ST.

VINCENT’S COLLEGE INCORPORATED

Padre Ramon St., Dipolog City
Philippines

COLLEGE OF ACCOUNTING EDUCATION

FAR 11 – Financial Accounting and Reporting

COURSE INFORMATION
Course Number FAR 11 Course Title Financial Accounting and Reporting
Course Code AE Instructor
Course Credit 6 units Email Address Consultation Hours By appointment
School Year 2020-2021 Class Schedule To be arranged Room TBA
COURSE DESCRIPTION
This course provides a reinforcement of basic accounting, within the context of business and business decisions. Students obtain additional knowledge of the principles
and concepts of accounting as well as their application that will enable them to appreciate the production of accounting data. Emphasis is placed on understanding the
reasons underlying basic accounting concepts and providing students with an adequate background on the recording of transactions, their classifications and reporting
function of accounting in a service and trading concerns through the preparation of Statement of Financial Position, Income Statement, Statement of Changes in Equity,
and Cash Flow Statement. Exposure through the use of practice sets, either manual or computerized system (MS Excel, Quickbooks) in recording and reporting
transactions for service or trading firm is a requirement in this course. Toward the end of the course covers transactions, financial statements, and problems peculiar to
the operations of partnerships and corporations as distinguished from sole proprietorships.

COURSE LEARNING OUTCOMES

After completing the course students can:
 substantiate basic accounting concepts and principles within the context of business and business decisions; (CO 1)
 apply accounting concepts and principles in the recording, classifying and summarizing accounting data for financial reporting; (CO 2)
 differentiate accounting concepts and terminologies relative to the nature of basic equity transactions in a sole proprietorship, partnership and corporation; (CO 3)
 record transactions upon formation, operation, dissolution and liquidation of a partnership; (CO 4)
 record transactions relative to accounting for share capital, dividend distribution and treasury shares transactions of a corporation; (CO 5) and
 explicate the difference of the equity section in the Statement of Financial Position as the form of business organization changes (CO 6).
 TEACHING STRATEGIES / DELIVERY MODES
Online (Hybrid Model Blended (Asynchronous Model) Offline (Flex Model)

Online teleconferencing lecture/discussion is There will be no classroom meet-ups. Classroom lecture and discussion meet-ups is
conducted only once a week for MWF Classes and conducted only once a week for MWF Classes and
once a week for TThS classes with two (2) hours per However, web content resources are provided at once a week for TThS classes with two (2) hours per
meeting. regular intervals. meeting.

Self-directed learning and/or home assignments are to Assessment and evaluation will be done at regular Self-directed learning and/or home assignments are to
be spent with allocated two (2) hours per week. intervals depending on the promptness of the be spent with allocated two (2) hours per week.
compliance of students to every assessment given.
The remaining two (2) hours per week is to be devoted The remaining two (2) hours per week is to be devoted
in checking the materials submitted/sent by the in checking the materials submitted/sent by the
students and giving feedbacks, discussions, and students and giving feedbacks, discussions, and
clarifications. clarifications.

GRADING SYSTEM
Blended (Asynchronous
Description Online (Hybrid Model Offline (Flex Model)
Model)

Output Reports (Case Studies, Research Paper, FS/BP) 15.0% 15.0% 15.0%
Quizzes/Assignments 35.0% 35.0% 35.0%
Preliminary Term Major Examination 12.5% 12.5% 12.5%
Midterm Major Examination 12.5% 12.5% 12.5%
Semi-Final Major Examination 12.5% 12.5% 12.5%
Final Term Major Examination 12.5% 12.5% 12.5%
Total 100.0% 100.0% 100.0%

COURSE OUTLINE
Preliminary Term Midterm Semi-Final Term Final Term

Week 1 Weeks 5 & 6 Week 9 Weeks 13 & 14

 Review of the Accounting  Accounting for Partnership  Accounting for Partnership  Accounting for Subsequent
Process Operations Liquidation Share Capital Transactions
 Other Components of
 Week 7 Shareholders’ Equity
Weeks 2 & 3  Accounting for Partnership Week 10  Accounting for Dividends
 Nature of Partnership Business Dissolution  Accounting for Business
 Accounting for Partnership Incorporation Week 15
Formation  Corporate Financial Statements
Midterm Major Examination Week 11
(Week 8)  Accounting for Share Capital Week 16
Preliminary Term Major Examination Transactions  Financial Statement Analysis
(Week 4)

Semi-Final Term Major Examination Final Term Major Examination

(Week 12) (Week 17)

Review of the Accounting Process

Time Duration and Allotment: Week 1; 6 hour

Abstract:
This study focuses on the whole accounting process of a sole proprietorship.

Lesson Objectives:
As a result of completing this learning module, students will be able to:
 describe the nature of the basic accounting principles and concepts; and
 perform the whole accounting process of a single proprietorship business.

Module Guide:

1. Study topic content presented below. (TOPIC CONTENT)

2. Answer the two (2) exercises presented after the topic content below.
TOPIC CONTENT

Accounting (Definition)
- is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic
decisions. (Accounting Standards Council Accounting)
- is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are in part at least of a financial character and
interpreting the results thereof. (American Institute of Certified Public Accountants)
- is the process of identifying, measuring, and communicating economic information to permit informed judgment by users of the information. ( American Accounting
Association)

Basic purpose of accounting

- to provide quantitative financial information about a business that is useful in making economic decisions – through the financial statements.

The Accounting Cycle (Accounting Process)

- refers to a series of repetititve activities of recording, summarizing, and reporting economic transactions from the beginning to the end of the accounting period.

Important activities in Accounting Process

 Identifying (accountable or non-accountable transactions or events);

NOTE: Only accountable events are recognized. An accountable event is one that affects any of the elements of the financial statements (i.e. Assets, Liabilities, Equity, Income,
or Expenses). Non-accountable events are not recognized but disclosed only in the notes, if they have accounting relevance.

 Measuring (in terms of money); and

 Communicating (which involves…)
 recording (journalizing)
 classifying (posting in general ledger)
 summarizing (preparation of financial statements)

Journalizing
Transactions to be reported in the books of accounts should be supported by documents (known as source documents). The economic transactions based on the supporting documents are
chronologically recorded with explanations in the general journal (or special journal).

NOTE: The General Journal is also called the Book of Original Entry because it is in this book where transactions are recorded for the first time.

Posting to the ledger

The recorded transactions in the general journals are summarized or posted to the general ledger of each account.
 NOTE: The General Ledger is also called the Book of Final Entry because it is in this book where transactions that were recorded in the Journal are transferred for final
recording.

Preparation of the trial balance (Unadjusted)

This is merely the copying of what has been footed in the ledger. This report summarizes the debit and credit entries of each account in the General Ledger.

NOTE: This is an optional process. The trial balance is prepared to test the balance of debit and credit totals, but not the accuracy of the accounts in the accounting records.

End of the period adjustments

The purpose of this step is to present correct financial statements by bringing our records or balances of accounts up to date and to properly match revenues against expenses during the
period. This is done by preparing adjusting journal entries.

Types of adjusting entries:

1. Accruals
a. Accrued Income - income already earned but not yet received or collected.

AJE: Accrued income xx

Income xx

b. Accrued Expense – expense already incurred but not yet paid.

AJE: Expense xx
Accrued Expense xx

2. Deferrals
a. Precollected Income (Unearned Income) – income already collected but not yet earned.

Methods of recording precollected income:

i. Income Method – an income account is credited for the receipt of the income.

AJE: Income xx
Unearned Income xx

ii. Liability Method – a liability account is credited for the receipt of the income.
 AJE: Unearned Income xx
Income xx

b. Prepaid Expense – expense already paid but not yet incurred.

Methods of recording prepayment of expense:

i. Expense Method – the original payment is debited to an expense account.

AJE: Prepaid expense xx

Expense xx

ii. Asset Method – the original payment is debited to an asset account.

