Accounting for Partnerships PDF

MODULE 1 contribution of money, property or ACCOUNTING FOR PARTNERSHIPS industry (i.e., work or services which may either be personal manual efforts DEFINITION OF PARTNERSHIP...

MODULE 1 contribution of money, property or ACCOUNTING FOR PARTNERSHIPS industry (i.e., work or services which may either be personal manual efforts DEFINITION OF PARTNERSHIP or intellectual) to a common fund. ▪ In a contract of partnership, two or 2. Division of Profits or Losses - The more persons bind themselves to essence of partnership is that each contribute money, property, or partner must share in the profits or industry to a common fund, with the losses of the venture. intention of dividing the profit among 3. Co-Ownership of Contributed Assets - themselves. Two or more persons All assets contributed into the may also form a partnership for the partnership are owned by the exercise of a profession (Civil Code of partnership by virtue of its separate the Philippines, Article 1767). and distinct juridical personality. If ▪ An association of two or more one partner contributes an asset to persons to carry on, as co-owners, a the business, all partners jointly own business for profit (Uniform it in a special sense. Partnership Act, Section 6) 4. Mutual Agency - Any partner can bind ▪ The partnership has a juridical the other partners to a contract if he personality separate and distinct from is acting within his express or implied that of each of the partners (Civil authority. Code of the Philippines, Article 1768). 5. Limited Life - A partnership has a ▪ A profession is an occupation that limited life. It may be dissolved by the involves a higher education or its admission, death, insolvency, equivalent, and mental rather than incapacity, withdrawal of a partner or manual labor. Strictly speaking, the expiration of the term specified in the exercise of a profession is not a partnership agreement. business or an enterprise for profit 6. Unlimited Liability - All partners but the law allows two or more (except limited partners), including persons to act as partners in the industrial partners, are personally practice of their profession. liable for all debts incurred by the Partnerships are generally associated partnership. If the partnership can not with the practice of law, public settle its obligations, creditors' claims accounting, medicine and other will be satisfied from the personal professions. Partnerships of this assets of the partners without nature are called general professional prejudice to the rights of the separate partnerships. creditors of the partners. 7. Income Taxes - Partnerships, except general professional partnerships, are CHARACTERISTICS OF A PARTNERSHIP subject to tax at the rate of 30% (per R.A. No. 9337) of taxable income. 1. Mutual Contribution - There cannot be a partnership without the  8. Partners' Equity Accounts - b. Number of Persons Accounting for partnerships are much Partnership Corporation like accounting for sole - Two or more - at least five (5) proprietorships. The difference lies in persons may form a persons, not partnership exceeding fifteen the number of partners' equity (15). Except: One accounts. Each partner has a capital Person Corporation account and a withdrawal account c. Commencement of Juridical Personality that serves similar functions as the Partnership Corporation related accounts for sole from the execution from the issuance of proprietorships. of the articles of certificate of partnership by the incorporation by the ADVANTAGES AND DISADVANTAGES OF A Securities and Securities and PARTNERSHIP Exchange Exchange Commission Commission Advantages vs Proprietorships d. Management Partnership Corporation 1. Brings greater financial capability to - In a partnership, - In a corporation, the business. every partner is an management is 2. Combines special skills, expertise and agent of the vested on the Board experience of the partners. partnership if the of Directors. 3. Offers relative freedom and flexibility partners did not appoint a managing of action in decision-making. partner Advantages vs Corporations e. Extent of Liability Partnership Corporation 1. Easier and less expensive to organize. - In a partnership, - In a corporation, 2. More personal and informal. each of the partners stockholders are except a limited liable only to the Disadvantages partner is liable to extent of their the extent of his interest or 1. Easily dissolved and thus unstable personal assets. investment in the compared to a corporation. corporation. 2. Mutual agency and unlimited liability f. Right of Succession may create personal obligations to Partnership Corporation partners. - In a partnership, - In a corporation, there is no right of there is right of 3. Less effective than a corporation in succession. succession. A raising large amounts of capital. corporation has the PARTNERSHIP DISTINGUISHED FROM capacity of continued existence CORPORATION regardless of the a. Manner of Creation death, withdrawal, insolvency or Partnership Corporation incapacity of its - created by mere - created by directors or agreement of the operation of law. stockholders. partners.  g.Terms of Existence 3. According to duration: Partnership Corporation a. Partnership with a fixed term or for - for any period of - not to exceed fifty a particular undertaking time stipulated by (50) years but subject b. Partnership at will. One in which the partners to extension no term is specified and is not formed for any particular CLASSIFICATIONS OF PARTNERSHIPS undertaking. 1. According to object: a. Universal partnership of all 4. According to purpose: present property. All contributions a. Commercial or trading become part of the partnership partnership. One formed for the fund. transaction of business. b. Universal partnership of profits. b. Professional or non-trading All that the partners may acquire partnership. One formed for the by their industry or work during exercise of profession. the existence of the partnership and the use of whatever the partners contributed at the time of the institution of the contract 5. According to legality of existence: belong to the partnership. If the a. De jure partnership. One which articles of universal partnership has complied with all the legal did not specify its nature, it will requirements for its establishment considered a universal partnership b. De facto partnership. One which of profits. has failed to comply with all the c. Particular partnership. The object legal requirements for its of the partnership is determinate- establishment. its use or fruit, specific KINDS OF PARTNERS undertaking, or the exercise of a profession or vocation. a. General Partner. One who is liable to the extent of his separate property 2. According to liability: after all the assets of the partnership a. General. All partners are liable to are exhausted. the extent of their separate b. Limited partner. One who is liable properties. only to the extent of his capital b. Limited. The limited partners are contribution. He is not allowed to liable only to the extent of their contribute industry or services only. personal contributions. In a limited c. Capitalist partner. One who partnership, the law states that contributes money or property to the there shall be at least one general common fund of the partnership. partner.  d. Industrial partner. One who excess contribution (as capital or as contributes his knowledge or loan) and the penalties for a partner's personal service to the partnership. failure to invest and maintain the agreed capital; e. Managing partner. One whom the 5. The rights and duties of each partner; partners has appointed as manager of 6. The accounting period to be adopted, the partnership. the nature of accounting records, f. Liquidating partner. One who is financial statements and audits by designated to wind up or settle the independent public accountants; affairs of the partnership after 7. The method of sharing profit or loss, dissolution. frequency of income measurement g. Dormant partner. One who does not and distribution, including any provisions for the recognition of take active part in the business of the differences in contributions; partnership and is not known as a 8. The drawings or salaries to be partner. allowed to partners; h. Silent partner. One who does not take 9. The provision for arbitration of active part in the business of the disputes, dissolution, and liquidation. partnership though may be known as a partner. Take Note: A contract of partnership is void i. Secret partner. One who takes active whenever immovable property or real rights part in the business but is not known are contributed and a signed inventory of to be a partner by outside parties. the said property is not made and attached j. Nominal partner or partner by to a public instrument. estoppel. One who is actually not a partner but who represents himself as Meaning: Immovable properties such as one. building and land must have a public instrument or a legal document or the ARTICLES OF PARTNERSHIP contract will be void. ; A partnership may be constituted orally or SEC REGISTRATION in writing. In the latter case, partnership agreements are embodied in the Articles of Partnership. The following essential provisions may be contained in the agreement: 1. The partnership name, nature, purpose and location; 2. The names, citizenship and residences of the partners; 3. The date of formation and the duration of the partnership; 4. The capital contribution of each partner, the procedure for valuing non-cash investments, treatment of