorded with the Securities and Exchange Commission (SEC). Even if it is not registered, the partnership having a capital of P3,000 or more is still valid and therefore has legal personality. The SEC shall not register any corporation organized. for the practice of public accountancy (The Philippine Accountancy Act of 2004,,Sec. 28). The purpose of the registration is to set “a condition for the issuance of the licenses to engage in business or trade. In this way, the tax liabilities of big partnerships cannot be evaded, and the public can also determine more accurately their membership and capital before dealing with them.” (Dean Capistrano, IV Civil Code of the Philippines) Chapter 1; Basic Considerations and Formation | 1-7’ ic steps to follow: To register a partnership with the SEC, here are the basic H proposed business name verified in the verification unit of Se, > Have you ; onan The partnership name shall bear the word | kale se and if ite i ed rtnership, the word “Limited” or Ltd. A professiona Partners, saa ee the wottl “Company,” “Associates” or Partners” or other sin p mat : descriptions (SEC Memorandum Circular 5, Series 2008): >» Submit the following documents: Articles of Partnership Verification Slip for the Business Name Ly Jistt Written undertaking to change business name if required Tax identification number. of each partner and/or that of the partnership P ; ; 4 Registration data sheet for partnership: duly accomplished in siy copies = Other documents that may be required: © endorsement from other government agencies if the proposed partnership will engage in an industry regulated by th government. . for partnership with foreign partners: SEC Form F-105, ba certificate on the capital contribution of partners, proof remittance of contribution of foreign partners; > Pay the registration/filing and miscellaneous fees: filing fee equivalent to” 1/5 of 1% of the partnership capital but not less than P1,000 and legal research fee which is 1% of the filing fee; st > Forward documents to the SEC Commissioner for signature. ACCREDITATION TO PRACTICE PUBLIC ACCOUNTANCY \ Certified public accountants (CPAs), firms and Partnerships of CPAs, engaged in the Practice of public accountancy, including the partners and staff members thereof, shall register with the Professional Ri i Rules and Regulations Implementi Philippine Accountancy Act of 2004,ACCOUNTING FOR PARTNERSHIPS Owners’ Equity Accounts ? In Basic Accounting, generally accepted accounting principles were discussed in the context of a sole proprietorship. These accounting principles also apply to a partnership. Thus, the recording of assets, liabilities, income and expenses is consistent for both proprietorships and partnerships. Comparing two businesses of the same nature, one organized as a sole proprietorship and another as a partnership, there will be no marked difference in their operations. However, differences arise between the two forms of business concerning owners’ equity. For a proprietorship, there js only a single owner. . Therefore, there is only one capital account and one drawing account. On the other hand, since a partnership.has two or more owners, separate capital and drawing, accounts are established for each partner. A partner's capital account is credited for his initial and. additional net investments (assets contributed less liabilities assumed by the partnership), and credit balance of the, drawing account at the end of the period. It is debited for his permanent withdrawals. and debit balance of the drawing account at the end of the period. Typically, partners do not wait until the end of the year to determine how much of the profits they wish to withdraw from the partnership, To meet personal living expenses, partners customarily withdraw money on a periodic basis throughout the year. A partner's drawing account is debited to reflect assets temporarily withdrawn by him from the partnership. At the end of each accounting period, the balances in the drawing accounts are closed to the related capital accounts. Partner's Capital Account Debit ‘ Credit 1, Permanent withdrawals. 1. Original investment. 2. Debit balance of the drawing. 2. Additional investment. account at the end of the period | 3. ‘Credit balance of the drawing % account at the end of the period. w e . qiOwner’s Equity Account ~~ i | Credit Debit 1, Decrease in asset. 