AJE: Expense xx
Prepaid Expense xx

NOTE: The adjusting journal entry that you will prepare as regards adjustments on deferrals depends on the method of recording the precollection or prepayment.

3. Provision for Depreciation for depreciable assets

AJE: Depreciation expense xx

Accumulated depreciation xx

NOTE: Your textbook introduces the Straight line Method of computing for the Depreciation Expense.

4. Provision for Estimated Uncollectible Accounts (Bad Debts)

AJE: Uncollectible accounts xx

Estimated uncollectible accounts xx

Methods of estimating bad debts:

a. Percentage on Accounts Receivable
b. Percentage on Credit Sales
c. Aging of Accounts Receivable Method
 5. Unused Supplies Inventory Adjustment (same principle as that of prepayment of expenses)
6. Adjustments on Inventories (applicable in merchandising and manufacturing concern)

AJE: Inventory - end xx

Income Summary or cost of sales xx

7. Correcting Entries (for accounting errors, particularly in recording)

Preparation of Working Paper (Worksheet)

A columnar sheet used as a tool or bridge connecting the Trial Balance and Financial Statements. The working paper makes the preparation of financial statements more convenient.

NOTE: The use of a working paper is also an optional process.

Preparation of Financial Statements

Financial statements are the main outputs of the whole accounting process.

NOTE: Although financial statements can be prepared directly from open balances of the general ledger accounts, it is preferable that the accounts in the financial statements
are taken form the working paper because they should only contain adjusted accounts.

Complete set of general purpose financial statements:

 Statement of financial position;
 Statement of profit or loss and other comprehensive income;
 Statement of changes in equity;
 Statement of cash flows;
 Notes with summary of significant accounting policies and other explanatory information

The Closing Entries

At the end of the period, nominal accounts (income and expenses) and drawing accounts are closed to the capital accounts. This is necessary in order not to mix economic transactions of
the current period with the economic transactions of the next period.

Preparation of post-closing trial balance

The post-closing trial balance contains the real accounts with open balances after the adjusting and closing entries are made in the general ledger.

NOTE: The post-closing trial balance is actually a balance sheet in a trial balance form.

The Reversing Entries

Reversing entries are inverted adjusting entries made at the start of the accounting period. These are done before the recording of the regular transactions of the next accounting period.
The purpose of reversing entries is not to correct the adjusting entries but to simplify the recording of recurring transactions of the next accounting period.

NOTE: Reversing entries are made on adjusting entries for accruals, expense method of prepayments, and income methods of precollections.

Normal balances of accounts (the balance ordinarily found in an account; also the side of the account which represents an increase of that account)
 Asset – Debit
 Contra-asset – Credit
 Liability – Credit
 Capital – Credit
 Drawing - Debit
 Income – Credit
 Expense – Debit
(Source: Partnership and Corporation Accounting by Edwin G. Valencia, et al.)
 Activities, Resources, and Assessment
Online (Hybrid Model Blended (Asynchronous Model) Offline (Flex Model)

Resources: Resources: Resources:

Schoology App/Messenger Schoology App/Messenger Textbook: Partnership and Corporation Accounting by
Textbook: Partnership and Corporation Accounting by Textbook: Partnership and Corporation Accounting by Edwin G. Valencia, et al.
Edwin G. Valencia, et al. Edwin G. Valencia, et al.
References and Sources:
References and Sources: References and Sources: 1. Theory Financial Accounting 2018 Edition by
1. Theory Financial Accounting 2018 Edition by 1. Theory Financial Accounting 2018 Edition by Conrado T. Valix and Christian Aris M. Valix
Conrado T. Valix and Christian Aris M. Valix Conrado T. Valix and Christian Aris M. Valix 2. Financial Accounting and Reporting by Rafael
2. Financial Accounting and Reporting by Rafael 2. Financial Accounting and Reporting by Rafael M. Lopez, Jr.
M. Lopez, Jr. M. Lopez, Jr.

Activities:
Activities: Activities: Topic discussion will be during classroom meetups,
Topic discussion will be through GoogleMeet App., Topic discussion will be through GoogleMeet App., and during which the exercises will be supplied with
during which the exercises will be supplied with during which the exercises will be supplied with answers.
answers. answers. Such teleconferencing will be recorded, the
video of which will be made available to you via Assessment:
Assessment: Messenger Group Chat or Gmail address. Topic quiz will be issued to you and will be answered
Topic quiz will be published at Schoology App. at home, which will be immediately due for
Instructions as to the time allocated for answering and Assessment: submission the following day at the box placed at the
deadline for submission of quiz will be announced via Topic quiz will be published at Schoology App. SVCI guard house. Communication as to the receipt
Messenger Group Chat. Instructions as to the time allocated for answering and the said quiz will be through text messaging.
deadline for submission of quiz will be announced via
Messenger Group Chat.
Nature of Partnership Business and Accounting for Partnership Formation
Time Duration and Allotment: Weeks 2 & 3; 12 hours

Abstract:
This study focuses on the concept of partnership, its definition, nature, characteristics and the accounting for its formation.

Lesson Objectives:
As a result of completing this learning module, students will be able to:
 explain the partnership nature, characteristics and classifications;
 differentiate the accounting for partnership from sole proprietorship;
 state the proper valuation of partners’ initial investments to the partnership; and
 prepare the necessary journal entries in accounting for a partnership formation.

Module Guide:

1. Study topic content presented below. (TOPIC CONTENT)

2. Answer the two (2) exercises presented after the topic content below.

1. Mutual Agency. Every partner is an agent of the partnership, and entitled to

TOPIC CONTENT bind

Partnership - a contract whereby two or more persons bind themselves to the other partners by his acts, for the purpose of its business (NCC, Art. 1818).
contribute money, property, or industry to a common fund, with the intention of He may also be liable for the entire partnership obligations;
dividing the profits among themselves (NCC, Art. 1767). 2. Limited Life. A partnership contract may be dissolved by:
a. admission of a new partner;
NOTE: Two or more persons may also form a partnership for the exercise of b. death of a partner;
a profession (NCC, Art. 1767). c. insolvency of the partnership or of a partner;
d. incapacity of a partner;
NOTE: The law requires that the contract of partnership be reduced in public e. withdrawal of a partner; or
instrument when (a) an immovable property or real rights are contributed f. expiration of the term specified in the partnership contract
thereto (NCC, Art 1771), and (b) the partnership capital is P3,000 or more 3. Unlimited Liability. All partners are personally liable for the debts of the
(NCC, Art. 1772). partnership with their separate property (NCC, Arts. 1816, 1822-24) except
limited partners are not bound beyond the amount of their investment (NCC,
Characteristics of a partnership
 Art. 1843).
4. Co-ownership. All assets contributed into the partnership are owned by the 3. As to Purpose
partnership. If one partner contributes an asset to the business, all partners a. Commercial– One formed for the transaction of business.
jointly own it in a special sense. b. General Professional partnership – One formed for the exercise of a
profession.
5. Plurality of Capital and Drawing Accounts. Accounting for partnerships is
much like accounting for sole proprietorships. The difference lies in the 4. As to Nature of Business
number of partners’ equity accounts. Each partner has a capital account and a c. Trading – engaged in buying and selling of merchandise or the
withdrawal account that serves similar function as the related accounts for sole manufacturing of goods as its primary operational activity.
proprietorships. d. Non-trading – engaged in the rendering of services for a fee.
6. Profit and Loss Distribution. The partners share in profits and losses (NCC,
Arts. 1767, 1797-98) Classification of Partners
7. Ease of formation. As compared to corporations, the formation of a 1. As to Contribution
partnership requires less formality. a. Capitalist partner – contributes money, property, or both.
b. Industrial partner – contributes only his personal services.
Kinds of Partnership c. Capitalist-Industrial partner – contributes not only money, property, or
1. As to Liability of partners both, but personal services as well.
a. General partnership – One where all partners are general partners who
are liable even with respect to their individual properties, after the assets 2. As to Liability
of the partnership have been exhausted (Paras, 1969). a. General partner – one who is liable for partnership debts up to the extent
b. Limited partnership – One formed by two or more persons having as of his personal assets.
members one or more general partners and one or more limited partners, b. Limited partner – is one who is liable for partnership debts up to the
the latter not being personally liable for the obligations of the partnership extent of his interest in the partnership only.
(NCC, Art. 1843).
3. As to Participation
2. As to Duration a. Managing partner – appointed to run the business of the partnership; his
a. Partnership at will – Partnership for a particular undertaking or venture appointment may either be in the Articles of Co-Partnership or may
which may be terminated anytime by mutual agreement; one for a fixed come after the formation of the partnership
term or particular undertaking which is continued by the partners after b. Silent partner – known as partner but does not take active participation
the termination of such term or particular undertaking without express in running the affairs of the partnership
agreement. c. Liquidating partner – appointed to liquidate partnership assets and settle
unfinished transactions of the partnership after dissolution
NOTE: The presence of a period, duration or statement of a particular
purpose for its creation may not prevent the dissolution of any partnership by 4. As to Third Persons
an act or will of a partner. a. Secret partner – not known as partner but takes active part in running the
partnership business
b. Partnership with a fixed period – The term for which the partnership is b. Dormant partner – not known as partner and inactive in the partnership
to exist is fixed or agreed upon or one formed for a particular c. Nominal partner or Ostensible partner – a partner in name only by
undertaking. permitting the use of his name either for accommodation or for
 consideration; subject to liability by the doctrine of estoppel As to agency
Simple agency. The owner may bind the Mutual agency. Any partner may act to
business and himself in any contract in represent the business in any contract
the name of the business. within the normal business activities
As to owner’s legal liability
Unlimited to the sole proprietor. The Unlimited to the general partner. The
Advantages and Disadvantages of a partnership owner is legally liable for all business general partners are legally liable for all
debts. business debts.
Advantages over Sole proprietorships As to taxation
1. Brings greater financial capability to the business The owner is taxed for the amount of Depends on the kinds of partnership.
2. Combines special skills, expertise and experience of the partners income earned by the business. The General professional partnerships are tax
3. Offers relative freedom and flexibility of action in decision-making business does not pay any income tax. exempt. Business co-partnerships are
subject to corporate tax.
Advantages over Corporations A professional partnership shall be taxed
1. Easier and less expensive to organize as a corporation if it engaged into
2. More personal and informal commercial activities.
As to life expectancy
Disadvantages Limited within the desire or death of the Limited within the desire of the partners,
1. Easily dissolved and thus unstable compared to a corporation owner. or by the death, acceptance, withdrawal
2. Mutual agency and unlimited liability may create personal obligations to or incapacity of any of the partners
partners
3. Less effective than a corporation in raising large amounts of capital Partnership Formation
A contract of partnership is consensual. It is created by the agreement of the partners
Comparison of Sole Proprietorships and Partnerships which may be constituted in any form, such as oral or written. A partnership’s legal
existence begins from the moment the contract is executed, unless otherwise stipulated.
Sole Proprietorship Partnership
As to formation Valuation of contributions of partners:
Very easy to form because only one Easy to form because a mere oral Capital contributions of partners to the partnership are initially measured at fair value.
owner decides when to engage in agreement between partners organizes a
business. partnership. To be DEBITED:
As to capital and withdrawal accounts 1. Cash is contributed – measured @ Face Value;
Only one capital account and one Several capital accounts and drawing 2. Noncash asset is contributed – measured in the following order:
drawing account. The capital account accounts are used depending on the 1. Value agreed upon by the partners;
and the drawing account of the number of the partners. 2. Fair value;
proprietor. 3. Carrying amount
As to capitalization
Limited by the amount of assets that a Depends on the agreed investment to be To be CREDITED:
sole owner could invest. contributed by the partners. More than 1. Any Liability to be assumed by the partnership;
one source of capitalization. 2. Partner’s capital account (net contribution – i.e., contribution less any liability
 assumed by the partnership) adjustment shall be made through its contra-asset account. If the asset doesn’t
have any contra-asset account, then the adjustment shall be made to it
NOTE: The partner’s capital account is simply the balancing figure of your directly.
journal entry.
3. Close the books of the sole proprietorship.
QUERY: How about if a partner contributes his industry? How will your 4. Open the new set of partnership books by recording the partners’
contributions.
account his contribution? Such contribution shall be recorded in
MEMORANDUM ENTRY FORM.

Amount of contribution Actual investment method

The amount of contribution shall be based on the partners’ agreement. In the absence When the agreed partners’ capital shares are credited with the same value as their
of any agreement, it shall be contributed equally. actual net contributed tangible assets, the approach of initial investment used is called
“Actual Investment Method.”
Partnership Formations Scenarios:
1. Individuals with No Existing Businesses Form a Partnership Bonus Method
2. There is an existing business: When the actual contribution of individual partner is not the same as the agreed capital
a. A Sole Proprietor and Another Individual Form a Partnership credit to him as recorded in the partnership books, the partners’ capital accounts shall
b. Two or More Sole Proprietors Form a Partnership be adjusted in the books of the partnership upon formation by using the “bonus
3. Admission or retirement of a partner (to be discussed in Accounting for method.”
Partners hip Dissolution)

Individuals with no existing businesses form a partnership Is any of the Partner’s Agreed
This is very easy to account. You’ll just have to make an opening entry in the Capital Credit GREATER THAN
partnership books to recognize the contributions of each partner by simply debiting the his Actual Contribution?
assets contributed, and crediting the liabilities assumed and the capital account of
each partner.

There is an existing business YES NO No Bonus

When one of the partners or all of the prospective partners are sole proprietors who
have agreed to form a partnership, their respective sole proprietorship books are closed
and a new set of books will be opened by the partnership. There is Bonus.
The bonus is equal to the INCREASE of his
Procedures: actual capital contribution.
1. Close the nominal accounts of the sole proprietorship business.
2. Record the adjustments (based on the agreed valuation or fair value) of the
assets and liabilities directly to the sole proprietor’s capital account. Example: A, B, and C formed a partnership. Contributions of the partners are as
follow:
NOTE: If an asset that is to be adjusted has a contra-asset account, the
A – Cash, P200,000 C, Capital 190,000
B – Inventory costing, P150,000. The partners agreed that the inventory will be valued Loan Payable 5,000
at P180,000.
C – Land which was acquired 3 years ago, P100,000. The current market value of the 4. A, Capital 86,000
property is P150,000. The partners agreed that the land is to be valued at P195,000. C, Capital 19,000
The land has an outstanding loan amounting to P5,000 to be assumed by the B, Capital 105,000
partnership.
-----------------------------------------------------------------------------------------------------
The partners also agreed to have capital credits in the ratio of 2:5:3, respectively. -

Required: Record the above contributions. (TOTAL CAPITAL, P570,000) Solution: Cap. Credit (Agreed)
A – 2/10 or 20% x P570,000 = P114,000
B – 5/10 or 50% x P570,000 = P285,000
1. Cash 200,000 C – 3/10 or 30% x P570,000 = P171,000
A, Capital 200,000

2. Inventory 180,000
B, Capital 180,000

3. Land 160,000

Activities, Resources, and Assessment

Online (Hybrid Model Blended (Asynchronous Model) Offline (Flex Model)

Resources: Resources: Resources:

Schoology App/Messenger Schoology App/Messenger Textbook: Partnership and Corporation Accounting by
Textbook: Partnership and Corporation Accounting by Textbook: Partnership and Corporation Accounting by Edwin G. Valencia, et al.
Edwin G. Valencia, et al. Edwin G. Valencia, et al.
References and Sources:
References and Sources: References and Sources: 1. Partnership and Corporation Accounting by
1. Partnership and Corporation Accounting by 1. Partnership and Corporation Accounting by Win Ballada;
Win Ballada; Win Ballada; 2. 2017 Golden Notes Faculty of Civil Law
2. 2017 Golden Notes Faculty of Civil Law 2. 2017 Golden Notes Faculty of Civil Law University of Santo Tomas Manila;
University of Santo Tomas Manila; University of Santo Tomas Manila; 3. Financial Accounting & Reporting
nd
3. Financial Accounting & Reporting 3. Financial Accounting & Reporting (Fundamentals) 2 Edition by Zeus Vernon B.
(Fundamentals) 2nd Edition by Zeus Vernon B. (Fundamentals) 2nd Edition by Zeus Vernon B. Millan
Millan Millan 4. Financial Accounting and Reporting by Rafael
4. Financial Accounting and Reporting by Rafael 4. Financial Accounting and Reporting by Rafael M. Lopez, Jr.
 M. Lopez, Jr. M. Lopez, Jr.

