COLLEGE OF ACCOUNTANCY AND FINANCE Page 5

ACCO 30013 Accounting for Special Transactions

ACCOUNTING FOR PARTNERSHIP

Learning Objectives

After discussing the topics, the learner will be able to:

Define different types of partnership and kinds of partners;
Understand the initial investment valuation and recognition;
Identify the different method of recording initial investments;
Journalize the required entries in the books of the partnership;
Prepare the statement of financial position immediately after formation;
Recognize and measure partnership income and expenses;
Identify the different methods of allocating partnership profit and loss;
Journalize profit or loss distribution to partners;
Identify errors and misstatements in the financial statements;
Define and describe partnership dissolution;
Identify the different reasons of partnership dissolution;
Account for the admission of a partner by purchase and by investment;
Determine the partners equity upon withdrawal, retirement, death, or incapacity;
Record the incorporation of a partnership;
Define and describe partnership liquidation;
Identify and explain the causes of partnership liquidation;
Understand the nature of lump-sum and installment liquidation;
Understand and apply the concepts of marshalling of assets and right of offset;
Journalize the realization of non-cash assets, payment of liabilities and final settlement to
partners in lump sum and installment liquidation; and
Prepare statement of liquidation with supporting schedules of cash distribution (periodic
schedule of payment and cash priority program).

Partnership Formation

Partnership is a contract whereby two or more persons bind themselves to contribute

money, property or industry into a common fund with the intention of dividing profits among
themselves.

Characteristics of a Partnership
Co-ownership of contributed capital Assets contributed to the partnership become
assets of the partnership by virtue of its separate legal personality.
Income Tax Partnership except General Professional Partnership (like CPAs, lawyers,
etc.) are subject to income tax rate of 30% based on net income.
Limited Life A partnership may be dissolved at any time by action of the partners or by
operation of law.
Legal Entity A partnership has a legal personality separate and distinct from that each
of the partners.
Mutual Agency Any partner may act as an agent of the partnership in conducting its
affairs.
Mutual Participation in Profit A partner has the right to share in partnership profits.
Unlimited Liability The personal assets of any partner may be used to satisfy the

liabilities to outsiders.

Advantages of a Partnership
It is easy and inexpensive to organize compared with a corporation.
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The unlimited liability of the partners makes it reliable from the point of view of the
creditors.
The combined personal credit of the partners offers better opportunity for obtaining
additional capital than a sole proprietorship.
The participation in the business by more than one person makes possible for a closer
supervision of all its activities.
The direct gain to the partners is an incentive to give close attention to the business.
The personal element in the character of the partners is retained.

Disadvantages of a Partnership
The personal liability of a partner for partnership debts deters many from investing
capital in a partnership.
A partner may be subject to a personal liability for the wrongful acts or omissions of his
associates.
It is less stable because it can be easily dissolved.
There is divided authority among partners.
There is a constant likelihood of dissension and disagreement when each of the partners
has the same authority in the management of the partnership.
There is difficulty in disposing of interest since no formal established marketplace exists
for the sale of partnership interest.

Types of Partnership

1. As to Activity
a. Trading Partnership one whose main activity is the manufacture or the purchase
and sale of goods.
b. Non-Trading Partnership one organized for the purpose of rendering services.

2. As to Object
a. Universal Partnership
Universal Partnership of all Present Property one in which the partners
contribute all the properties which actually belong to each of them at the time of
formation. All assets contributed to the partnership and subsequent acquisitions
become common partnership assets.
Universal Partnership of all Profit one which comprises all that the partners
may acquire by their industry or work during the existence of the partnership and
the usufruct of movable property or immovable property which each of the
partners may possess at the time of formation. Partnership assets consist of
assets acquired during the life of the partnership and only the usufruct or use of
the assets contributed at the time of formation. The original movable or
immovable property contributed do not become common partnership assets.
b. 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.

