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Partnership Formation and Accounting

This document discusses key concepts around partnership formation and accounting. It covers: 1) The major considerations in accounting for partnerships include accounting for initial partner investments, dividing profits/losses during operations, admitting or withdrawing partners, and liquidating upon dissolution. 2) All contributions from partners must be recorded at fair value, and any bonus or discount on contributions is treated as an adjustment to other partners' capital accounts. 3) Key partnership accounts include capital accounts to track each partner's equity, drawing accounts to track withdrawals, and receivable/payable accounts for amounts owed between the partnership and each partner.

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168 views11 pages

Partnership Formation and Accounting

This document discusses key concepts around partnership formation and accounting. It covers: 1) The major considerations in accounting for partnerships include accounting for initial partner investments, dividing profits/losses during operations, admitting or withdrawing partners, and liquidating upon dissolution. 2) All contributions from partners must be recorded at fair value, and any bonus or discount on contributions is treated as an adjustment to other partners' capital accounts. 3) Key partnership accounts include capital accounts to track each partner's equity, drawing accounts to track withdrawals, and receivable/payable accounts for amounts owed between the partnership and each partner.

Uploaded by

Kenaniah Sanchez
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

FINANCIAL ACCOUNTING

&
REPORTING
(Fundamentals)

ZEUS VERNON B. MILLAN


Chapter 11: Partnership Formation (FAR by:
Millan)
Chapter 11
Partnership Formation
Learning Objectives
1. Differentiate between the accounting for
partnerships, sole proprietorships, and
corporations.
2. State the valuation of contributions of partners.
3. Account for the initial investments of the
partners to the partnership.
4. State the peculiar accounts used in a partnership
and identify the transactions that affect these
accounts.

Chapter 11: Partnership Formation (FAR by:


Millan)
Partnership
• A partnership is an unincorporated association of two or more
individuals to carry on, as co-owners, a business, with the
intention of dividing the profits among themselves.

Chapter 11: Partnership Formation (FAR by:


Millan)
Characteristics of a partnership
1. Ease of formation
2. Separate legal personality
3. Mutual agency
4. Co-ownership of property
5. Co-ownership of profits
6. Limited life
7. Transfer of ownership
8. Unlimited liability (this is applicable to a general partnership)

Chapter 11: Partnership Formation (FAR by:


Millan)
Accounting for partnerships
• The following are the major considerations in the accounting
for the equity of a partnership:
1. Formation – accounting for initial investments to the
partnership
2. Operation – division of profits or losses
3. Dissolution – admission of a new partner and withdrawal,
retirement or death of a partner
4. Liquidation – winding-up of affairs

Chapter 11: Partnership Formation (FAR by:


Millan)
Valuation of contributions of partners

• All assets contributed to (and related liabilities


assumed by) the partnership shall be measured at
fair value.

Chapter 11: Partnership Formation (FAR by:


Millan)
Partners’ ledger accounts

1. Capital accounts
2. Drawing accounts
3. Receivable from/ Payable to a partner

Chapter 11: Partnership Formation (FAR by:


Millan)
Bonus on initial investments

• A bonus exists when the capital account of a partner is


credited for an amount greater than or less than the fair value
of his contributions.
• The bonus is treated as adjustment to the capital accounts of
the other partners.

Chapter 11: Partnership Formation (FAR by:


Millan)
APPLICATION OF
CONCEPTS

PROBLEM 2: FOR CLASSROOM DISCUSSION

Chapter 11: Partnership Formation (FAR by: Millan)


OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

Chapter 11: Partnership Formation (FAR by:


Millan)
END

Chapter 11: Partnership Formation (FAR by:


Millan)

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