Activities:
Activities: Activities: Topic discussion will be during classroom meetups,
Topic discussion will be through GoogleMeet App., Topic discussion will be through GoogleMeet App., and during which the exercises will be supplied with
during which the exercises will be supplied with during which the exercises will be supplied with answers.
answers. answers. Such teleconferencing will be recorded, the
video of which will be made available to you via Assessment:
Assessment: Messenger Group Chat or Gmail address. Topic quiz will be issued to you and will be answered
Topic quiz will be published at Schoology App. at home, which will be immediately due for
Instructions as to the time allocated for answering and Assessment: submission the following day at the box placed at the
deadline for submission of quiz will be announced via Topic quiz will be published at Schoology App. SVCI guard house. Communication as to the receipt
Messenger Group Chat. Instructions as to the time allocated for answering and the said quiz will be through text messaging.
deadline for submission of quiz will be announced via
Messenger Group Chat.

Preliminary Term Major Examination

Time Duration and Allotment: Week 4

Activities, Resources, and Assessment

Online (Hybrid Model Blended (Asynchronous Model) Offline (Flex Model)

Resources: Resources: Assessment:

Schoology App Schoology App Preliminary Term Major Examination will be issued to
you and will be answered at home, which will be
Assessment: immediately due for submission the following day at
Assessment: Preliminary Term Major Examination will be the box placed at the SVCI guard house.
Preliminary Term Major Examination will be published at Schoology App. Instructions as to the Communication as to the receipt the said quiz will be
published at Schoology App. Instructions as to the time allocated for answering and deadline for through text messaging.
time allocated for answering and deadline for submission of assessment will be announced via
submission of assessment will be announced via Messenger Group Chat.
Messenger Group Chat.
Accounting for Partnership Operations
Time Duration and Allotment: Weeks 5 & 6; 12 hours

Abstract:
This study focuses how to divide partnership’s profits or losses among partners and the preparation of financial statements of a partnership.

Lesson Objectives:
As a result of completing this learning module, students will be able to:
 state the items that affect the division of partnership profits or losses among partners;
 compute the share of each partner in the partnership profit or loss and prepare a distribution schedule; and
 prepare the financial statements of a partnership.

Module Guide:

1. Study topic content presented below. (TOPIC CONTENT)

2. Answer the two (2) exercises presented after the topic content below.

your textbook.
TOPIC CONTENT
Sharing Partnership Profits and Losses

How shall an entity account the partnership’s profit or loss? NOTE: The losses and profits shall be distributed in conformity with the
The income statement accounts of the partnership shall be closed to the Income and
Expense Summary account. If thereafter, the Income and Expense Summary account agreement. If only the share of each partner in the profits has been agreed
has a credit balance, there is profit which is equivalent to the said amount. If it has a upon, the share of each in the losses shall be in the same proportion.
debit balance, then the amount is considered a net loss. The balance of the Income
Summary account, whether debit (loss) or credit (profit) shall then be closed to the In the absence of stipulation, the share of each partner in the profits and
respective partners’ capital account. losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
NOTE: The net income or loss can also be closed first to the partners’ industrial partner shall receive such share as may be just and equitable under
drawing accounts and then the partner’s drawing accounts are subsequently the circumstances. If, besides his services he has contributed capital, he shall
closed to the partners’ capital accounts. This procedure is the one followed by also receive a share in the profits in proportion to his capital. (NCC, Art.
 1787) capitalist-industrial partner is entitled to a profit ratio, he then becomes liable
for the losses of the partnership in the same proportion as his profit sharing
Rules on Profit Sharing based on the above provision of the law (in the order of ratio.
applicability):
1. Based on agreement (profit ratio), if there is any; Methods of dividing profits or losses (based on agreement)
2. Based on capital contributions (capital ratio). 1. Equally
2. Specified ratio or percentage
NOTE: If there is an industrial partner, he first gets a just and equitable 3. Capital ratio (which could be):
share (usually agreed upon by the partners upon formation of the partnership) a. Based on Original Capital;
for his services (industry), before the capitalist partners divide the balance of b. Based on Beginning Capital Balance;
the profits c. Based on Ending Capital Balance; or

in proportion to their capital contributions. NOTE: Drawing accounts are not included in the computation of the ending
capital balances because they only reflect temporary reduction of the capital
QUERY: What if the just and equitable share of the industrial partner was balances representing advances to partners in anticipation of partnership
not agreed upon by the partners at the time of formation of the partnership? profit.
What will his share be? In such case, he shall receive a share equal to the
share of a capitalist partner having the smallest share. d. Based on Average Capital Balance (which could be):
i. Simple average (Beg. Cap. + Ending Cap. ÷ 2); or
NOTE: If there is a Capitalist-industrial partner, he gets just and equitable ii. Weighted average (which could be computed either of the 2
share as an industrial partner and another share as a capitalist partner methods mentioned in your textbook).
according to his capital contribution.
NOTE: The average capital method is the best alternative compared to
Rules on Losses sharing based on the above provision of the law (in the order of beginning and ending capital methods because it provides the most equitable
applicability): basis for allocating partnership income.
1. Based on agreement (loss ratio), if there is any;
2. Based on agreement (profit ratio), if there is any; 4. Interest allowed on partners’ capitals, the remainder to be divided in an agreed
3. Based on capital contributions (capital ratio). ratio

Loss Sharing of an Industrial Partner (Rules): NOTE: The interest on capital balances, as a general rule, shall be part of
1. Industrial partner is exempt from sharing in the losses (GENERAL RULE); profit and loss distribution and not treated as interest expense. However,
2. If there is an agreement (loss ratio) to the contrary (EXCEPTION). interest charges on loans made by the partner in favor of the partnership shall
be treated as interest expense on the income statement, and not a profit and
NOTE: If there is a profit sharing ratio and there is no loss ratio, the loss sharing device. Likewise, the interest on the money borrowed by the
industrial partner is not bound to share in the partnership losses because he partner form the partnership shall be treated as part of the business revenue
did not give his consent to have his share in the partnership losses. because such transactions create a “debtor-creditor relationship” between
the partner and the firm.
NOTE: However, with respect to an capitalist-industrial partner, if there is
no loss sharing agreement but there is a profit sharing agreement in which the 5. Salaries or bonus allowed for partners’ services, the remainder to be dividend
in an agreed ratio deficiency produced as a result of the giving of the salaries and/or interests
shall be allocated among the partners based on their profit and loss sharing
Salaries. To recognize personal contribution by the partner to the business, ratio.
they may agree to receive salary, and divide the remaining profit among
themselves by the agreed specified ratio. 6. Multiple bases of allocation.

NOTE: Except when stated otherwise, salary allowances are part of the net Profit or Loss Distribution Schedule – this is a schedule showing a computation how
income/loss allocations to the partners. the partners will divide the profit or loss among themselves.

Bonus. A partnership agreement may provide that a managing partner be

allowed a bonus on the earnings of the business to encourage profit
maximization.

