Professional Documents
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Learning Objectives
Division of Profits
• Specified by the partnership agreement. If there is no
agreement, the Philippine laws on partnership shall govern.
ILLUSTRATION
1. Two Individual Partners
a. Both are capitalist partners
On September 1, of the current year, Rody and Lorie formed a
partnership with cash contributions of P300,000 and P200,000
respectively. In addition to Rody's cash contribution, he also
contributed an office equipment costing P10,000, but with an agreed
valuation of P7,500. Lorie contributed a piece of land costing P100,000,
but with an agreed valuation of P150,000. The land was mortgaged in a
bank for P 50,000, and it was agreed that the partnership will absorb
the mortgage liability in the bank.
CHAPTER 2 SLIDE 12
Lorie’s Contribution
Take note that the mortgage payable is not recorded; therefore, the
capital is P150,000.
CHAPTER 2 SLIDE 16
Aga and Hap agreed to form a partnership with a profit and loss ratio
of 50/50. On May 1, Aga contributed cash − P200,000, office equipment
with a fair market value of P20,000 and a second hand delivery vehicle
bought last year for P50,000 but now with a fair market value of
P30,000. On May 2, Hap contributed cash − P36,000, merchandise
bought 3 months ago for P200,000 but now with a fair market value of
P210,000 and an antique furniture with a cost of P5,000, an
accumulated depreciation of P3,000 and a fair market value of P4,000.
CHAPTER 2 SLIDE 19
In case the problem stated agreed value instead of fair market value,
then the agreed value should be recorded.
In case both the fair market value and agreed value are stated in the
problem, the agreed value will prevail and should be recorded.
CHAPTER 2 SLIDE 21
ILLUSTRATION
On January 2, 2014, Berta Hwa accepted the offer and will invest cash
equivalent to 40% of the capital of Allan after the revaluation of his assets.
Both agreed to revalue the assets of Allan's business as follows:
Revalued at
Accounts Receivable P 40,000
Restaurant Inventory 45,000
Office Equipment 25,000
Land 100,000
Building 120,000
CHAPTER 2 SLIDE 24
Financial Position of Allan's business at the time of the formation of the partnership
with Berta: ALLAN’S RESTAURANT
Statement of Financial Position
January 2, 2014
ASSETS
Current Assets
Cash P14,000
Accounts Receivable P45,000
Less: Allowance for doubtful accounts 1,500 43,500
Restaurant Inventory 60,000
Supplies 5,000
Total Current Assets P122,500
1.To revalue the accounts receivable from the net realizable value of P43,500 to P40,000 or a loss of
P3,500.
Allan, Capital P 3,500
Allowance for doubtful accounts P 3,500
Rule on revaluation of Account Receivable. The adjustments should always be made using the
account "allowance for doubtful account" or “allowance for impairment loss” and the corresponding
capital account.
•If it is a loss, the allowance for doubtful account is credited and capital account is debited.
•If it is a gain, the allowance for doubtful account is debited and capital account is credited.
CHAPTER 2 SLIDE 28
2. To record the loss due to the revaluation of restaurant inventory from P60,000
to P45,000.
3. To record the increase in value of office equipment from book value of P22,000
to P25,000 (gain).
To revalue the office equipment from the book value of P 22,000 to P 25,000 or a
gain of P3,000.
CHAPTER 2 SLIDE 30
Land P 20,000
Allan, Capital P 20,000
5. To record the decrease in value of building from book value of P125,000 down
to P120,000 (loss).
After all adjusting entries are posted compute the balance of Allan, Capital:
Allan, Capital*
Cash P 124,400
Berta, Capital P 124,400
According to their agreement, Berta will invest cash equivalent to 40% of the capital of
Allan, therefore:
To revalue the Account Receivable from net realizable value of P43,500 to P40,000
or a capital loss of P3,500.
CHAPTER 2 SLIDE 37
Land P 20,000
Allan, Capital P 20,000
To record the revaluation of land.
Building P 150,000
Acc. Depreciation ( 25,000)
Cash 14,000
Accounts Receivable 45,000
Restaurant Inventory 45,000
Supplies 5,000
Land 100,000
Building 120,000
Office Equipment 25,000
Allowance for Doubtful Accounts 5,000
Accounts Payable 22,000
Notes Payable 16,000
Allan, Capital 311,000
Initial investment of Allan
CHAPTER 2 SLIDE 46
Rules in recording in the new books of the partnership from the book of
the sole proprietorship
Cash 124,400
Berta, Capital 124,400
Assume that Robo and Kap agreed to combine their businesses and will call their
new partnership as "Robo-Kap Traiding." The partnership will use a new book.
CHAPTER 2 SLIDE 49
Assets
Current Assets
Cash P48,600
Accounts Receivable P 60,000
Allowance for doubtful accounts 3,600 56,400
Merchandise Inventory 64,200
Supplies Inventory 4,800
Total Current Assets P 174,000
In Robo’s Book
After the adjustment in no. 1, the balance of allowance for doubtful account is
credit balance P600 and the Accounts Receivable balance is P 57,000. Four percent
(4%) of Accounts Receivable is P2,280. Therefore:
In Kap’s Book
Requirement Number 1 − Record the capital adjusting entries
1. Allowance for doubtful accounts 300
Kap, Capital 300
To reduce the allowance for doubtful account from P2,700 to P 2,400.
Requirement Number 4 – Record the investments of the partners in the new partnership book.
Cash 48,600
Account Receivable 57,000
Merchandise Inventory 70,800
Supplies Inventory 4,800
Furniture and Fixtures (book value) 22,500
Allowance for doubtful accounts 2,280
Accounts Payable 24,000
Notes Payable 48,000
Robo, Capital 129,420
CHAPTER 2 SLIDE 61
Requirement Number 4 – Record the investments of the partners in the new partnership
book.
Cash 13,400
Account Receivable 24,000
Merchandise Inventory 46,450
Office Equipment (book value) 29,760
Allowance for doubtful account 2,400
Accounts Payable 25,000
Notes Payable 15,000
Kap, Capital 71,210
CHAPTER 2 SLIDE 62
Important Terminologies
Accumulated Depreciation
All fixed assets, except land, that are used in
business are subject to economic wear and
tear. A portion of the cost is charge to an
expense periodically because of reduction in
value and is called depreciation expense. The
cumulative total of depreciation expense
Cost from the time the fixed assets was used in
All acquisitions should be recorded at cost. operation to the current period is called
Cost is the amount in the invoice (net of accumulated depreciation.
discount) plus insurance, freight,
installation cost, and other cost necessary
in bringing the asset in good working
condition for its intended use.
CHAPTER 2 SLIDE 65