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engage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Objectives
1. Describe the characteristics of

2.
3.
4.
5.
6.

proprietorships, partnerships, Firma and CV

Describe and illustrate the accounting for
forming a partnership and for dividing the
net income and net loss of a partnership.
Describe and illustrate the accounting for
partner admission and withdrawal.
Describe and illustrate the accounting for
liquidating a partnership.
Prepare the statement of partnership equity.
Analyze and interpret employee efficiency.

Lear
ning
O bj e
ctive

Desc
r
prop ibe the
char
rieto
a
Firm
r
a an ships, p cteristic
d CV
artn
ersh s of
ips,

engage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

Most Common Legal Forms of Business

o Proprietorship
o Partnership
o Firma
o CV - Limited Partnership
o Corporation
o Cooperative

Proprietorship

o A proprietorship is a company owned by a

single individual.
Lawyers
Architects
CPA
Physicians

Proprietorships

o Characteristics of proprietorships include

the following:

Simple to form
No limitation on legal liability
Not taxable
Limited life
Limited ability to raise capital (funds)

Partnerships

o A partnership is an association of two or

more persons who own and manage a

business for profit.
o According to the Indonesian Civil Code and
Commercial Code, there are 3 types of
partnership:
Civil Partnership - (Persekutuan Perdata)
Firm Partnership - (Persekutuan Firma)
Limited (Sleeping) Partnership (Persekutuan

Komanditer CV)

Partnerships

o Characteristics of a partnership include

the following:

Moderately complex to form

A partnership requires a partnership agreement,
sometimes called the articles of partnership, which
includes matters such as amounts to be invested,
limits on withdrawals, distributions of income and
losses, and admission and withdrawal of partners.

No limitation on legal liability

Limited life
Limited ability to raise capital (funds)

Partnerships

o In addition to the characteristics listed on

the previous slides, some unique aspects
of partnerships are:
Co-ownership of partnership property
Mutual agency
Participation in income

Lear
ning
O bj e
ctive
D

e scr
acco ibe and
u
i
and nting fo llustrate
f or d
r f or
the
m
net
i
v
idin g
i ng a
l o ss
the
pa rt
of a
n
ne r s
et in
p ar t
hi p
ners
co m
hi p
e an
d

engage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

Forming a Partnership

o Jatra Sancaka and Evan Fauzi, owners of

competing hardware stores, agree to

combine their businesses in a partnership.
Sancaka agrees to contribute the
following:

Forming a Partnership
o The entry to record the assets and liabilities
contributed by Stevens is as follows:

o The noncash assets are normally recorded at

current market value.

Dividing IncomeServices of Partners

o The partnership agreement of Janita Salim

and Citra Maya provides for Stone to
receive a monthly salary allowance of Rp.
5,000,000 (Rp. 60,000,000 annually) and
Mills to receive Rp. 4,000,000 a month
(Rp. 48,000,000 annually). If there is any
remaining net income, it is to be divided
equally.
Income and losses of the partnership
Income and losses of the partnership
would
would have
have been
been divided
divided equally
equally if
if no
no
partnership
partnership agreement
agreement existed
existed or
or if
if the
the
partnership
partnership agreement
agreement did
did not
not specify
specify
how
how the
the division
division was
was to
to occur.
occur.

Dividing IncomeServices of Partners

o The firm had net income of Rp.

150,000,000 for the year. The net income

is divided as calculated below.
J. Stone

Annual salary allowance Rp. 60,000

108,000

C. Mills

Total

Rp. 48,000

Rp.

Dividing IncomeServices of Partners and

Investments

o The partnership agreement for Salim and Maya

divides income as follows:
Partner salary allowances: Rp5.000.000
monthly for Salim and Rp4.000.000 monthly
for Maya
Interest of 12% on each partners capital
balance as of January 1
Capital, Janita Salim, January 1 Rp 160.000.000
Capital, Citra Maya, January 1 Rp 120.000.000

Any remaining income divided equally

Dividing IncomeServices of Partners and

Investments

Dividing IncomeAllowances Exceed Net

Income

o Assume the same salary and interest

allowances as in the preceding example,

but that the net income is only
Rp.100.000.000.
o In this case, the total of the allowances
exceeds the net income by Rp. 41.600.000
(Rp. 100.000.000 - Rp141.600.000).

Dividing IncomeAllowances Exceed Net

Income

Lear
ning
O bj e
ctive

Desc
r
acco ibe and
u n ti
illus
n
t
an d
with g for pa rate the
draw
rtne
r ad
al
miss
ion

engage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

Admitting a Partner

o A person may be admitted to a

partnership by either of the following:

Purchasing an interest from one or more of the

existing partners
Contributing assets to the partnership

ADMITTING A
PARTNER

Purchasing an Interest from Existing Partners

o On June 1, Tommy Arya and Nathan Bima

each sell one-fifth of their partnership

equity of Bagus Consulting to Joni Cakra
for Rp. 10,000,000 in cash. On June 1, the
partnership has net assets of Rp.
100,000,000 and both existing partners
have capital balances of Rp. 50,000,000
each.