NOTE: If there is a net loss, then forget the bonus. No need to compute for
the bonus for the reason that bonus shall be based only on earnings (profit)
with the purpose of encouraging profits – not losses. This treatment is Partner’s Capital account (a T-Account)
different from that of interests on capital and salaries in which, even if there
was a net loss, the partners’ salaries and interests on capital shall still be Partner’s Capital Account
given to the partners. DEBIT (Decreases) CREDIT (Increases)
1. Permanent withdrawals of capital 1. Original investment
NOTE: The bonus may be based on the following net income: (usually in excess of a specific 2. Additional investment
a. Net income before deducting salaries, interest (if any) and bonus; amount) 3. Closing of the net credit balance of
2. Closing of the net debit balance of the drawing account
FORMULA: Bonus = Bonus% x Net Income the drawing account

b. Net income after deducting salaries and interest (if any) but before
bonus; or Partner’s Drawing account (a T-Account)

FORMULA: Bonus = Bonus% x (Net Income – Salaries – Interest) Partner’s Drawing account
DEBIT CREDIT
c. Net income after deducting salaries, interest (if any) and bonus. 1. Share in Loss 1. Share in Profit
2. Temporary withdrawals 2. Partnership debts assumed or paid
FORMULA: Bonus = Bonus% x (Net Income - Salaries – Bonus) 3. Withdrawals of share in Profit by the partner
4. Partner’s personal debts paid or 3. Personal funds or claims of partner
NOTE: If the base of the bonus turns to be negative, no bonus shall be assumed by the partnership collected and retained by the
provided. This treatment is different from that of interests on capital and 5. Funds or claims of partnership partnership
salaries, in which the latter are still provided even if there is insufficiency of collected and retained by the partner
the partnership’s net income to cover them. In such a case, the earnings
 Activities, Resources, and Assessment
Online (Hybrid Model Blended (Asynchronous Model) Offline (Flex Model)

Resources: Resources: Resources:

Schoology App/Messenger Schoology App/Messenger Textbook: Partnership and Corporation Accounting by
Textbook: Partnership and Corporation Accounting by Textbook: Partnership and Corporation Accounting by Edwin G. Valencia, et al.
Edwin G. Valencia, et al. Edwin G. Valencia, et al.
References and Sources:
References and Sources: References and Sources: 1. Financial Accounting and Reporting by Rafael
1. Financial Accounting and Reporting by Rafael 1. Financial Accounting and Reporting by Rafael M. Lopez, Jr.
M. Lopez, Jr. M. Lopez, Jr.

Activities:
Activities: Activities: Topic discussion will be during classroom meetups,
Topic discussion will be through GoogleMeet App., Topic discussion will be through GoogleMeet App., and during which the exercises will be supplied with
during which the exercises will be supplied with during which the exercises will be supplied with answers.
answers. answers. Such teleconferencing will be recorded, the
video of which will be made available to you via Assessment:
Assessment: Messenger Group Chat or Gmail address. Topic quiz will be issued to you and will be answered
Topic quiz will be published at Schoology App. at home, which will be immediately due for
Instructions as to the time allocated for answering and Assessment: submission the following day at the box placed at the
deadline for submission of quiz will be announced via Topic quiz will be published at Schoology App. SVCI guard house. Communication as to the receipt
Messenger Group Chat. Instructions as to the time allocated for answering and the said quiz will be through text messaging.
deadline for submission of quiz will be announced via
Messenger Group Chat.

Accounting for Partnership Dissolution

Time Duration and Allotment: Week 7; 6 hours
Abstract:
This study focuses on the summary of the accounting standards enumerated above.

Lesson Objectives:
As a result of completing this learning module, students will be able to:
 identify the circumstances which will result to dissolution of a partnership;
 distinguish between admission of a partner by purchase of interest and admission of a partner by investment;
 record and account appropriately the interest of the incoming and/or outgoing partner/s; and
 prepare the necessary adjustments to be made when a partner withdraws or retires from a partnership

Module Guide:

1. Study topic content presented below. (TOPIC CONTENT)

2. Answer the two (2) exercises presented after the topic content below.

 Death, incapacity or insolvency of a partner; and

TOPIC CONTENT  Incorporation of a partnership.

What is meant by partnership dissolution? ADMISSION OF A PARTNER

Dissolution is the change in the relation of the partners caused by any partner ceasing
to be associated in the carrying on as distinguished from the winding up of the What are the two ways of admitting a new partner into the partnership?
business. The admission of a new partner may be done either by:
1. Purchase of interest in the partnership; or
NOTE: Dissolution is different from liquidation. Liquidation is the 2. Investment in the partnership.
termination of the business, while dissolution is only the termination of the
contract of partnership. Dissolution does not necessarily terminate the NOTE: It should be noted that in admitting a new partner to the business, the
business. There can be dissolution without liquidation, but there can never be consent of all the existing partners is necessary.
a liquidation of the business without the dissolution of the contract.

What are some instances that may cause the dissolution of a partnership?
The following are some instances which may cause the dissolution of a partnership: What is the nature admission of a partner by purchase?
 Admission of a partner;
In an admission of a partner by purchase, the transaction is only a personal one
 Withdrawal/retirement of a partner; between and among the partners. Hence, any resulting gain or loss from the transaction
shall not be recognized by the partnership. Any consideration paid or received by the 1. When total agreed capital cannot be determined, the assumption is that the
parties to the transaction is not recorded in the partnership books. The only entry that total agreed capital is equal to the total contributed capital of the partners.
the partnership will make is the transfer of interest (at BOOK VALUE) from the 2. The partner’s capital credit is assumed be equal to that of his contribution in
selling partner to the buying (new) partner. case if his capital credit (agreed capital) is cannot be determined.
3. To determine whether the bonus, if there is any, is attributable to the new
NOTE: When a new partner is admitted to the partnership by purchase, the partner or to the existing partners, simply compare the new partner’s capital
total capital of the partnership does not change. The only thing that has credit (agreed capital) against his contribution (contributed capital) under the
changed is the capital structure of the partnership but not the capital in its following rules:
totality.  If the new partner’s capital credit (agreed capital) is greater than his
contribution (contributed capital), then the bonus is given to the new
The pro forma entry will be: partner;
 If the new partner’s capital credit (agreed capital) is less than his
Debit: Selling partner’s capital account (at book value); and contribution (contributed capital), the bonus is to be given to the
Credit: Buying/incoming partner’s capital account. existing partners;
 If the capital credit of the new partner is equal to his contribution,
NOTE: When a partnership is dissolved and the partners decide to continue neither the new nor the existing partners shall have the bonus for there
the business, as in the case of admission of a new partner, a new partnership is no bonus at all to speak of.
is created. Hence, we apply the rules in accounting for partnership formation
– i.e., the assets and liabilities are carried over to the new partnership are In summary:
restated to their fair values which shall be allocated or adjusted first to the
exiting partners’ capital accounts before recording the admission of the new Admission by purchase of interest Admission by investment
partner. The transaction is between the selling The transaction is between the
partner and the buying (incoming) partnership and the incoming partner.
What is the nature of an admission of a new partner by investment? partners only.
In an admission of a new partner by investment, the transaction is between the new The amount paid by the incoming The incoming partner’s contribution is
partner and the partnership. As a result, there will be an increase in the total assets of partner is not recorded by the recorded in the partnership books.
the partnership, as well as an increase in the partnership capital. It is to note that an partnership. The partnership only
admission by investment is not a personal transaction between the existing partners records the transfer of capital from the
and the incoming partner. Since it is not a personal transaction, any consideration paid selling partner to the incoming (buying)
by the incoming partner is recorded in the partnership books. Also, no gain or loss is partner.
recognized since the transaction is with an owner (the new partner). Total partnership capital remains the Total partnership capital will increase
same before and after the admission. after the admission, as well as the
NOTE: If the new partner’s capital account is credited at an amount greater partnership’s assets.
than or less than the fair value of his investment, there exists a bonus which No gain or loss is recognized by the partnership in recording the admission.
could either be given to the new partner or to the existing partners to be
divided by them based on their profit or loss ratio.