2. Increase in liability. 3. Increase in contra-asset. 1. Increase in asset. 2. Decrease in liability. 3. Decrease in contra-asset. Opening Entries of a Partnership Upon Formation A partnership may be formed.in any of the following ways: 1, Individuals with no existing business form a partnership. 2. Conversion of a sole proprietorship to a partnership. el a, A sole proprietor and an individual without an existing { business form a partnership. b. Two or more sole proprietors form a partnership. 3, Admission or retirement of a partner (to be covered in Chapter 3). : Individuals with No Existing Business Form a Partnership The opening entry to recognize the contributions of each partner into the partnership simply to debit the assets contributed, and to credit the liabilities assumed and th capital_account of each partner. . Illustration. On July 1, 2023, Nilo Burgos and Helenita Ruiz agreed to forma partnership. The partnership agreement specified that Burgos is to invest cash Af P700,000 and Ruiz is to contribute land with a fair market value of P1,300,000 with P300,000 mortgage to be assumed by the partnership. The entries are as follows: Cash 700,000 Land 1,300,000 Mortgage Payable 300,000 Nilo Burgos, Capital - . 700,000 Helenita Ruiz, Capital 1,000,000 To record the initial investments | of Burgos and Ruiz. After the formation, the statement of financial position of the partnership Burgos and Ruiz Statement of Financial Position July 1, 2023, Assets fe P 700,000 “| re | Asset ‘ 1,300,000 el P2,000,000A partner may lend amounts to the Partnership in excess of his intended permanent investment. These advances should be credited to Loans Payable-Partner account and not to’ Partner's Capital account classified among the liabilities but separate from liabilities to outsiders. This distinction is important in case of liquidation. Loans payable to partners must be paid after the claims of outside creditors have been paid in full. These loans have priority over Partners’ equity: PARTNERSHIP FORMATION Valuation of Investments by Partners The books of the partnership are opened with entries reflecting the net contributions of the partners to the firm. Asset accounts are debited for assets contributed to the partnership, liability accounts are credited for any liabilities assurried by the partnership and separate capital accounts are credited for the amount of each partner's net investment (assets less liabilities). / Partners may invest cash or non-cash assets in the partnership. When a partner invests non-cash assets, they are to be recorded at values agreed upon by the partners. In the absence of any agreement, the contributions will be recognized at their fair market values at the date of transfer to the Partnership. The fair market value of an asset is the estimated amount that a willing seller would receive from a financially capable buyer for the sale of the asset in a free market. Per International Financial Reporting Standards (IFRS) No. 3, fair value is the, price 4t which an asset or liability could be exchanged in a current transaction between knowledgeable, unrelated willing parties. i A Adjustment of Accounts Prior to Formation In cases when-the prospective partners have existing businesses, their respective books will have to be adjusted to reflect the fair market values of their assets or to correct misstatements in the accounts. If the adjustments are not made, the initial capital balances’of the partners may be inequitable. Mlustration. A reconditioned printing equipment invested by Milavel Nazario was recorded incorrectly in the partnership books at P730,000—its book value from the Proprietorship’s records. If the partnership immediately sold the printing equipment for its fair market value of P800,000, theresulting P70,000 gain would increase the capital balances of both Partners Milavel Nazario and Virginia Yacapin. The printing equipment should ‘have been récorded at P800,000 and Nazario’s capital credited with P800,000. Simply stated, increases in asset values accruing before formation should be for the benefit of the contributing partner. "i The adjustments of the assets and liabilities prior to formation will be similar to the adjustments that we are already familiar with. However, when the adjustment involves 8 debit or credit to a nominal account, the Capital