3. As to Liability of Partners
a. General Partnership one consisting of general partners who are liable prorata and
sometimes solidarily with their separate property for partnership debts.
b. Limited Partnership one formed by two or more persons having as members one
or more general partners and one or more limited partners who as such are not
bound by the obligations of the partners.
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4. As to Duration
a. Partnership at Will one for which no time is specified and is not formed for a
particular undertaking or venture and which may be terminated any time by mutual
agreement of the partners or by the will of one alone.
b. Partnership with a Fixed Term one in which the term or period for which the
partnership is to exist is agreed upon or one formed for a particular undertaking and
upon the expiration of that term or completion of the particular undertaking, the
partnership is dissolved unless continued by the partners.

5. As to Representation to Others
a. Ordinary Partnership one which actually exists among the partners and also as to
third persons.
b. Partnership by Estoppel one which in reality is not a partnership but is considered
partnership only in relation to those who by their conduct or omission are precluded
to deny

6. As to Legality of Existence
a. De Jure Partnership one which has complied with all the requirements for its
establishment.
b. De Facto Partnership one which has failed to comply with one or more of the legal
requirements for its establishment.

7. As to Publicity
a. Secret Partnership one wherein the existence of certain persons as partners is
not made known to the public by any of the partners.
b. Open Partnership one wherein the existence of certain persons as partners is
made known to the public by the members of the firm.

Kinds of Partners

1. As to Contribution
a. Capitalist Partner one who contributes capital in the form of money or property.
b. Industrial Partner one who contributes industry, labor, talent, skills or service.
c. Capitalist Industrial Partner one who contributes money, property and industry.

2. As to Liability
a. General Partner one whose liability to third persons extends to his separate
(private) property.
b. Limited Partner one whose liability to third persons is limited only to the extent of
his capital contribution into the partnership.

3. As to Management
a. Managing Partner one who manages actively the business of the partnership.
b. Silent Partner one who does not participate in the management of the partnership
affairs.

4. Other Classifications
a. Liquidating Partner one who takes charge of the winding up of partnership affairs
upon dissolution.
b. Nominal Partner one who is not really a partner, not being a party to the
partnership agreement but is made liable as a partner for the protection of innocent
third persons.
c. Ostensible Partner one who takes active part in the management of the
partnership and is known to the public as a partner in the business.
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d. Secret Partner one who takes active part in the management of the business but
whose connection with the partnership in concealed or unknown to the public.
e. Dormant Partner one who does not take active part in the management of the
business and is not known to the public as a partner. He is both a silent and a secret
partner.

Articles of Co-Partnership

A partnership is created by an oral or a written agreement. Since partnerships are required

to be registered with the Securities and Exchange Commissions (SEC), it is necessary that
the agreement be in writing. In this case, misunderstanding and disputes among partners
relative to the nature and terms of the contract may be avoided or minimized. The written
agreement between or among partners which governs the formation, operation and
-

The Articles of Co-Partnership normally includes the following:

Name of the partnership
Name and address of the partners
Rights and responsibilities if each partner
The purpose for which the partnership is formed
The initial and additional investments to be made by each of the partner
The withdrawals that maybe made by partners and the limitations, if any
The profit and loss ratio
Procedures on dissolving the partnership

Accounting for Partnership

As compared to other forms of business organization, accounting for partnership differs with
regard to capital accounts. In a partnership, there should be as many capital accounts and
as many drawing accounts as there are partners. Example: In ABC Partnership, the partners
are AAA, BBB and CCC. The capital accounts are: AAA Capital, BBB Capital and CCC
Capital. The drawing accounts are: AAA Drawing, BBB Drawing and CCC Drawing.