Purchasing an Interest from Existing Partners

o The only entry required in the partnership

accounts is as follows:

Purchasing an Interest from Existing Partners

o The effect of the transaction on the

partnership accounts is shown in the

following diagram.

Contributing Assets to a Partnership

o Partners Tommy Arya and Nathan Bima

each have capital balances of Rp.

50,000,000. On June 1, Joni Cakra
contributes Rp. 20,000,000 cash to Bagus
Consulting for ownership equity of Rp.
20,000,000.

Contributing Assets to a Partnership

o The entry to record this transaction is as

follows:

Contributing Assets to a Partnership

o The effect of the transaction on the

partnership accounts is shown in the

following diagram.

Revaluation of Assets

o If the partnerships asset accounts do not

reflect approximate current market values

when a new partner is admitted, the
accounts should be adjusted (increased or
decreased) before the new partner is
admitted.

Revaluation of Assets

o Partners Arya and Bima each have capital

balances of Rp. 50,000,000. The balance
in Merchandise Inventory is Rp.
14,000,000, and the current replacement
value is Rp. 17,000,000. The partners
share net income equally.

Revaluation of Assets

o The entry to record this transaction is as

follows:

PARTNER
BONUSES

Partner Bonuses

o On March 1, the partnership of Marsha

Janita and Hani Kemala admits Amir Dimas

as a new partner. The assets of the old
partnership are adjusted to current market
values, and the resulting capital balances
for Janita and Kemala are Rp. 20,000,000
and Rp. 24,000,000 respectively. Janita
and Kemala share profits and losses
equally.

Partner Bonuses

o Janita and Kemala agree to admit Dimas to

the partnership for Rp. 31,000,000. In
return, Dimas will receive a one-third
equity in the partnership and will share
income and losses equally with Janita and
Kemala. Dimas is paying Janita and
Kemala Rp. 6,000,000 bonus to join the
partnership. The computation is on the
next slide.

Partner Bonuses

Partner Bonuses

o The entry to record this transaction is as

follows:

Partner Bonuses

o After adjusting assets to market values, the

capital balance of partner Janita Citra is Rp.

80,000,000 and the capital balance of partner
Sinta Dania is Rp. 40,000000. Eva Carita will
receive a one-fourth interest in the
partnership for a contribution of Rp.
30,000,000 Before admitting Carita, Citra and
Dania shared net income using a 2:1 ratio. In
this case, Citra and Dania are paying Carita a
Rp. 7,500,000 bonus to join the partnership.
The computation is on the next slide.

Partner Bonuses

Partner Bonuses

o The entry to record this transaction is as

follows:

Withdrawal of a Partner

o A partner may retire or withdraw from a

partnership. In such cases, the

withdrawing partners interest is normally
sold to the:
Existing partners or
Partnership

Withdrawal of a Partner

o If the existing partners purchase the

withdrawing partners interest, the

purchase and sale of the partnership
interest is between the partners as
individuals. The only entry is:
To debit the capital account of the partner

withdrawing, and
To credit the capital account of the partner or
partners buying the additional interest.

Withdrawal of a Partner

o If the partnership purchases the

withdrawing partners interest, the assets

and the owners equity of the partnership
are reduced by the purchase price.

Death of a Partner

o When a partner dies, the partnership

accounts should be closed as of the date

of death. The net income for the current
period should then be determined and
divided among the partners capital
accounts.

Lear
ning
O bj e
ctive

Desc
r
acco ibe and
u n ti
illus
n
t
part
ners g for liq rate the
hip
uida
ting
a

engage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

Liquidating Partnerships

o When a partnership goes out of business,

the winding-up process is called the
liquidation of the partnership.

Although liquidation refers to the payment of

liabilities, it includes the entire winding-up

process.
When the partnership goes out of business and
the normal operations are discontinued, the
accounts should be adjusted and closed.

Liquidating Partnerships

The selling of
partnership assets
is called
realization.

Liquidating Partnerships

o In liquidation, cash is distributed to each

partner based on his or her final capital
balance.

