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Accounting forPartnership
1. Original Investment
2. Add’l Investment
3. Share in profits
1. Permanent W/d of Captl
2. Dr Bal of Drawing Acct
3. Share in loss
Capital Accounts Drawing Accounts
Share in profits
1. Temp. w/d of capital
2. Share in loss
Loans Payable to Partners – partnership loan from a partner
Loans Receivable from partners – advances to the partner from the partnership
Loans Payable/Receivable
Partnership may be formed in any of the following ways:
1. Individual with no existing business form a partnership
2. Conversion of a sole proprietor to a partnership
a) A sole proprietor and an individual without an existing business form a partnership
b) Two or more sole proprietor form a partnership
3. Admission or retirement of a partner
Partners may invest :
1. Cash
2. Non-cash assets – recorded at values agreed upon by the partners.
In case of absence of any agreement on the valuation of non-cash assets, these will be valued at their fair market values* at the date of transfer to the partnership.
3. Industry – (only a memorandum entry in the general journal will be made)
*Fair market value – the estimated amount that a willing seller would receive from a financially capable buyer for the sale of the asset in a free market.
See page 5 for illustration
Marietta Lungsod and Teodora Banwa executed a partnership agreement and list the following assets contributed at the partnership formation:
Contributed by:
Lungsod Banwa
Cash P 20,000 P 30,000
Inventories 15,000
Building 40,000
Furniture and Equipment 15,000
What amounts should be recorded as capital for Lungsod and Banwa?
Individuals with no Existing Business forms a Partnership
Arroyo and Estrada formed a partnership and contributed the following Assets:
Arroyo Estrada
Cash P70,000
Supplies P15,000
Equipment 40,000
The equipment was a subject to a chattel mortgage of P10,000 and was assumed by the partnership.
Required:
1. How much are the capital balances of each partner?
2. List down the accounts and their balances after the formation of the partnership.
Victoria Secreto and Dolce Gabana agreed to form a partnership. The agreement specified that Secreto will invest cash of P300,000 and Gabana will contribute his land with a fair market value of P600,000. The land has a mortgage of P200,000 to be assumed by the partnership. Prepare the opening entries for the partnership and the Balance Sheet of the newly formed partnership.
Accounts Debit Credit
Review of the Accounting Equation:
1. Cash
2. Land
3. Mortgage Payable
4. Secreto, Capital
5. Gabana, Capital
Individuals with Existing Business forms a Partnership
Rizalina and Bonifacia formed a general professional partnership. It is agreed that Rizalina will invest cash equivalent to the contribution of Bonifacia for her to have an equal interest in the partnership. Bonifacia has an existing business and will transfer her assets and liabilities to the partnership. The account balances in the books of Bonifacia are as follows:
Debit Credit
Cash
Accounts Receivable
Office Equipment
Accumulated Depreciation
Accounts Payable
Salaries Payable
Bonifacia, Capital
18,000
30,000
150,000
60,000
15,500
2,500
120,000
198,000 198,000
Debit Credit
Cash
Accounts Receivable
Office Equipment
Accumulated Depreciation
Accounts Payable
Salaries Payable
Bonifacia, Capital
18,000
30,000
150,000
60,000
15,500
2,500
120,000
198,000 198,000
The following adjustments shall be made in the books of Bonifacia prior to partnership formation:
1. An allowance for uncollectible accounts of 5% of A/R is to be established.
2. Prepaid expense amounting to P3,000 were omitted by the accountant. This is to be recognized.
3. Additional Salaries Payable in the amount of P1,000 is to be established.
An allowance for uncollectible accounts of 5% of A/R is to be established.
Entry:
Prepaid expense amounting to P3,000 were omitted by the accountant. This is to be recognized.