account would instead be debited or Chapter 1:. Basic Considerations and Formation | 1-11Partner's Drawing Account Debit Credit 1. Share in profit (this may be 1, . Temporary withdrawals. P credited directly to Capital), 2. Share in loss (this may be debited directly to Capital). Permanent withdrawals are made with the intention of permanently decreasin, partner's capital while temporary withdrawals are regular advances Made by 8 the Partners in anticipation of their share in profit. = b Y th The use’ of drawing accounts for temporary withdrawals provides a Tecord of ¢ partner's drawings during an accounting period. Hence, drawings in excess of the allowed amounts as stated in the partnership agreement may be controlled. Notice that profit (or loss) is credited (or debited) either to the drawing account Or to the! capital account. ‘The choice of the account to credit of debit depends on the intention of the partners. If they wish'to maintain their capital accounts for investments and permanent withdrawals, then Profit or loss should be entered in the drawing account. 4 On the other Hand, if the purpose of the partners is to make profit or loss part of their capital, then thé capital account should be used. In either case, the resulting partners’ ending capital balances will be the same. ‘ On Sept. 6, 2007, the International Accounting Standards Board (IASB) issued a revised International Accounting Standards (IAS) No. 1,'Presentation of Financial Statements. This standard supersedes the 2003 version of IAS 1 as amended in 2005. It’s common to encounter “profit or loss” rather than. usual “net income or net loss” as the descriptive term used in the Statement of Comprehensive Income {the new title of the income statement per revised IAS No. 1). The balance sheet is called the Statement of Financial Position. The complete set of financial statements will be in Chapter. 2, Several Asian, countries, whose Partnership Law have strong resemblances to the Partnership Act, of 1890 of England, are using two or three accounts in the capital section of the, statement of financial Position (as capital, drawings and current accounts). These accounts and interest on drawings will be discussed in Chapter 2. Loans Receivable from or Payable to Partners If a partner withdraws a substantial amount of money with the intention of repaying it, the debit should be to Loans Receivable-Partner account instead of to Partner’s Drawing account. This account should.be classified separately from the other receivables of the partnership.Note that furniture and fixtures are Now recorded in the partnership books at the agreed amount of P46,000 which represented the cost of the asset to the Partnership. Qn the other hand, the accounts receivable is still recorded at Bross amount of P240,000 with a related allowance for uncollectible accounts Of P12,000. The P12,000 is only a provision for possible uncollectibles. Two or More Sole Proprietors Form a Partnership eee: On June 30, 2023, Deogracia Corpuz and Esterlina Gevera, friendly competitors in a certain line Of business, decided to combine their talents and capital to form a partnership. Their statements of financial position are as follows: ' Deogracia Corpuz Statement of Financial Position June 30, 2023 Assets Cash : P 50,000 Accounts Receivable - 100,000 Merchandise Inventory 80,000 Furniture ahd Fixtures 60,000 Total Assets ¥ 290,000 Liabilities and Owner's Equity d Accounts Payable P 30,000 Deogracia Corpuz, Capital 260,000 Total Liabilities and Owner's Equity P290,000 Esterlina Gevera Statement of Financial Position June 30, 2023 Assets Cash ' Accounts Receivable Merchandise Inventory Delivery Equipment Total Assets Liabilities and Owner's Equity Accounts Payable P 60,000 Esterlina Gevera, Capital 250,000 Total Liabilities and Owner's Equityp54,000 5. Furniture and Fixtures, net per Jeu a ota Furniture and Fixtures, net as agree 46,000 - B8,000 Increase in Accumulated Depreciation 6. Net effect of adjustments on Capital: Decrease in Merchandise Inventory P (6,000) Increase in Allowance for Uncollectibles (2,000) Increase in Interest Receivable 700. Increase in Interest Payable (2,800) Increase in Accumulated Depreciation (8,000) Increase in Office’Supplies 4,000 Decrease in Capital P(14,100) 7. Furniture and Fixtures, cost per books 60,000 Furniture and Fixtures, cost as agreed 46,000 Writedown of Furniture and Fixtures * P14,000 8. Galicano Del Mundo, Capital before adjustment . 