What are the guiding principles to be observed in accounting for admission of a

new partner by investment? WITHDRAWAL OR RETIREMENT OF A PARTNER
What are the choices of a partner who decides to withdraw/retire from the
partnership as regards his capital interest?
When a partner withdraws or retires from the partnership, his interest may be
purchased by:
1. The other partners; In summary:
2. The partnership; or
3. A third person (in which case, the rules of Admission of a partner by purchase Purchase by remaining partners Purchase by partnership
shall be observed). The payment to the outgoing partner is The payment to the outgoing partner is
not recorded in the partnership books. recorded in the partnership books.
What are the accounting considerations as regards the withdrawal/retirement of Partnership capital remains the same Partnership capital is decreased, as well
a partner? before and after the withdrawal or as the partnership assets by the payment
Before recording the withdrawal of a partner through any of the instances given above, retirement of the outgoing partner. for the outgoing partner’s capital
the interest of such partner must be adjusted for the following: balance.
a. his share of the profit or loss for the period up to the date of his withdrawal or No gain or loss is recognized in the partnership books.
retirement; and
b. his share of any revaluation gains or losses as at the date of his withdrawal or
retirement. DEATH, INCAPACITY OR INSOLVENCY OF A PARTNER (Same accounting
treatment as that of withdrawal or retirement of a partner with respect to the
If the withdrawing partner sells his interest to the other partners, such transaction is adjustments before the withdrawal or retirement – i.e., adjustment as to his share in
personal in nature. As such, the settlement amount is not recorded in the partnership the profit or loss up to the date of death, incapacity, or insolvency; and adjustment to
books. The only entry that the partnership will record is the transfer of capital interest his share in revaluation gains or losses).
from the withdrawing (selling) partner to the other (buying) partner/s after the
adjustments stated above before the withdrawal or retirement.
INCORPORATION OF A PARTNERSHIP (This shall be discussed in Accounting
If the withdrawing partner’s interest is sold to the partnership, such transaction is for Business Incorporation topic).
between such partner and the partnership. As such, the settlement amount shall be
recorded the partnership books after the adjustments mentioned above. Also, there will
be a decrease in the partnership capital together with a decrease in the partnership
assets. In the settlement of the withdrawing partner’s interest, bonus may be
recognized – i.e. when the settlement amount is greater or less than the book value of
the withdrawing partner’s capital interest.

Activities, Resources, and Assessment

Online (Hybrid Model Blended (Asynchronous Model) Offline (Flex Model)

Resources: Resources: Resources:

 Schoology App/Messenger Schoology App/Messenger Textbook: Partnership and Corporation Accounting by
Textbook: Partnership and Corporation Accounting by Textbook: Partnership and Corporation Accounting by Edwin G. Valencia, et al.
Edwin G. Valencia, et al. Edwin G. Valencia, et al.
References and Sources:
References and Sources: References and Sources: 1. Financial Accounting and Reporting by Rafael
1. Financial Accounting and Reporting by Rafael 1. Financial Accounting and Reporting by Rafael M. Lopez, Jr.
M. Lopez, Jr.; M. Lopez, Jr. 2. Financial Accounting & Reporting
2. Financial Accounting & Reporting 2. Financial Accounting & Reporting (fundamentals) by Zeus Vernon B. Millan.
(fundamentals) by Zeus Vernon B. Millan. (fundamentals) by Zeus Vernon B. Millan.

Activities:
Activities: Activities: Topic discussion will be during classroom meetups,
Topic discussion will be through GoogleMeet App., Topic discussion will be through GoogleMeet App., and during which the exercises will be supplied with
during which the exercises will be supplied with during which the exercises will be supplied with answers.
answers. answers. Such teleconferencing will be recorded, the
video of which will be made available to you via Assessment:
Assessment: Messenger Group Chat or Gmail address. Topic quiz will be issued to you and will be answered
Topic quiz will be published at Schoology App. at home, which will be immediately due for
Instructions as to the time allocated for answering and Assessment: submission the following day at the box placed at the
deadline for submission of quiz will be announced via Topic quiz will be published at Schoology App. SVCI guard house. Communication as to the receipt
Messenger Group Chat. Instructions as to the time allocated for answering and the said quiz will be through text messaging.
deadline for submission of quiz will be announced via
Messenger Group Chat.

Midterm Major Examination

Time Duration and Allotment: Week 8

Activities, Resources, and Assessment

Online (Hybrid Model Blended (Asynchronous Model) Offline (Flex Model)
 Resources: Resources: Assessment:
Schoology App Schoology App Midterm Major Examination will be issued to you and
will be answered at home, which will be immediately
Assessment: Assessment: due for submission the following day at the box placed
Midterm Major Examination will be published at Midterm Major Examination will be published at at the SVCI guard house. Communication as to the
Schoology App. Instructions as to the time allocated Schoology App. Instructions as to the time allocated receipt the said quiz will be through text messaging.
for answering and deadline for submission of for answering and deadline for submission of
assessment will be announced via Messenger Group assessment will be announced via Messenger Group
Chat. Chat.

Accounting for Partnership Liquidation

Time Duration and Allotment: Week 9; 6 hours

Abstract:
This study focuses on the accounting considerations for partnership liquidation.

Lesson Objectives:
As a result of completing this learning module, students will be able to:
 distinguish dissolution with changes in ownership structure from liquidation; and
 Properly account the liquidation of a partnership.

Module Guide:

1. Study topic content presented below. (TOPIC CONTENT)

2. Answer the exercise presented after the topic content below.

which:
TOPIC CONTENT 1. Assets are converted into cash (Realization);
2. Liabilities are settled; and
3. Any remaining amount is distributed to the owners.
What is Liquidation?
NOTE: Dissolution is different from Liquidation. The former pertains to the
Liquidation is the termination or the winding up of business affairs. It is a process by termination of the partnership contract, while the latter pertains to the
 termination of the business itself. Dissolution precedes liquidation; not the It is the excess of book value of non-cash assets over its selling price or proceeds.
other way around. There can be a dissolution of partnership contract without
liquidation, but there can be no liquidation without a dissolution of the NOTE: The gain or loss on realization shall be closed to the partners’ capital
partnership contract. accounts based on their P/L ratios.

What is meant by Capital Deficiency?

What are the two methods of liquidating a partnership?
It is the excess of a partner’s share of the realization loss over his capital credit.
1. Lump-sum liquidation – all of the non-cash assets of the partnership are sold
simultaneously or within a very short period of time. The proceeds of such sale What is meant by Right of Offset?
are then used to settle the partnership liabilities, and any remaining cash is
paid to the partners under a lump-sum payment. The right of offset of a partner pertains to the legal right which allows a deficit in a
partner’s capital account to be offset by a loan payable to the partner.
2. Installment liquidation – in most cases, it would take some time before all
the assets of a business are converted into cash. In such case, the partners’ What is a statement of liquidation?
claims are settled on an installment basis as cash becomes available, but only
after all partnership liabilities are fully settled. A statement of liquidation is a financial report that highlights the realization (receipts
from asset disposals) and the liquidation (settlement of creditors’ and partners’ claims)
NOTE: When financial statements are prepared during the liquidation of a partnership.
process, all the assets of the partnership are restated to their realizable values
(i.e., estimated selling price less estimated costs to sell) and all liabilities to
their expected settlement amounts. LIQUIDATION BY LUMP-SUM (Steps):

Step 1: Record the sale of the non-cash assets and distribute the gain or loss on
realization to their respective capital accounts based on their profit and loss ratio. The
What is the proper order when it comes to settling claims against the
partnership? gain will have the effect of increasing the partners’ capital balances while the loss will
reduce their respective capital balances.
1. Outside creditors
2. Inside creditors (i.e., payables to partners) Step 2: Pay the partnership’s outside creditors.
3. Partners’ capital balances
Step 3: If upon distribution of the loss on realization, one of the partners develops a
What is meant by Gain on Realization? capital deficiency, he may make good with such deficiency by any of the following
means:
It is the excess of the selling price or proceeds from the sale of the non-cash asset over a. Exercising the right of offset thereby applying his loan account to his capital
its book value. deficiency. If his loan account is not enough to cover his deficiency, he may
give additional cash for the balance. In case he is insolvent after the offsetting,
What is meant by Loss on Realization? the balance of his capital deficiency is absorbed by the remaining partners with
credit balances based on their profit and loss ratio.
 b. If he has no loan, he is going to give cash equal to the amount of is deficiency, among the partners based on their profit and loss ratio.
if he is solvent. If in case he is insolvent, his capital deficiency will be
absorbed by the remaining partners with capital credit balances based on profit Step 2: Payment of liquidation expenses and adjustment for unrecorded liabilities;
and loss ratio. both of these items will be distributed among the partners in the profit and loss ratio.