The transactions affecting the capital and drawing accounts of each partner are:

CAPITAL
Permanent withdrawal (decrease) of capital Original investment by a partner
Share in the partnership profit from
Share in the partnership loss from operations
operations
Debit balance of drawing account closed to
Additional investment by a partner
capital

DRAWING
Personal withdrawal by a partner in Share in partnership profit from operation
anticipation of profits (temporary withdrawal (this may be credited directly to capital)
of capital)
Share in partnership loss from operation (this
may be debited directly to capital)

Aside from the contributions, the partnership may acquire additional financing from its
present partners. Any loan between a partner and the partnership is always accompanied by
a proper loan documentation such as promissory note. A loan from partner is shown as

any other loan. Unless all partners agree otherwise, the partnership is obligated to pay the
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individual partner interest on the loan and such interest is reported in the Income Statement

On the other hand, the partnership may also lend money to a partner. In this case, the

unless otherwise agree by the partners, the loan bears interest and such interest is reported
in the Income Statement of the partn

Partnership can be formed by (at least):

1. One individual and one individual
2. One individual and one sole proprietorship
3. One sole proprietorship and one sole proprietorship

Partners Contributions

Partners may contribute cash, property or industry to the partnership. Assets contributions
are debited to the appropriate asset accounts and credited to the capital accounts of the
partners. Below are the rules:
If the asset contributed is cash, it is recorded in the partnership books at face value.
If the assets contributed are in the form of properties or non-cash assets, such are
recorded at agreed values. In the absence of an agreement, such are recorded at fair
market values.
If the contribution is service, a memorandum entry is prepared.

In some instances, one or two or all of the partners are former sole proprietors who decide to
unite their assets and liabilities to form a stronger enterprise. In such situation, the new
partnership may open a new set of books or may continue using the books of one of the sole
proprietors. If a new set of books will be used, entries are prepared to record the
contributions. However, if the books of one of the sole proprietors are used, the following
procedures shall be followed:
1. Adjust the books of the sole proprietor which shall be used as partnership books.
2. Record the investment of the other partners.

Capital Credit is Different from Capital Contribution

t
agree not only on the valuation of asset contributions but also on their capital credit. The

net assets of the newly formed partnership.

Generally, the capital share of a partner is proportionate to his capital contribution. However,
in recognition of intangibl
or necessary business connections, partners may agree to a division of capital that is not
proportionate to their capital contributions. This will gi al
investments.

Partnership Operation

Accounting for partnership operations is essentially the same as accounting for the
operations of any other forms of business organization. Sale of merchandise on account is
debited to Accounts Receivable and credited to Sales. Collection of accounts is debited to
Cash and credited to Accounts Receivable. The purchase of merchandise on account is
recorded by a debit to Purchases and credit to Accounts Payable. Payment of accounts is
debited to Accounts Payable and credited to Cash. Payment of expenses is debited to
Expenses and credited to Cash.
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At the end of the accounting period, adjustments are made for merchandise inventory,
accruals, prepayments, provisions for uncollectible accounts and provision for depreciation.
Profit is determined in the usual manner that is by matching revenues and expenses.

Special Problems in Partnership Accounting

1. Closing Entries
2. Distribution of Profits and Losses
3. Preparation of Worksheet/Working Paper
4. Preparation of Financial Statements

Distribution of Profits and Losses

Since a partnership is composed of two or more persons, there should be a clear indication
on how the partnership profit or loss be equitably divided among the partners. The following
are the factors to be considered in establishing a just and fair profit and loss sharing
agreement:
Services rendered by the partners to the partnership. Salaries are given to partners
proportionate to time devoted to the organization. Those who devote more time should
have greater salary share. (Salaries).
Amount of capital contributed by the partners. Interest on capital contribution is
allowed to each partner to give recognition to the differences in capital contributed to the
partnership. Thus, a partner with highest capital contribution gets the highest interest
share. (Interest on Capital Beginning, Ending or Average).
Entrepreneurship ability or managerial skills of the partners. Bonus is allowed to
partner when the partnership realizes profits in order to give recognition to managerial
skills. (Bonus)