314,000 Net Adjustments to Capital 14,100 Galicano Del Mundo, Capital after adjustment, .P299,900 Agreed Capital Credit for Marissa Dimarucot 50% Cash Investment of Marissa Dimarucot P149,950 After the formation, the statement of financial position of the newly formed partnership is: Del Mundo and Dimarucot Statement of Financial Position Oct. 1, 2023 Assets Cash P209,950 Notes Receivable ; ‘ 30,000 * Accounts Receivable P240,000 Less; Allowance for Uncollectible Accts. 12,000 228,000 Interest Receivable 700 Merchandise Inventory 74,000 Office Supplies a 4,000 Furniture and Fixtures 46,000 Total Assets : B2.650 Liabilities and Owners’ Equity - Notes Payable Accounts Payable vanoiooe Interest Payable 800 Galicano Del Mundo, Capital pe Marissa Dimarucot, Capital 149,950 Total Liabilities and Owners’ Equity P592,650Liabilities and Owners’ Equity Mortgage Payable Nilo Burgos, Capital Helenita Ruiz, Capital Total Liabilities and Owners’ Equity Illustration. Elizabeth Maniquiz. P 300,000 700,000 1,000,000 2,000,000 Suppose that Burgos and Ruiz formed another partnership with Nora Burgos and Ruiz considered Maniquiz who has a vast business network in Bicol as an industrial partner. The partnership did not receive any asset from Maniquiz. In this case, only a memorandum entry in the general journal will be made. ASole Proprietor and Another Individual Form a Partnership A sole proprietor may consider fo: ming a partnership with an individual who has no existing business. Under this type of formation, the assets and the liabilities of the proprietorship will be transferred to the newly formed partnership at values agreed upon by all the partners or at their current fair prices. Illustration, The statement of financial position of Galicano Del Mundo on Oct. 1, 2023, before accepting Marissa. Dimarucot tas partner is shown as follows: Galicano Del Mundo Statement of Financial Position Oct, 1, 2023 Assets . Cash P 60,000 Notes Receivable , 30,000 Accounts Receivable ) 240,000 Less: Allowance for Uncollectible Acts. 10,000 . 230,000 Merchandise Inventory 80,000 Furniture and Fixtures F P60,000 } Less: Accumulated Depreciation 6,000 54,000 Total Assets P454,000 Liabilities and Owner's Equity, Notes Payable P 40,000 Accounts Payable 100,000 Galicano Del Mundo, Capital ; 314,000 Total Liabilities and Owner's Equity P454,000__ Marissa Dimarucot offered to inve: Galicano Del Mundo’s capital after accepted the offer. st cash to get a capital credit equal to one-half of giving effect to the adjustments below. Del MundoAfter the formation, the statement of financial position of the Newly ¢ partnership is: hy Corpuz and Gevera Statement of Financial Position June 30, 2023 Assets Cash 2} > P 86,500 Accounts Receivable P 180,000 Less: Allowance for Uncollectible Acts. 18,000 162,000 Merchandise Inventory 190,000 Furniture and Fixtures 54,000 Delivery Equipment 81,000 Total Assets 573,500 —. Uabilities and Owners’ Equity Accounts Payable ° P 90,000 Deogracia Corpuz, Capital 240,500 Esterlina Gevera, Capital 243,000 Total Liabilities and Owners’ Equity PS73,500 —== f LIMITED LIABILITY COMPANY In 1988, the Internal Revenue Service (IRS) of the Unit States of America ruled that LLC may be treated as a Partnership for tax pur, subject to conditions. As a result of this ruling, all 50. U.S, states allow LLCs, The owriers of an LLC are called members, Partnerships, corporations or other entities, Mant The members have limited liability even if they are ‘These owners may be individu: 'y states even allow one-person L! active in the company. This type of entity is attractive for professional service firms because the owners will have personal liability for the other owners’ malpractice, A limited liability partnership (LLP) is very similar to an LLC except that investment in is restricted’ to professionals. The four major international accounting firms Kent Ernst & Young, PricewaterhouseCoopers and Deloitte Touche started as partnershi As they grew and the risk increased, these firms were allowed to change, by operatid of law, to LLPs. The LLP concept is different from that of a limited partnership. The accounting for LLCs is the similar to Partnerships. The terms “member” 4! “member's equity” are used instead of “partner” and “partner’s equity.” 