Step 4: Pay the partner’s loan account balance, if there is any. Step 3: Payment of liabilities to outsiders.

Step 5: Distribute the remaining cash to partners based on their respective capital Step 4: Distribution of available cash based on a schedule of safe payments which
account balances and not on P/L ratio anymore. assumes possible losses due to inability of the partnership to dispose of part or all the
remaining non-cash assets and failure of the partners with capital deficiencies to make
additional contributions. Payments to partners can also be made on a cash priority
LIQUIDATION BY INSTALLMENT (Steps): program.

Step 1: Realization of non-cash assets and distribution of gain or loss on realization

ILLUSTRATION: LUMP-SUM LIQUIDATION

A, B, and C are partners in a public relations firm and share profits and losses in the ratio of 2:2:1, respectively. They decided to liquidate their business on December 31, 2020. The
following is the condensed SFP prepared prior to liquidation:

Cash 200,000
Non-cash assets 3,400,000
Total Assets 3,600,000

Liabilities 1,120,000
B, Loan 50,000
C, Loan 80,000
A, Capital 950,000
B, Capital 600,000
C, Capital 800,000
Total Liabilities and Partners’ Capital 3,600,000

CASE 1: NCA are sold at P2,500,000.

CASE 2: NCA are sold at P1,850,000.
CASE 3: NCA are sold at P1,700,000. Any deficient partner is considered personally solvent.
CASE 4: NCA are sold at P1,700,000. Any deficient partner is considered personally insolvent.

REQUIRED: Prepare a Statement of Partnership Liquidation.

CASE 1. NCA are sold at P2,500,000.

(Name of the Partnership)

Statement of Partnership Liquidation
December 31, 2020
Cash Non-Cash Liabilities B, Loan C, Loan A, Capital B, Capital C, Capital
Assets (40%) (40%) (20%)
Balances Before Liquidation 200,000 3,400,000 1,120,000 50,000 80,000 950,000 600,000 800,000
Sale of NCA and Distribution of 2,500,000 (3,400,000) (360,000) (360,000) (180,000)
Loss on Realization (900K)
Balances 2,700,000 - 1,120,000 50,000 80,000 590,000 240,000 620,000
Payment of Liabilities (Outside (1,120,000) (1,120,000)
Creditors)
Balances 1,580,000 - 50,000 80,000 590,000 240,000 620,000
Payments to Partners (1,580,000) (50,000) (80,000) (590,000) (240,000) (620,000)

Journal Entries:
 1. Cash 2,500,000 3. B, Loan 50,000
Loss on Realization 900,000 C, Loan 80,000
Non-Cash Assets 3,400,000 A, Capital 590,000
# B, Capital 240,000
C, Capital 620,000
A, Capital 360,000 Cash 1,580,000
B, Capital 360,000 #
C, Capital 180,000
Loss on Realization 900,000
#

2. Liabilities 1,120,000
Cash 1,120,000
#

CASE 2. NCA are sold at P1,850,000.

(Name of the Partnership)

Statement of Partnership Liquidation
December 31, 2020
Cash Non-Cash Liabilities B, Loan C, Loan A, Capital B, Capital C, Capital
Assets (40%) (40%) (20%)
Balances Before Liquidation 200,000 3,400,000 1,120,000 50,000 80,000 950,000 600,000 800,000
Sale of NCA and Distribution of Loss on 1,850,000 (3,400,000) (620,000) (620,000) (310,000)
Realization (1,550,000)
Balances 2,050,000 - 1,120,000 50,000 80,000 330,000 (20,000) 490,000
Payment of Liabilities (Outside (1,120,000) (1,120,000)
Creditors)
Balances 930,000 - 50,000 80,000 330,000 (20,000) 490,000
Offset of B’s loan against his deficiency (20,000) 20,000
Balances 930,000 30,000 80,000 330,000 - 490,000
Payments to Partners (930,000) (30,000) (80,000) (330,000) (490,000)
Journal Entries:
CASE 3. NCA are sold at P1,700,000. Any deficient partner is considered personally solvent.
1. Cash 1,850,000 3. B, Loan 20,000
Loss on Realization 1,550,000 B, Capital 20,000
Non-Cash Assets 3,400,000

A, Capital 620,000
B, Capital 620,000
C, Capital 310,000
Loss on Realization 1,550,000

2. Liabilities 1,120,000 4. B, Loan 30,000

Cash 1,120,000 C, Loan 80,000
A, Capital 330,000
C, Capital 490,000
Cash 930,000

(Name of the Partnership)

Statement of Partnership Liquidation
December 31, 2020
Cash Non-Cash Liabilities B, Loan C, Loan A, Capital B, Capital C, Capital
Assets (40%) (40%) (20%)
Balances Before Liquidation 200,000 3,400,000 1,120,000 50,000 80,000 950,000 600,000 800,000
Sale of NCA and Distribution of Loss on 1,700,000 (3,400,000) (680,000) (680,000) (340,000)
Realization (1,700,000)
Balances 1,900,000 - 1,120,000 50,000 80,000 270,000 (80,000) 460,000
Payment of Liabilities (Outside (1,120,000) (1,120,000)
Creditors)
Balances 780,000 - 50,000 80,000 270,000 (80,000) 460,000
Offset of B’s loan against his deficiency (50,000) 50,000
Balances 780,000 - 80,000 270,000 (30,000) 460,000
Additional Investments by B 30,000 30,000
Balances 810,000 80,000 270,000 - 460,000
Payments to Partners (810,000) (80,000) (270,000) (460,000)
Journal Entries:
CASE 4. NCA are sold at P1,700,000. Any deficient partner is considered personally insolvent.
1. Cash 1,700,000 3. B, Loan 50,000
Loss on Realization 1,700,000 B, Capital 50,000
Non-Cash Assets 3,400,000
4. Cash 30,000
A, Capital 680,000 B, Capital 30,000
B, Capital 680,000
C, Capital 340,000
Loss on Realization 1,700,000

2. Liabilities 1,120,000 5. C, Loan 80,000

Cash 1,120,000 A, Capital 270,000
C, Capital 460,000
Cash 810,000

(Name of the Partnership)

Statement of Partnership Liquidation
December 31, 2020
Cash Non-Cash Liabilities B, Loan C, Loan A, Capital B, Capital C, Capital
Assets (40%) (40%) (20%)
Balances Before Liquidation 200,000 3,400,000 1,120,000 50,000 80,000 950,000 600,000 800,000
Sale of NCA and Distribution of Loss on 1,700,000 (3,400,000) (680,000) (680,000) (340,000)
Realization (1,700,000)
Balances 1,900,000 - 1,120,000 50,000 80,000 270,000 (80,000) 460,000
Payment of Liabilities (Outside (1,120,000) (1,120,000)
Creditors)
Balances 780,000 - 50,000 80,000 270,000 (80,000) 460,000
Offset of B’s loan against his deficiency (50,000) 50,000
Balances 780,000 - 80,000 270,000 (30,000) 460,000
Additional losses to A (4/6) and C (2/6) (20,000) 30,000 (10,000)
Balances 780,000 250,000 - 450,000
Payments to Partners (780,000) (80,000) (250,000) (450,000)
Journal Entries:

1. Cash 1,700,000 3. B, Loan 50,000

ILLUSTRATION: LIQUIDATION
Loss on Realization BY INSTALLMENT
1,700,000 B, Capital 50,000
Non-Cash Assets 3,400,000
The SFP for A, B, and C, partners sharing profits of 4:3:3 respectively, showed the following balances 4.
on April 30, 2020, just before liquidation:
A, Capital 20,000
A, Capital 680,000 C, Capital 10,000
B, Capital Cash 680,000 315,000
B, Capital 30,000
C, Capital Non-cash assets 340,000 1,250,000
Loss on Realization Total Assets 1,700,000 1,565,000

2. Liabilities Liabilities 1,120,000 5. C, Loan 435,000 80,000

Cash C, Loan 1,120,000 A, Capital 30,000 250,000
A, Capital C, Capital 600,000 450,000
B, Capital Cash 350,000 780,000
C, Capital 150,000
Total Liabilities and Partners’ Capital 1,565,000

In May, part of the assets are sold at book value, P300,000. In June, the remaining assets are sold for P210,000. Assume that available cash is distributed to the proper parties at
the end of May and at the end of June. Assume further that partners are solvent and that any partner who is deficient made appropriate payment to the partnership on July 31.
 (NAME OF PARTNERSHIP)
Statement of Partnership Liquidation
From May – July, 2020

Cash Non-Cash Liabilities C, Loan A, Capital B, Capital C, Capital

Assets (40%) (30%) (30%)
Balances Before Liquidation 315,000 1,250,000 435,000 30,000 600,000 350,000 150,000
May – Sale of NCA 300,000 (300,000)
Balances 615,000 950,000 435,000 30,000 600,000 350,000 150,000
May - Payment of Liabilities (Outside Creditors) (435,000) (435,000)
Balances 180,000 950,000 - 30,000 600,000 350,000 150,000
May – Installment to Partners (Schedule A) (180,000) (160,000) (20,000)
Balances - 950,000 - 30,000 440,000 330,000 150,000
June – Sale of Rem. NCA; Loss Sharing 210,000 (950,000) (296,000) (222,000) (222,000)
Balances 210,000 - 30,000 144,000 108,000 (72,000)
Right of Offset by C (30,000) 30,000
Balances 210,000 - 144,000 108,000 (42,000)
June – Installment to Partners (Schedule B) (210,000) (120,000) (90,000)
Balances - 24,000 18,000 (42,000)
July – Investment by C 42,000 42,000
Balances 42,000 24,000 18,000 -
July – Final Installment (42,000) (24,000) (18,000)

THEORETICAL LOSS APPROACH:

SCHEDULE OF SAFE PAYMENTS – MAY 31, 2020 (SCHEDULE A) A (40%) B (30%) C (30%)
Capital balances before Distribution of Cash 600,000 350,000 150,000
Loan Balance - - 30,000
Partners’ Total Interest 600,000 350,000 180,000
Theoretical Loss (Unsold NCA - 950,000) (380,000) (285,000) (285,000)
Balances 220,000 65,000 (105,000)
Additional Possible Loss: Deficiency of C to be absorbed by A and B (Ratio - 4:3) (60,000) (45,000) 105,000
 Amounts to be paid to partners 160,000 20,000 -

SCHEDULE OF SAFE PAYMENTS – JUNE 30, 2020 (SCHEDULE B) A (40%) B (30%) C (30%)
Capital balances before Distribution of Cash 144,000 108,000 (42,000)
Additional Possible Loss: Deficiency of C to be absorbed by A and B (Ratio - 4:3) (24,000) (18,000) 42,000
Amounts to be paid to partners 120,000 90,000 -

JOURNAL ENTRIES:

1. Cash 300,000 5. C, Loan 30,000

Non-Cash Assets 300,000 C, Capital 30,000

2. Liabilities 435,000 6. A, Capital 120,000

Cash 435,000 B, Capital 90,000
Cash 210,000
3. A, Capital 160,000
B, Capital 20,000 7. Cash 42,000
Cash 180,000 C, Capital 42,000

4. Cash 210,000 8. A, Capital 24,000

A, Capital 296,000 B, Capital 18,000
B, Capital 222,000 Cash 42,000
C, Capital 222.000
Non-Cash Assets 950,000
LOSS ABSORPTION ABILITY APPROACH

(NAME OF THE PARTNERSHIP)

CASH PRIORITY PROGRAM
May 30, 2020

Loss Absorption Balances Cash Payments

A (1st) B (2nd) C (3rd) TOTAL A (40%) B (30%) C (30%)
Balances before Realization
Capital 600,000 350,000 150,000
Loan - - 30,000
Total Partners’ Interest 600,000 350,000 180,000
÷ Profit or Loss Ratio 40% 30% 30%
= Loss Absorption Ability 1,500,000 1,166,667 600,000
Excess of A over B (333,333) 133,333 133,333
Balances 1,166,667 1,166,667 600,000
Excess of A and B over C (566,667) (566,667) 396,667 226,667 170,000
Balances 600,000 600,000 600,000 530,000 360,000 170,000

Cash Available for Distribution in Excess of 530,000 40% 30% 30%

1st Cash Available for Distribution (P180,000): 2 nd Cash Available for Distribution (P210,000)
1. A – P133,333 A (4/7) – P120,000
2. Remainder (P46,667): B (3/7) – P90,000
A (4/7) – P26,667
B (3/7) – P20,000 3 rd Cash Available for Distribution (P42,000)
A (4/7) – P24,000
IN SUM: B (3/7) – P18,000
A (133,333 + 26,667) – P160,000
B – P20,000
 Activities, Resources, and Assessment
Online (Hybrid Model Blended (Asynchronous Model) Offline (Flex Model)

Resources: Resources: Resources:

Schoology App/Messenger Schoology App/Messenger Textbook: Partnership and Corporation Accounting by
Textbook: Partnership and Corporation Accounting by Textbook: Partnership and Corporation Accounting by Edwin G. Valencia, et al.
Edwin G. Valencia, et al. Edwin G. Valencia, et al.
References and Sources:
References and Sources: References and Sources: 1. Financial Accounting and Reporting by Rafael
1. Financial Accounting and Reporting by Rafael 1. Financial Accounting and Reporting by Rafael M. Lopez, Jr.
M. Lopez, Jr.; M. Lopez, Jr. 2. Financial Accounting & Reporting
2. Financial Accounting & Reporting 2. Financial Accounting & Reporting (fundamentals) by Zeus Vernon B. Millan.
(fundamentals) by Zeus Vernon B. Millan. (fundamentals) by Zeus Vernon B. Millan.

Activities:
Activities: Activities: Topic discussion will be during classroom meetups,
Topic discussion will be through GoogleMeet App., Topic discussion will be through GoogleMeet App., and during which the exercises will be supplied with
during which the exercises will be supplied with during which the exercises will be supplied with answers.
answers. answers. Such teleconferencing will be recorded, the
video of which will be made available to you via Assessment:
Assessment: Messenger Group Chat or Gmail address. Topic quiz will be issued to you and will be answered
Topic quiz will be published at Schoology App. at home, which will be immediately due for
Instructions as to the time allocated for answering and Assessment: submission the following day at the box placed at the
deadline for submission of quiz will be announced via Topic quiz will be published at Schoology App. SVCI guard house. Communication as to the receipt
Messenger Group Chat. Instructions as to the time allocated for answering and the said quiz will be through text messaging.
deadline for submission of quiz will be announced via
Messenger Group Chat.