Rules in Dividing Profits and Losses

The following is the list of rules in the division of profits and losses:
1. As to Capitalist Partners
a. Division of Profits
In accordance with agreement
In the absence of an agreement, division of profits is in accordance with capital
contribution
b. Division of Losses
In accordance with agreement
If only the division of profits is agreed upon, then the division of losses will follow
the same proportion
In In the absence of an agreement, division of profits is in accordance with capital
contribution

2. As to Industrial Partners
a. Division of Profits
In accordance with agreement

b. Division of Losses
In accordance with agreement
In the absence of an agreement, the industrial partner shall have no share in his
character as an industrial partner
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Correction of Errors

The reported net income (loss) of the partnership maybe incorrect due to the possible errors
and/or omissions in the prior year or in the current year. The effect on income tax paid
should also be considered because the net income distributed to partners is net of applicable
tax. It is understood that the tax implications of the corrections are properly accounted for
especially if the partnership is not a general professional partnership.

Below is the summary of the effect of errors/omission to the net income (loss) of the
partnership:
Corrections to Net Income of current year
No Particulars for the errors made in
Prior Year Current Year
1 Unrecorded prepaid expenses - +
2 Unrecorded accrued expenses + -
3 Unrecorded accrued income - +
4 Unrecorded unearned income + -
5 Overstatement of inventories + -
6 Understatement of inventories - +
7 Overstatement of purchases - +
8 Understatement of purchases + -
9 Overstatement of depreciation none +
10 Understatement of depreciation none -

Partnership Dissolution

Dissolution is defined in Article 1825 of the Civil Code of the Philippines as the change in
the relationship of the partners caused by any partner ceasing to be associated in the
carrying out of the business. It refers to the termination of the life of the existing partnership.
The dissolution of the partnership may be followed by:
1. Formation of a new partnership
2. Liquidation

Reasons of Partnership Dissolution

1. Admission of new partner
2. Retirement or withdrawal of a partner
3. Death, incapacity or bankruptcy of a partner
4. Incorporation of a partnership

Changes in Ownership Structure

Accounting for changes in the ownership structure of a partnership is influenced by the legal
concept of dissolution. When there is a change in the ownership structure, the original
partnership is dissolved and often a new partnership is created. The dissolution and
subsequent creation of a new partnership indicates that a new legal entity has been created
and accounting should measure properly the initial contributions of capital being made to the
new partnership. Changes in the ownership structure of the partnership are presumed to be
ar -length transactions which reflect the current value of the partnership. Therefore, such
changes may indicate that:
The existing assets of the original partnership should be revalued.
Unrecorded intangible assets exist that are allowing bonus to partners.
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Assignment of an Interest to a Third Party

A partnership is not dissolved when a partner assigns his interest in the partnership to a third
party because assignment itself does not change the relations among partners. Such
assignment only entitles the assignee to receive the interest of the assigning partner in
future partnership profits and in partnership assets in the event of liquidation. The assignee
does not become a partner and does not obtain the right to share the management of the
partnership.

Since the assignee does not become a partner, the only change required is the transfer of
the capital interest of the assignor to the assignee. The amount of the capital transfer is
equal to the recorded amount of capital at the time of assignment regardless of the
consideration made.

Example: A, B and C are partners in ABC Partnership with capital of P100,000; P150,000
and P50,000 respectively. Partner A assigns his interest to Partner D for a consideration of
P150,000. What is the entry to record the transfer in the partnership books?

A, Capital 100,000
D, Capital 100,000

Take note that the amount of the capital of the assignor during the time of assignment
should be credited to the assignee. Any excess/deficit is a personal gain or loss of the
assignor. In the example, the excess of P50,000 is a personal gain of Partner A and a
personal loss of Partner D.

Dissolution by Change in Ownership Structure

he partnership must stop in

doing business. The admission of a new partner and the retirement or death of a partner
require the legal dissolution of the old partnership and the creation of a new partnership.
Accounting for this type of dissolution requires the determination of each
the business.