1-22 | WIN Ballada’s Partnership and Corporation Accounting 2024 EditionBooks of Esterlina Gevera ‘ (1) Merchandise Inventory 10,000 - Esterlina Gevera, Capital 7,000 Allowance for Uncollectible Accounts Accumulated Depreciation To record adjustments to restate Gevera’s capital. (2) Accounts Payable 60,000 Allowance for Uncollectible Accts. 8,000 Accumulated Depreciation 9,000 Esterlina Gevera, Capital 243,000 Cash Accounts Receivable Merchandise Inventory Delivery Equipment To close the books of Gevera. Books of the Partnership (1) Cash 46,500 Accounts Receivable 100,000 Merchandise Inventory 80,000 Furniture and Fixtures . 54,000° Accounts Payable » Allowance for Uncollectible Accts. 4 Deogracia Corpuz, Capital To record the investment of Corpuz. (2) Cash 40,000 Accounts Receivable 80,000 Merchandise Inventory , 110,000 Delivery Equipment 81,000 Accotints Payable Allowance for Uncollectible Acts. Esterlina Gevera, Capital To record the investment of Gevera. 8,000 9,000 40,000 80,000 110,000 90,000 30,000 10,000. 240,500 60,000 8,000 243,000: artners - The conditions and adjustments agreed, upon bY the p for Purpog determining their interests in-the partnership are: i 1.’ Actual court and: bank reconciliation” on Corpuz opty, account revealed cash short and unrecorded expenses of P3,509, % Establishment of a 10% allowance for uncollectible accounts in each bo The merchandise inventory of Gevera is to be increased’by P10, 099, The furniture and fixtures of Corpuz are to be depreciated by P6,009, wiepow SN < i ._ The delivery equipment of Gevera is to be depreciated by P9,000, New books for the Partnership (required per National Internal Revenue ¢, The following procedures may be used in recording the formation of partnership: Books of Deogracia Corpuz and Esterlina Gevera: 1. Adjust the accounts of both parties in accordance with the agreement, Adjustments are to be made to their respective rept accounts, 2. Close the books Books of the Partnership: 1. Record the investment of Deogracia Corpuz. 2. Record the investment of Esterlina Geyera. Following the procedures, the entries are: ' Books of Deogracia Corpuz (a) Deogracia Corpuz, Capital 19,500 Cash 3,500 | Allowance for Uncollectible Accounts 10,000 Accumulated Depreciation 6,000 To record adjustments to restate Corpuz’s capital. (2) Accounts Payable 30,000 Allowance for Uncollectible Acts, 10,000 Accumulated Depreciation 6,000 Deogracia Corpuz, Capital 240,500 Cash ‘ 3500 Accounts Receivable ieoe Merchandise Inventory ' 80,000 Furniture and Fixtures 60,000 To close the books of Corpue, " 1-20 | WIN Ballada’s Partnership and Corporation Accounting 2024 EditioneS Problem #4 ‘TWo Sole Proprietors Forma Partnership Calaguas and Dela Cruz formed a Partnership and invested the following assetg liabilities: Fair Market Value Carrying Value i ’ Calaguas: "(eh P300,000 300,000 land 450,000 280,000 Dela Cruz: ° . Mes, Cash 100,000 100,000°) =f nvr. 4 a] Building 600,000 520,000 ioiuad 24 Mortgage Payable (400,000) | (400,000) The partners will share profits and losses. equally. © Required: Prepare the opening journal entry in the books of the partnership. Calaguas sD Cash god land Caliovas, Cagita Tees L- Dea ane ; Coch . . : leowrro ae aa Bald ing “ea GoNTID e hodeige Mil . 7 40 ql Dada Govt Carp. 05| a _ Ni 5 1-36 | WIN Ballada’s Partnership and Corporation Accounting 2024 EditionProblem #2 Formation of a Partnership sabio, as her original investment in. the firm of Sabio and Mariano, contributed equipment that had been recorded in the books of her own business as costing P900,000, -with accumulated depreciation of P620,000. The partners agreed on a valuatfon of P400,000. They also agreed to accept Sabio's accounts receivable of P360,000, realizable to the extent of 85%. Required: Prepare‘the journal entry to record Sabio's investment in the partnership on June 13. Keaounte Reaivabhe {usB00 Equienen 360000 Kilovanc. par Dolaipul Accounts - FWD Sabie, capital OLO0O Problem #3 Formation of a Partnership Gogola and Paglinawan have just formed a partnership. Gogola contributed cash of P1,260,000 and computer equipment that cost P540,000. The fair value of the computer is P360,000. Gogola has notes payé he computer ‘of P120,000 to be assumed by the partnership. Gogola is to hai ital interest in the partnership. Paglinawan contributed ‘only P900,000. The partners agreed to share profit and loss equally. Gogola should make an additional investment or (withdrawal) of (svv7D. ¢- Peginhawan, Capital . 