ACCTBA2 Partnership & Corporation Acctg

Presented by: Mr. Francis H. Villamin DLSU January 6, 2014

Acctba2
Course Syllabus Course Description Learning Plan Textbook and References Course Requirement Classroom and Department Policies Grading System

1. 2. 3. 4. 5. 6. 7.

Acctba2

acctba2k36k37_3TAY1314@yahoogroups.com

Compilation Folder

Introduction to Partnership as a Business Organization

Partnership is a contract whereby two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession.

Characteristics of a Partnership

Based on contract Partnership is formed through the mutual agreement of all the partners. The contract may be oral or written. Voluntary association No partner should be forced or coerced in joining a partnership. Mutual agency Any partner may act as agent of a partnership in conducting its business. Unlimited liability The personal assets of any partner may be used to satisfy the partnership creditors claims upon liquidation if partnership assets are not enough to settle the liabilities of external creditors.

Characteristics of a Partnership

Limited life A partnership may be dissolved by action of the partners or by operation of law. Mutual participation in profits A partner has the right to share in the partnership profits. Legal entity - A partnership has legal personality separate and distinct from that of each partners. Co-ownership of contributed assets Property contributed to the partnership are owned by the partnership by virtue of its separate legal personality. Income tax Partnerships, except general professional partnerships are subject to income tax.

Advantages of a Partnership
1. 2. 3.

Ease and less cost to form and dissolve. Broader source of capital. Relative freedom and flexibility in decisionmaking. Decisions are effected simply by agreement among the partners without the formalities necessary under the corporation.

Advantages of a Partnership
4.
5.

Broader management base. Unlimited liability of general partners makes it reliable from the point of view of creditors.

Disadvantages of a Partnership
1.

2.

3.
4.

Lack of business continuity because it can easily be dissolved. Limited amount of capital may be raised as compared to a corporation. Unlimited liability of a partnership. A general partner may be subjected to personal liability for erroneous management decisions made by his associates.

Disadvantages of a Partnership
5.

6.

There is likelihood of dissension and disagreement when each of the partners has the same authority in the management of the firm. There is difficulty in transferring ownership interest because ownership interest in the partnership cannot be transferred without the consent of all the partners.

Articles of Co-Partnership

This is an agreement in writing among the partners governing the nature and terms of the partnership contract. A written agreement is required when the partnership capital is P3,000 or more in money or in property.

Articles of Co-Partnership
1. 2.

3. 4.

The name of the partnership. The names, addresses of the partners, classes of partners stating whether the partner is a general or limited partner. The effective date of the contract. The purpose and principal place of business of the business.

Articles of Co-Partnership
5.

6.

7.

8.

The capital of the partnership stating the contribution of each of the partners. The rights and duties of each of the partner. The manner of dividing profit or loss among the partners. The conditions under which the partners may withdraw money or other assets.

Articles of Co-Partnership
9.

10.

The manner of keeping the books of accounts. The cause for dissolution and the provision for arbitration in settling disputes.

Kinds of Partners

As to nature of contribution
1. Capitalist partner one who contributes money, property into the partnership. 2. Industrial partner one who contributes only his industry or services to the partnership.

Kinds of Partners

As to liabilities to third parties

1. General partner one whose liability to partnership creditors extends to his personal assets. 2. Limited partner one whose liability to partnership creditors is limited to his capital contribution.

Kinds of Partners

As to their interest in or obligation to the business

1. Managing partner one who manages the affairs of the business. 2. Secret partner one who is not known by third parties to be a partner in the business but takes active part in the business.

Kinds of Partners

As to their interest in or obligation to the business 3. Silent partner one who does not take active part in the business but is known by third parties to be a partner in the business. 4. Dormant partner one who does not take part in the business and is not known by third parties to be a partner. 5. Nominal partner A partner in name only and does not participate in the management of business.

Kinds of Partners

As to their interest in or obligation to the business 5. Ostensible Partner one who takes active part and known to the public as a partner in the partnership, whether or not he has an actual interest in the firm.

Kinds of Partners

As to their interest in or obligation to the business 6. Liquidating Partner one who takes charge of the winding up of a partnership affairs upon dissolution.

Classifications of Partnership

As to liability to partners 1. General partnership one in which all partners are general partners. 2. Limited partnership one which is composed of one or more general partners and one or more limited partners. It shall bear the word Limited or Ltd. in its firm name.

Classifications of Partnership

As to object of partnership
1. Universal partnership of all present property One in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as the profits which they may acquire therewith.

Classifications of Partnership

As to object of partnership
2. Universal partnership of profits One in which comprises all that the partners may acquire by their industry or work during the existence of the partnership.

Classifications of Partnership

As to object of partnership
3. Particular partnership One which has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation.

Classifications of Partnership

As to duration 1. Partnership at will One in which

no time or period is specified for its existence and is not formed for a particular undertaking or venture. This may be terminated anytime by mutual agreement of the partners or by the will of any one partner alone.

Classifications of Partnership

As to duration 2. Partnership with a fixed term

One in which the term for which the partnership will exist is fixed or agreed upon. This also applies to a partnership that is formed for a particular objective or undertaking.

Classifications of Partnership

As to purpose 1. Commercial or trading partnership one that is organized to

undertake business transactions such as merchandising or manufacturing transactions.

Classifications of Partnership

As to purpose 2. Professional partnership one

that is formed for the practice of a profession, such as accounting firm for CPAs, law firms for lawyers, and similar professions.

Classification of Partnerships
1.

2.

As to legality of existence. De jure partnership one that has complied with the legal requirements pertaining to its formation. De facto partnership one that has not complied with the legal requirements of the partnership.

Classification of Partnerships
1.

2.

As to publicity. Secret partnership one wherein the existence of certain persons as partners is not make known to the public by any of the partners. Open partnership one wherein the existence of certain persons as partners is made known to the public by the members of the firm.

Classification of Partnerships
1.

2.

As to publicity. Secret partnership one wherein the existence of certain persons as partners is not make known to the public by any of the partners. Open partnership one wherein the existence of certain persons as partners is made known to the public by the members of the firm.

Classification of Partnerships
1.

2.

As to representation to others. Ordinary partnership one which actually exists among the partners and also as to third parties. Partnership by estoppel one which in reality is not a partnership but is considered one only in relation to those who, by their conduct or omission are precluded to deny or disprove the partnerships existence.

Basic Rights of a Partner

The right to share in the profits. The right to participate in the management of the business. In the event of liquidation, the right to share in the assets of the business after satisfying the claims of creditors.

Basic Features of Partnership Accounting

1.

2. 3. 4. 5.

More than one capital and drawing accounts. Partners Loans. Partners Borrowings. Interest on Investment. Division of Profits and Losses.

Accounting for Partnership Formation and Operating Transactions 1. Accounting for capital contributions a. Initial investment b. Additional capital contributions c. Drawings by partners 2. Loan to and from partners

Ledger Accounts for Partners

Capital accounts Drawing accounts Accounts for loans to and from partners

Partners Capital Account

Permanent reduction xxx Initial investment xxx

Additional investment xxx

Partners Drawing Account

Share in the loss Regular withdrawals xxx xxx Share in the profits xxx

Partnership Formation
A. No existing business 1. Two or more persons will start a business for the first time and form a partnership. B. With existing business 2. Conversion of a single proprietorship into a partnership.

Partnership Formation
B. With existing business 3. Two or more single proprietors will combine their businesses and form a partnership. 4. An existing partnership will be dissolved in favor of a new partnership.

Thank you. Thats all for today!!