Admission of a New Partner

New partners are often a primary source of additional capital or needed business expertise.
A new partner may be admitted in an existing partnership with the consent of all the
partners. Upon admission, the original partnership is automatically dissolved and a new one
is formed although the daily operations of the business generally are not affected. A new
partner may be admitted into a partnership by:
Purchase purchase of interest from one or more of the old partners.
Investment asset contribution to the partnership.

1. Admission of a New Partner by Purchase. The admission of a new partner by

purchase is the acquisition of capital interest directly from one or more of the present
partners provided that it is with the consent of all the partners. The purchase of interest
from one or more of the partners is a personal transaction between the incoming and the
selling partner and not to the partnership. Thus, any gain or loss is recognized by the
selling partner and not the partnership. The amount of capital transferred will be equal to
the book value of the interest sold regardless of the purchase price or consideration. The
purchase price of the interest sold to a new partner may be:
Equal to the book value of the interest sold
Less than the book value of the interest sold
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ACCO 30013 Accounting for Special Transactions

More than the book value of the interest sold

Proforma Entry:
Capital (Old) xxx
Capital (New) xxx
To record the transfer of capital from old to new partner.

However, revaluation of assets of the old partnership is generally undertaken prior to the
admission of new partner. It may be a positive or negative asset revaluation. The effect
of the asset revaluation is carried to the capital accounts of the old partners. The
adjusted capital of the old partners becomes the basis for the interest transferred to the
new partner.

Proforma Entry:
Other Assets xxx
A, Capital xxx
B, Capital xxx
To record the positive asset revaluation.

A, Capital xxx
B, Capital xxx
Other Assets xxx
To record the negative asset revaluation.

Capital (Old) xxx

Capital (New) xxx
To record the transfer of capital from old to new partner.

Kindly note that in case of asset revaluation, there is no gain or loss to be recognized
since the asset revaluation reflected the adjusted capital of the old partners.

2. Admission of a New Partner by Investment. Admission of a new partner by

investment is a transaction between the original partnership and the new partner. The
investment of the new partner increases the assets of the partnership and its total
capital. The entry to record the admission of the new partner depends upon the capital
ing the capital credit of the partners,
the following should be fully understood:
a. Agreed Capital (AC) the amount of new capital set by the partners for the
partnership. It may be equal to, more than or less than the total contributions of the
partners, both old and new. It is also known as new firm capital, total capital or
agreed capitalization. Agreed capital may be indicated in the terms of the admission.
If not given, it may be computed as follows:
Investment of the new partner divided by the new part
Investment of the old partners divided by the old par

Example: A and B are partners with capital balances of P100,000 and P200,000
respectively. C is to be admitted by investing P50,000 for a ¼ interest. Agreed capital
may be computed as follows:
50,000 / ¼ = P200,000
300,000 / ¾ = P400,000

b. Contributed Capital the investment of all the partners, both old and new. Using
the example above, the total contributed capital is P350,000 (300,000 + 50,000).
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c. Asset Revaluation evidence provided by the amount of an investment which

related to the total value of the business or values of the identifiable assets as
determined on an individual basis by appraisal or other valuation technique. The
amount of the asset adjustment may be determined as the difference between the
agreed capital and the total contributed capital. Generally, asset revaluation upon
partnership formation relate to the partners of the old partnership only.

d. Bonus the transfer of capital from one partner to another. Bonus to old partners is
capital transfer from new partner to the old partners and vice versa. There is a bonus
when capital credit to individual partners do not equal their capital contributions
although the agreed capital is equal to the total contributed capital.

e. Capital Credit the interest or equity of a partner in the firm. It is computed by

multiplying the agreed capital by the interest of the partners.