4ouD Cts CS Diioltal ay: Capital Tntwest + 40 Lo lotal porte Capital 2apao , pulkiphed by: Copital Datocat odh ¥ G9 ‘Le Reqired Capital oF 609014 _ (soo oss: Contin ted = Capital op Cogola + £80 gD00 ‘ Cis my W. Retord He nodsiirdont a Cayliaawary C Chapter 1: Basic Considerations and Formation | 1-35 oy 9x00 a. Fok Ye nono 1 fodtiqanan, Cogits) Grom epee ee Geng rer BQUETON Add Migsan® ey DA, SFO Sa» Caprel etcroPROFESSOR: Sy) Problem #1 | Partner's Original Investment Froilan Labausa contributed land, inventory, and P280,000 cash toa Partnership land has a book value of P650,000 and a market value of P1,350,000. The inventy, a book value of P600,000 and a market value of P510,000. The Partnersh; assumed a P350,000 note payable owed by Labausa that was used. to purchase the a Rosalie Balhag agreed to put up cash equivalent to Labausa’s net investment, i Required: partnership. : JévdVO Jenol 1x66 Laven toy NoyO pee Payoiele (74s yo Laeavsa, Capital. Lah | 740000. Pathog, Gpig! 1 7200000Problem #7 ASole Proprietor and an Individual with No Business Form a Partnership Mulles, the owner of a successful fertilizer business, felt that it is time to expand operations. Mulles offered to form a partnership with Lucena, the owner of a nearby warehouse. The partnership would be called Mulles & Lucena Storage and Sales. Lucena accepted Mulles’ offer and the partnership was formed on July 1, 2023. Presented below is the trial balance for Mulles Fertilizer Supply on June 30, 2023: Cash : P 229,500 Accounts Receivable 2,103,000 Allowance for Uncollectible Accounts P 117,000 Inventory , 1,012,500 Prepaid Rent 29,250 Store Equipment 390,000 Accumulated Depreciation 97,500 Notes Payable : 330,000 Accounts Payable . 505,500 Mulles, Capital 2,714,250 Totals 3,764,250 3,764,250 The partners agreed to share profits and losses equally and decided to invest an equal amount in the partnership. Lucena and Mulles agreed that Lucena’s land is worth 500,000 and his building P1,450,000. Lucena is to contribute cash in an amount sufficient to make his capital account balance equal to Mulles. An agreement is reached by the two partners on the following items: a.. The accounts receivable are to be valued at P1,799,000 and the allowance ‘for uncollectible accounts will be eliminated. Inventory is to be decreased by P112,500. The prepaid rent is for the warehouse used by Mulles. All merchandise will be transferred to Lucena’s building. No refund will be received on the unused rent paid in advance. The store equipment has a fair value of P300,000. e. All the other assets and liabilities are to be transferred at their book values. PS = Required: Prepare the necessary jourrial entries in the books of Mulles; Also, record the formation of the partnership in a new set of books.Problem #6 i ot | A Sole Proprietor and an Individual with No Business Forma Partnership | On Apr. 8, 2023, Tolentino who has her own retal partnership wherein they will divide profits in tl statement of financial position of Tolentino is as follows: I business and Tan, decideg to fo | he ratio of 40:60, respectively Tolentino Marketing Statement of Financial Position April 8, 2023 Assets 2 * cash P "4,000 Accounts Receivable 160,000 Mie Less: Allowance for Uncollectible Accounts 16,000. 144,000.;. Inventory 200,000 Equipment P.50,000 Less: Accumulated Depreciation ' 10,000 40,000, Total Assets 388,000 Liabilities and Capital Accounts Payable P 36,000 Tolentino, Capital 352,000 Total Liabilities and Capital P388,000 nya Conditions agreed upon before the formation of the partnership! a. The accounts receivable of Tolentino is estimated to.be 70% realizable. b. The accumulated depreciation of the equipment will be increased by P10,000. c. The accounts payable will be assumed by the partnership. d, - The capital of the partnership is based on the adjusted capital balance of Tolentit Tan is to contribute cash in order to make the partner's capital bala proportionate to the profit and toss ratio. Required: 1. Prepare the necessary journal entries in the books of Tolentino. 