Liquidating Partnerships

o Fania, Ghani, and Hanum decide to

liquidate their partnership. On April 9,

after discontinuing business operations
and closing the accounts, the following
trial balance is prepared:

Gain on Realization
o Fania, Ghani, and Hanum share income and losses

in a ratio of 5:3:2 (50%, 30%, 20%).

o All noncash assets are sold in a single transaction
for Rp72,000.000 resulting in a gain of
Rp8.000.000 Partner capital accounts are credited
Rp4.000.000, Rp2.400.000, and Rp1.600.000 to
Fania, Ghani, and Hanum, respectively.
o Creditors are paid Rp9.000.000, and the remaining
cash of Rp74.000.000 is distributed to the
partners.
o A statement of partnership liquidation, which
summarizes the liquidation process, is shown in
Exhibit 5 on the next slide.

GAIN ON
REALIZATION

Gain on Realization
Sale
Sale of
ofAssets
Assets (Step
(Step 1)
1)

Gain on Realization
Division
Division of
of Gain
Gain (Step
(Step 2)
2)

Gain on Realization
Payment
Payment of
of Liabilities
Liabilities (Step
(Step 3)
3)

Gain on Realization
Distribution
Distribution of
of Cash
Cash to
to Partners
Partners (Step
(Step 4)
4)

Loss on Realization

o Fania, Ghani, and Hanum sell all noncash

assets for Rp44.000.000. A loss of

Rp20.000.000 (Rp64.000.000
Rp44.000.000) is realized.
o The loss is distributed to Fania, Ghani, and
Hanum in the income-sharing ratio of
5:3:2.

Loss on Realization

Loss on Realization
Sale
Sale of
ofAssets
Assets (Step
(Step 1)
1)

Liquidating Partnerships
Division
Division of
of Loss
Loss (Step
(Step 2)
2)

Liquidating Partnerships
Payment
Payment of
of Liabilities
Liabilities (Step
(Step 3)
3)

Liquidating Partnerships
Distribution
Distribution of
of Cash
Cash to
to Partners
Partners (Step
(Step 4)
4)

Loss on RealizationCapital
Deficiency

o The share of a loss on realization may be

greater than the balance in a partners
capital account. The resulting debit
balance in the capital account is called a
deficiency.

Loss on RealizationCapital
Deficiency

o Fania Ghani, and Hanum sell all of the

noncash assets for Rp. 10,000,000. A loss

of Rp. 54,000,000 (Rp. 64,000,000 Rp.
10,000,000) is realized. The share of the
loss allocated to Fania, Rp. 27,000,000
(50% of Rp. 54,000,000), exceeds the Rp.
22,000,000 balance in her capital account.
Fania contributes Rp. 5,000,000 to the
partnership.

LOSS ON
REALIZATION
CAPITAL
DEFICIENCY

Loss on RealizationCapital
Deficiency

Sale
Sale of
ofAssets
Assets (Step
(Step 1)
1)

Loss on RealizationCapital
Deficiency

Division
Division of
of Loss
Loss (Step
(Step 2)
2)

Loss on RealizationCapital
Deficiency

Payment
Payment of
of Liabilities
Liabilities (Step
(Step 3)
3)

Loss on RealizationCapital
Deficiency

Receipt
Receipt of
of Deficiency
Deficiency (Step
(Step 4)
4)

Loss on RealizationCapital
Deficiency

Distribution
Distribution of
of Cash
Cash to
to Partners
Partners (Step
(Step 4)
4)

Partner Does Not Pay Deficiency

o If Fania does not pay her deficiency, the

deficiency would be allocated to Ghani

and Hanum based on their income-sharing
ratio of 3:2. The remaining cash would be
distributed to Ghani and Hanum as shown
below:

Partner Does Not Pay Deficiency

o Allocation of deficiency:

Partner Does Not Pay Deficiency

o Distribution of cash to partners:

Lear
ning
O bj e
ctive

Prep
are
the
part
state
ners
me n
hip e
t of
qu i t
y

engage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

Statement of Partnership Equity

o The changes in the partners capital

accounts for a period of time are reported

in a statement of partnership equity.

STATEMENT OF
PARTNERSHIP
EQUITY

Lear
ning
O bj e
ctive

Ana
lyze
an d
effic
inte
ienc
rpre
y
t em
ploy
ee

engage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.

Revenue per Employee

o Revenue per employee is a measure of the

efficiency of the business in generating
revenues.
Revenue per Employee =

Revenue
Number of Employees

Revenue per Employee

2015

2014

Revenues
Rp. 220,000,000Rp.
180,000,000
Number of employees
160
150
Rp. 220,000,000
Revenue per
= Rp.
employee, 2015 =
160
1,375,000
Revenue per
Rp. 180,000,000= Rp.
employee, 2014 =
150
1,200,000

s
p
i
h
ers

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r
a
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f
y
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t
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a
u
i
Acco imited L
L
d
s
an
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i
n
a
p
Com

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e
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engage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.