Retirement, Withdrawal or Death of a Partner

The retirement, withdrawal or death of a partner results in the legal dissolution of the
partnership. The dissolution does not require termination of the business. The primary

account. This requires a determination of the fair value of the partnership at the time the
partner retires or dies including the computation of partnership profit since the end of the last
accounting period. The following is the pro-
balance:

Initial Investment/Beginning Capital

+ Additional Investments
- Withdrawals
+ Share in the partnership profits
- Share in the partnership losses
+ Loans and advances to the partnership
- Loans and advances from the partnership
+ Revaluation of assets (positive asset revaluation)
- Revaluation of assets (negative asset revaluation)
Interest upon Retirement, Withdrawal or Death

The interest of the deceased partner is subsequently settled to his estate. On the other
hand, the interest of the retiring partner may be:
Sold to a new partner (outsider)
Sold to existing (continuing) partners
Sold to partnership

1. Sale of Interest to a New Partner (Outsider). With the consent of all remaining
partners, a retiring partner may sell his interest to an outsider. The sale is recorded in the
same manner as admission of a partner by purchase. The partnership recognizes only
the transfer of capital from the retiring partner to the new partner. No gain or loss is
recorded by the partnership as a result of the sale. Only the reclassification of capital
among the partners is recorded in the partnership books.

2. Sale of Interest to Existing (Continuing) Partners. The interest of the retiring partner
may be acquired by one or all of the remaining partners. The sale is recorded in the
same manner as the sale of interest to a new partner. Therefore, the capital or interest of
the retiring partner is transferred to the capital of the remaining partners. Just like the
sale of interest to new partner, only the reclassification of capital among the partners is
recorded in the partnership books.
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3. Sale of Interest to the Partnership. A retiring partner may sell his capital interest to the
continuing partners through the partnership. The partnership records the reduction of
total partnership capital and the corresponding reduction of assets which was paid to the
retiring partner. The settlement to the retiring partner is either by:
Payment of cash
Transfer of non-cash assets
Recognition of a liability

The amount to be paid to the retiring partner may be equal to, less than or more than the
book value of his interest. When the amount paid or the retirement price is not equal to
the interest sold, the difference may be treated as bonus or asset revaluation.

Partnership Liquidation

Dissolution is a legal concept indicating a change in the legal relationship between or

among partners. Termination is the end of the normal business operation of the partnership.
Liquidation is the winding up of business affairs. A partnership is liquidated when its
business operations are completely terminated or ended. The partnership assets are sold,
the creditors are paid and any remaining assets are distributed to the partners as return of
their investment.

Reasons of Partnership Liquidation

Accomplishment of the purpose for which the partnership was organized
Termination of the period covered by the partnership contract
Bankruptcy of the partnership
Mutual agreement among the partners to close the business
Court decree

Accounting Problems in Partnership Liquidation

Determination of the profit or loss from the beginning of the current accounting period to
the date of liquidation and the distribution of such profit or loss
Correction of accounting errors in prior periods
Closing of partnership books
Liquidation of the business

Two Concepts in Liquidation

At the point of liquidation, the assets and liabilities of the partnership are directly intertwined
with those of the individual partners because of the unlimited liability of each partner. The
priorities for creditor iabilities
involve two concepts:
1. Marshalling of Assets
and the personal assets of the individual partners. The order in which claims against the
partnership assets will be marshalled as follows:
a. Partnership creditors other than partners
b.
interest payable
c. the extent of credit balances in capital
accounts

2. Right of Offset i
payable to that partner. The effect is that the loans due to partners (credit balance) are
combined with the respecti s.
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Types of Partnership Liquidation

1. Lumpsum Liquidation (Liquidation by Totals) The distribution of cash to the

partners is done only after all the non-cash assets have been realized, the total amount
of gain or loss on realization is known and all liabilities have been paid.

Procedures:
a. Compute the interest of each partner.
b. Sale of Non-Cash Assets and allocation of gain or loss on realization (Add if gain,
Deduct of loss)
c. Payment of Liquidation Expenses
d. Distribution of cash to creditors and partners

NOTE: Cash distribution to partners is mad In

case of capital deficiency, it is eliminated by additional investment (if solvent) or charging
to other partners (if insolvent). When personal assets exceed personal liabilities, a
partner is SOLVENT. When personal liabilities exceed personal assets, a partner in
INSOLVENT.