Entry:
Additional Salaries Payable in the amount of P1,000 is to be established
Entry
Accounting Equation Approach of Analysis:
Assets Liabilities Owners’ Equity
-P1,500
+ 3,000
+ P1,000
- P1,500
+ 3,000
- 1,000
Debit Credit
Cash
Accounts Receivable
Office Equipment
Accumulated Depreciation
Accounts Payable
Salaries Payable
Bonifacia, Capital
18,000
30,000
150,000
60,000
15,500
2,500
120,000
198,000 198,000
Debit Credit
Cash
Accounts Receivable
Office Equipment
Accumulated Depreciation
Accounts Payable
Salaries Payable
Bonifacia, Capital
Prior Adjustment Balances
Post Adjustment Balances
Refer to illustration 2 pp5-9
Medical Supplies Inventory
Assets Liabilities Owners’ Equity
- 750
- 750
Balance per ledger P 4,750
Agreed Valuation 4,000
Decrease in Value P 750
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Assets Liabilities Owners’ Equity
- 750
+ 5,000
- 5,000
- 750
Receivable for patients – There are uncollectible accounts amounting to P5,000 from patients who cannot be located. These accounts are to be written off leaving an agreed valuation of P16,600.
(Adjustments of asset values with contra valuation accounts are charged to the related contra-asset accounts.)
Balance per ledger P21,600
Agreed Valuation 16,600
Valuation Adjustment P 5,000
Allowance for Bad Debts P 6,000
Less: valuation adjustment 5,000
Adjusted Allowance for Bad Debts P 1,000
Assets Liabilities Owners’ Equity
- 750
+ 5,000
-5,000
+ 800
- 750
+ 800
Medical Equipment – To buy a similar medical equipment as the existing unit, the replacement value is P33,000 but the equipment is considered to be 50% depreciated.
Medical equipment per ledger P 25,200
Agreed Valuation 16,500
Valuation Adjustment P 8,700
Less: Accumulated Depreciation per ledger 9,500
Decrease in Accumulated Depreciation P 800
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(Property and equipments are recorded on their net agreed or fair market values.)
Assets Liabilities Owners’ Equity
- 750
+ 5,000
-5,000
+ 800
- 1,450
- 750
+ 800
- 1,450
Furniture and Fixtures – the fair market value of the furniture and fixtures is placed at P8,500.
Furniture and Fixtures per ledger P12,000
Fair market value 8,500
Valuation balance P 3,500
Less: Accumulated depreciation 2,050
Increase in Accumulated depreciation P 1,450
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Withdrawal of Cash Balance – to record the agreement between Pena and Palo to the formation of the partnership which is for Dr Pena to withdraw his cash of P14,000.
Assets Liabilities Owners’ Equity
- 750
+ 5,000
-5,000
+ 800
-1,450
- 14,000
- 750
+ 800
-1,450
- 14,000
- 15,400
Dr. Pena Capital after adjustments:
Capital, Beginning P 45,500
Net Adjustments ( 15,400)
Capital, End P 30,100
Seatwork
The balance sheet of Bella on Oct 1, 2009 before accepting Edward as her partner is shown below:
Bella Ent
Balance Sheet
October 1, 2009
Assets CashNotes ReceivableAccounts ReceivableLess: Allowance for Uncollectible Accts.Merchandise InventoryFurniture and FixturesLess: Accumulated DepreciationTotal Assets
Liabilities and Owner’s EquityNotes PayableAccounts PayableBella, CapitalTotal Liabilities and Owner’s Equity
P240,000 10,000
60,000 6,000
P60,000 30,000
230,000
80,000
54,000 454,000 40,000 100,000314,000454,000
Edward offered to invest cash equal to 50% of Bella’s capital after the following adjustments are made on Bella’s books.
1. The merchandise is to be valued at P74,000
2. The accounts receivable is estimated to be 95% collectible
3. Interest accrued on the notes receivable will be recognized : P10,000, 12% dated July 1, 2009 and P20,000. 12% dated Aug. 1, 2009
4. Interest on notes payable to be accrued at 14% annually from April 1, 2009
5. The furniture and fixtures are to be valued at P46,000
6. Office supplies on hand that have been charged to expense in the past amounted to P4,000. These will be used by the partnership.
Requirements:
1. Adjust the assets and liabilities of Bella in accordance with the agreement. Adjustments are to be made to her capital account.
2. Close the books
3. Record the investment of Bella in the new books
4. Record the investment of Edward in the new books
5. Prepare the balance sheet of Bella and Edward Partnership
