Lecture 1-2.pptx
- 1. Financial Accounting and Reporting 2 Module 1 & 2
- 2. Partnership ╸ a legal relation existing between two or more persons contractually associated as joint principals in a business - Meriam-Webster (n.d.) ╸ a partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits. - Investopedia (2021) 2 In a 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).
- 3. True or False 3 1. A partnership may be established for charity. 2. A partnership must always have at least two owners. 3. A group of 100 individuals cannot form a partnership but a corporation. 4. Supposed A & B are partners. B entered into a personal contract that caused that partnership a loss of P1,000,000. Having 50% sharing agreement, A is liable to shoulder P500,000. 5. Supposed A & B are partners. B entered into a personal contract that caused that partnership a gain of P1,000,000. B can deny A of a share in the said profit. 6. A, a multi-millionaire, is the general partner, while B is an industrial partner. The stipulation in the articles of partnership that A is excluded from profit sharing is void.
- 4. Accounting Rule for Capital Account 4
- 5. Illustration 1 ╸ Assume that A, B, and C organized a partnership, with A investing cash of P50,000, and B investing equipment originally costing P120,000 with accumulated depreciation of P50,000 at the time of partnership formation. C is admitted as an industrial partner with 20% share in partnership profits. 5
- 6. Illustration 2 ╸ On February 1, 2020, Cami Reyes and Jun Cruz agreed to form a partnership. The partnership agreement stipulates that Reyes is to invest cash of P500,000 and building of P1,200,000. Cruz agreed to contribute land with fair market value of P2,000,000 with P250,000 mortgage to be assumed by the partnership. 6
- 7. Illustration 3 7 ╸ Aida Alvarez and Bong Benitez formed a general professional partnership. Alvarez agreed to invest an equal interest in the partnership while Benitez agreed to transfer the assets and liabilities of his business. His books have the following balances: ╸ Cash – P18,000 ╸ Accounts Receivable – 30,000 ╸ Office equipment – 150,000 ╸ Accumulated Depreciation – 60,000 ╸ Accounts Payable – 15,500 ╸ Salaries Payable – 2,500 ╸ Benitez, Capital – 120,000
- 8. Illustration 3 cont. 8 ╸ For purposes of establishing the Alvarez & Benitez partnership, the following adjustments shall be made in the books of Benitez: ╸ An allowance for uncollectible accounts of 5% of accounts receivable ╸ Prepaid expenses amounting to P3,000 needs to be recognized ╸ Additional salaries payable of P1,000 should be established