2. Prepare the opening journal entries in the books of the partnership.t | | | | | | | | | | | | | | | [wanes score [secrion: Proresson; SSCS Problem #5 A Sole Proprietor and an Individual with No Business Form a Partnership Espanol operated a specialty shop that sold fishing equipment and accessories. Her post-closing trial balance on Dec, 31, 2022 is as follows: Fish Post-Closing Trial Balance Dec. 31, 2022 Debit Cash P 36,000 «Accounts Receivable 150,000 Allowance for Uncollectible Accounts Iny- ory 440,000 Equipntent 135,000 Accumulated Depreciation f Accounts Payable ‘ Espanol, Capital EC P761,000 Credit P 16,000 75,000 30,000 640,000 P761,000 Espanol plans to enter into a partnership with trusted associate, Quino, effective Jan. 1, 2023. Profits or losses will be shared equally. Espanol is to transfer all assets and liabilities of her shop to the partnership after revaluation. Quino will invest cash equal to Espanol’s investment after revaluation. The agreed values are as follows: accounts receivable (net), P140,000; inventory, P460,000; and equipment (net), P124,000. The partnership will operate under the business name of Fish R’ Us. Required: 1. Prepare the opening journal entries in the books of the partnership. 2. Prepare of the partnership. e the partnership's statement of financial position as at the date of formationrent inthe books of Loquloque will be consumed by i Problem #10 Two Sole Proprietors Form a Partnership ‘On Oct. 31, 2023, Apatisoc and Tuddao agreed to combine their proprietorships as 2 partnership. Their statements of financial position are as follows: Apallsoc’s Business Tuddao’s Business 00k Current Book Curent Assets Value Market Value Value, = Market Valve cash P 37,000 FP 37,000 P 80,000 80,000 ‘Accounts Receivable (net) 220,000 202,000 80,000 63,000, Anventory 510,000 ‘460,000 340,000 354,000 Property and Equipment (net) 1,218,000_*_1,235,000_$35,000_574,000. Total Assets 1,985,000 1,934,000 __P1,035,000 1,068,000 LUsbiltes and Capital ‘Accounts Payable P 236,000 P 236,000 FP, 91,000 P 93,000 ‘accrued Expenses 22,000, 22,000‘ 14,000 16,000, Notes Payable 750,000 70,000 : is Apalisoc, Capital 977,000 2 z ‘Tuddao, Capital - ~ 930,000 : Total Libites & Capital 73,585,000 __P1,934,000_ F2,035.000__P3,068,000. Required: 1. Record the partnership formation. 2. Prepare the partnership's statement ‘of financial position as at Oct. 31, 2023.PROFESSOR: Problem #9 Two Sole Proprietors Forma Partnership Medina and Loqueloque are fierce competitors who sell hunting equipment. They finally decided to join forces in order to increase their business and reduce costs. An agreement is reached between the two to begin operations as a partnership on Mar. 1, 2023. Medina and Loqueloque have decided to share profits or losses in the ratio of 60:40, respectively. The statements of financial position of Medina and Loqueloque as at Mar. 1, 2023 are as follows: Medina —_Loqueloque Cash P 42,000 . P 30,000 Accounts Receivable 389,200 169,200 Allowance for Uncollectible Accounts © (22,400) (14,400) Merchandise Inventory 461,600 300,800 Prepaid Rent - 6,000 Office Supplies : 30,400 4,000 land : 40,000 - Building 128,000 : “Accumulated Depreciation (32,000) - Office Equipment 24,000 62,000 Accumulated Depreciation (6,000) (13,200) Repair Equipment 172,000 : ‘Accumulated Depreciation (68,000) Total Assets P 1,158,800 Ps44,400_ Notes Payable P 120,000 > Accounts Payable 170,000 P111,600 Mortgage Payable 200,000 : Medina, Capital 668,800 : Loqueloque, Capital - 432,800 Total Liabilities and Owners’ Equity P1,158,800___P544,400 E00 544 400Problem #8 Two Sole Proprietors Form a Partnership The business assets of Geron and Yumol appear below: Geron Yumol Cash p° 12,000 P 22,354 Accounts Receivable . 234,536 567,890 - Inventories 120,035 260,102 land 603,000 - Building : ee 428,267 Furniture and Fixtures 50,345 34,789 Other Assets 2,000 3,600 Total 1,020,916 P1,317,002 Account Payable . P 178,940 P 243,650 Notes Payable 200,000 345,000 Geron, Capital 641,976 > Yumol, Capital ® of 728,352 Total P1,020,916'__P1,317,002 Geron and Yumol agreed to form a partnership “contributing their assets and eq subject to the following adjustments: . a. Accounts receivable of P20,000 in Geron’s books and P35,000 in Yumol’s ai uncollectible. b. Inventories of P5,500 and P6,700 are worthless in Geron’s and Yumols respective books. 