2. Installment Liquidation (Piece-Meal Liquidation) Assets are realized on a piece-

meal basis over an extended or longer period of time and cash is distributed to partners
periodically as it becomes available.

Two Worst-Case Scenarios:

All non-cash assets are assumed to be completely worthless. Thus, a hypothetical
loss equal to the carrying values of the non-cash assets is assumed to have
occurred.
If as s capital account is a debit balance, we
assume that such partner is not able to make contributions to the partnership to
eliminate the hypothetical deficit. This assumption is made regar
personal financial status.

The liquidation procedures in Installment liquidation is the same as the lumpsum

liquidation except:
Cash is distributed to partners even before fully realizing non-cash assets and
determining total gain or loss on realization.
Restricted interest shall consist of:
Remaining unsold assets
Newly discovered unrecorded liabilities
Cash withheld for possible expenses
Debit balances in capital
A schedule of safe payments or a cash priority program is used as basis to direct the
distribution of any available cash.

Schedule of Safe Payment

It indicates how available cash would be distributed to partners. It is based on the

anticipation of all possible liabilities and expenses including those expected to be incurred in
the process of liquidation. The effect of these items on the partnership capital is allocated
among partners according to their profits and loss agreement. The schedule is also based
on the assumption that all non-cash assets will be worthless. The assumed loss is allocated
among partners according to their profit and loss ratio. The allocation of assumed losses

uncollectible. The assumed debit balances are allocated to those partners with credit
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balances according to their profit and loss ratio. When the allocation of estimated liabilities,
expenses, liquidation losses and debit balances in capital are completed, assets may now
be distributed to partners in amounts equal to the resulting credit capital balances.

Cash Priority Program

Partners may desire to determine in advance as to whom cash distributions shall be made
as cash may become available. The program is prepared prior to liquidation. The steps in
the preparation of the program are as follow:
a. erest.
b. Divide the tota
absorption capacity.
c. After loss absorption balances are determined, allocations may now be made starting
with partner with the highest absorption balance reduced by the next highest.
d.
profit and loss ratio.

PROBLEMS

1. AAA, BBB and CCC agreed to form a partnership to be known as ABC Partnership.
What are the entries in the partnership books under different assumptions?
a. Each partner invested cash of P100,000 for an equal interest in the partnership.
b. AAA contributed cash of P150,000 and inventories costing P130,000 and with agreed
values of P150,000. BBB contributed cash of P200,000. CCC contributed equipment
costing P170,000 with accumulated depreciation of P25,000 and agreed value of
P150,000.
c. AAA contributed cash of P100,000; Accounts Receivable of P150,000 with Allowance
for Doubtful Accounts of P50,000. BBB contributed equipment valued at P400,000
while CCC is an industrial partner to contribute his special skills and talents to the
partnership.

2. DDD and FFF, both sole proprietors, agreed to form a partnership. Account balances
and the respective agreed values upon formation are:
DDD FFF
Per Books Agreed Per Books Agreed
Cash 150,000 150,000 140,000 140,000
Accounts Receivable 140,000 140,000 135,000 135,000
Allowance for Bad Debts (50,000) (40,000) (30,000) (40,000)
Inventory 135,000 137,000 128,000 130,000
Equipment 300,000 150,000 200,000 175,000
Accumulated Depreciation (60,000) 0 (20,000) 0
Accounts Payable 100,000 100,000 150,000 150,000

What are the entries in the partnership books under different assumptions?
a. The partners decided to use a new set of books.
b. The partners decided to use the books of DDD.
c. The partners decided to use the books of FFF.

3. GGG and HHH agreed to form a partnership. They initially agreed to divide the initial
partnership capital equally even though GGG contributed P500,000 while HHH
contributed P400,000 cash into the partnership. What are the entries to record the
transactions in the books of the partnership?