BUSINESS CASE

Presented to the
Accountancy Department
De La Salle University

In partial fulfillment
of the course requirements
In ACCTBA2 V24

Tan, Nicole P.
March 4, 2015

Partnership accounting is a type of business organization structure of which the partners have
unlimited personal liability for the business. Two or more persons bind themselves to contribute to a
common fund and the profits intended to be divided amongst themselves.
In the scenario provided, Lanie Marquez and Tom Rodriguez are partners in a small retail
business with capital contributions of P500,000 and P300,000, respectively. On the onset of their
partnership, they had various agreements: equal sharing in the profits and losses, no interest on capital
contributions is given, a P15,000 salary allowance in given to both partners. However, the agreement on
the salary is that there is an equal contribution to the management of the business.
The problem arose when it came to Marquez attention that the time devoted by Rodriguez has
been cut to half, and his personal drawings are up by 75%. With such occurrences, Marquez was deeply
concerned that Rodriguez was not properly managing the business. However, Rodriguez defended his
expenses as marketing expenses given that he was on the resorts to conduct business activities as well.
The stakeholders in this situation are the partners in the business, Lanie Marquez and Tom
Rodriguez.
The ethical issues in this situation pertain to the proper adherence to the acceptable accounting
principles and the agreement formed by the partners when they created the partnership. The most apparent
problems with the actions of Rodriguez is that he started to invest only 50% of his time in the business,
when it has been agreed by both of the partners that they would invest equal effort in managing the
business. In addition, his personal drawings has increased by 75% and upon inspection, these expenses
were due to weekend stay overs at local beach resorts involving family members. Considering
Rodriguezs actions, it was definitely a breach in partnership agreements that he spends only around 50%
of his time to the partnership. It would be unfair to Marquez that Rodriguez would also be receiving a
monthly salary of P15,000 given that there is a stipulation of managing the business with equal efforts on
the parts of the two partners. Furthermore, the actions of Rodriguez in combining leisure with business
activities is unethical given that he already went over the acceptable limits given that he technically did
not consider the separation of the partnership entity with the owners. He did not place this particular

characteristic of a partnership into consideration when he technically combined his personal expenses
with that of the partnership. Although partnerships have a characteristic of a mutual agency, in the case of
Rodriguez, his expenses were mostly traced to personal activities with family members, instead of purely
business ones. It is highly significant that the appropriate levels of marketing expenses are assessed with
the basis of their return on investment and industry standards. Rodriguez has been considering his
expenses and classifying them as marketing expenses when it is clear that he is already overspending on
marketing costs because he withdraws from this account for personal reasons, which is not allowed as the
business expenditures are separate from personal expenditures of each partner. He is increasing the
expenditures of the business that needs to be offset by the generated revenues of the business. However, if
the marketing expenses incurred by the representation of Rodriguez on external business activities do not
have a high return on investment then his decision is questionable to consider his expenses as marketing
expenses. Although marketing expenses are tax deductible, the personal situation of Rodriguez interferes
with his management of the business when he goes to resorts with his family members and conducts
business activities at the same time. Although all of Rodriguez drawings were in order and properly and
accurately recorded, the amount withdrawn should not be excessive given that it could affect the business
negatively if it allows too many withdrawals.
To alleviate some of Marquez concerns, the partners should discuss the extent of expenses that
can be considered under marketing expenses. As it is relatively easy to just place all possible expenses,
even if it was personal, it is important to monitor the marketing expenses to ensure that these expenses are
for the benefit of the business and not the owners of the business. Marquez could set, with the agreement
of Rodriguez, various guidelines of which expenses can be considered a marketing expense. One of which
is that there should be a return on investment of every marketing expense incurred by any partner to
ensure that the business does not absorb the personal expenditures of the partners. There could also be an
allotment of how much marketing expense could be incurred. Another suggestion would be to require a
mutual reporting of business activities in support of the assumption that they would contribute equally to
the management of the business. It could be that there is also an acceptable limit given for personal

withdrawals of a partner to ensure that the business would not be liable for all personal expenditures in
the discretion of one partner only. Such decisions should be agreed among the partners involved in the
business so that they understand the extent of their withdrawals.