7 ¢. Other assets of P2,000 for Geron and P3,600 for Yumol are to be written off. Required: : Prepare the journal entries for the formation of the partnership as at July 1.Compute the net (debit) credit adjustment for Sarabia and Abad: Sarabia Abad Sarabia Abad a. P2,870 P 2,820 c. —_-P(870) P 180 b. P(2,870) P(2,820) a P870 P(180) . Using the same information in the previous number, what is amount of total liabilities after the formation? a, P63,950 c. 63,750 b. P65,550 d. P61,950 . Using the same information is #2, what is & the amount of total assets after the formation? a. 160,765 c. P157,985 b. _P152,985 d. P156,875 . Ables and Galang executed a partnership agreement that lists the following assets contributed at the partnership's formation: Contributed by: Ables : Galang Cash 20,000 P30,000 Inventory 15,000 Building 40,000 Furniture and Equipment ‘ 15,000 The building is subject to a ‘mortgage of P10,000, which the Partnership has assumed. The partnership agreement also specified that profits and losses are to be distributed equally. What amounts should be recorded as capital for Ables and Galang at the formation of the partnership? Ables Galang a.. P35,000 P85,000 b. P35,000 75,000 c. P55,000 . P55,000 d. P60,000 60,000 i - Orcajada invested in a partnership a parcel of land which cost his father P200,000. The land had a market value of P300,000 when Orcajada inherited it three years ago. Currently, the land is independently appraised at P500,000 even though Orcajada insisted that he “wouldn't take P900,000 for it." The land should be recorded in the accounts of the partnership at a. P300,000. b. P500,000.3. fad Compute the net (debit) credit adjustment for Sarabia and Abad: Sarabia Abad Sarabia __Abad _ a P2,870 P 2,820 ©. P{870) P180 b. P(2,870) P(2,820) a. P870 P(180) Using the Same information in the previous number, what is amount of total liabilities after the formation? a, P63,950 . b. 65,550 c. P63,750 d. 61,950 Using the same information is #2, what is the amount of total assets after the formation? . a. P160,765 c. P157,985 b. .P152,985 d, P156,875 Ables and Galang executed a partnership agreement that lists the following assets contributed at the partnership’s formation: Contributed by: Ables + Galang Cash 20,000 P30,000 Inventory 15,000 Building 40,000 Furniture and Equipment : 15,000 The building is subject to a ‘mortgage of P10,000, which the partnership has assumed. The partnership agreement also specified that profits and losses are to be distributed equally. What amounts should be recorded as capital for Ables and Galang at the formation of the partnership? Ables Galang a. P35,000 P85,000 iS b. P35,000 P75,000 cc. P55,000 . 55,000 d. P60,000 60,000 : Orcajada invested in a partnership a parcel of land which cost his father P200,000. - The land had a market value of P300,000 when Orcajada inherited it three years ago. Currently, the land is independently appraised at P500,000 even though Orcajada insisted that he "wouldn't take P900,000 for it.". The land should be recorded in the accounts of the partnership at a. P300,000. b.. P500,000.Multiple Choice 1. On May 1, 2023, Gonzaga and Balace formed a ee tos, dJosses i io of 3:7, respectively. Gon ed a Profits and losses in the ratio of 3:7, resp ate land that cost P10,000. Balace contributed: P40,000 ee ne land Ws soi P18,000 on May 1, 2023, immediately after formation of the peers, amount should be recorded in Gonzaga’s capital account on formation of partnership? a. P15,000 b. P17,400° c. 10,000 d. P18,000 On Mar. 1, 2023, Sarabia and Abad decided to combine their businesses and form Partnership. Their statements of financial position on Mar. 1, before adjustme showed the following: ‘ + Sarabia___Abad Cash P 9,000 P 3,750 Accounts receivable 18,500 13,500 | Inventories 30,000 19,500 . Furniture and Fixtures (net) 30,000 9,000 Office Equipment (net) 11,500 2,750 Prepaid Expenses 6,375 3,000 Total P105,375 P51,500 Accounts Payable P 45,750 18,000 Capital 59,625 33,500 Total P105,375 __P51,500_ They agreed to have the following items recorded in their books: i Provide 2% allowance for doubtful accounts, . 2. Sarabia's furniture and fixtures should be P31,000, while Abad’s offi equipment if under-depreciated by P250, 3. Rent expense incurred previously by Sarabia was not yet recorded amounting ‘ P1,000, while salary expense incurred by Abad was not also recorded amount to P800. 4. The fair market values of inventory amounted to: For Sarabia P29,500 For Abad 21,000