ACTPACO Partnership & Corporation Acctg

Presented by: Mr. Francis H. Villamin DLSU Lesson 4 January 30, 2012
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Different Methods in Dividing Losses

Assume that in Illustration 1, the Income & Expense Summary account showed a debit balance (net loss) of P30,000.

Different Methods in Dividing Losses

a. Losses are divided equally:
Mark, Drawing (1/2) 15,000 Spencer, Drawing (1/2) 15,000 Income and Expense Summary

30,000

Different Methods in Dividing Losses

b. Losses are divided 20% to Mark and 80% to Spencer:
Mark, Drawing (.20 x P30,000) 6,000 Spencer, Drawing (.80 x P30,000) 24,000 Income and Expense Summary

30,000

Different Methods in Dividing Losses

c. Losses are divided 1/4 to Mark and 3/4 to Spencer:
Mark, Drawing (1/4 x P30,000) 7,500 Spencer, Drawing (3/4 x P30,000) 22,500 Income and Expense Summary

30,000

Different Methods in Dividing Losses

d. Losses are divided 3:5 for Mark and Spencer:
Mark, Drawing (3/8 x P30,000) 11,250 Spencer, Drawing (5/8 x P30,000) 18,750 Income and Expense Summary 30,000

Different Methods in Dividing Losses

e. Losses are divided using the original capital ratio:
Mark, Drawing (20/50 x P30,000) 12,000 Spencer, Drawing (30/50 x P30,000) 18,000 Income and Expense Summary 30,000

Different Methods in Dividing Losses

f. Losses are divided using the beginning capital ratio:
Mark, Drawing (30/100 x P30,000) 9,000 Spencer, Drawing (70/100 x P30,000) 21,000 Income and Expense Summary 30,000

Different Methods in Dividing Losses

g. Losses are divided using the ending capital ratio:
Mark, Drawing (50/150 x P30,000) 10,000 Spencer, Drawing (100/150 x P30,000) 20,000 Income and Expense Summary 30,000

Different Methods in Dividing Losses

h. Losses are divided using the weighted average capital ratio:
Mark, Drawing (35/100 x P30,000) 10,500 Spencer, Drawing (65/100 x P30,000) 19,500 Income and Expense Summary 30,000

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Different Methods in Dividing Losses

i. Interest of 10% on beginning capital will be allowed and the balance to be divided equally:
Mark, Drawing 35,000 Spencer, Drawing Income and Expense Summary

5,000 30,000
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Computation for Case (i)

Mark Interest of 10% on beginning capital Balance: Equally Spencer Total

30,000 70,000 (65,000) (65,000) ---------------(35,000) 5,000 ===== =====

100,000 (130,000) ----------(30,000) =====

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Different Methods in Dividing Losses

j. Mark and Spencer are allowed salaries of P60,000 and P80,000 respectively, and the balance is to be divided 40% to Mark and 60% for Spencer: Mark, Drawing 8,000 Spencer, Drawing 22,000 Income and Expense Summary

30,000
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Computation for Case (j)

Mark Salaries Balance: Equally Spencer Total

60,000 80,000 140,000 (68,000) (102,000) (170,000) -------------------------( 8,000) (22,000) (30,000) ===== ====== =====

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Different Methods in Dividing Losses

k. Spencer, the managing partner is allowed a bonus of 20% of the net profit before bonus and the balance is to be divided equally:

Mark, Drawing 15,000 Spencer, Drawing 15,000 Income and Expense Summary
Note: No profit, no bonus.

30,000

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Different Methods in Dividing Losses

l. Spencer, the managing partner is allowed a bonus of 20% of the net profit after bonus and the balance is to be divided 2:8 for Mark and Spencer, respectively: Mark, Drawing 6,000 Spencer, Drawing 24,000 Income and Expense Summary
Note: No profit, no bonus.
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30,000

Different Methods in Dividing Losses

m. 10% interest is allowed on beginning capital, each partner is allowed a salary of P50,000. Spencer, the managing partner is entitled to a bonus of 10% of the net profit before interest, salaries and bonus; the residual profit to be divided equally. Mark, Drawing Spencer, Drawing Income and Expense Summary 12,000 18,000 30,000

Note: No profit, no bonus.

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Computation for Case (m)

Mark 10% interest Salaries Balance: 40% 60% Spencer Total

30,000 70,000 100,000 50,000 50,000 100,000 (92,000) (138,000) (230,000) -------------------------(12,000) (18,000) (30,000) ===== ====== =====
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Different Methods in Dividing Losses

n. 10% interest is allowed on beginning capital, P40,000 salary to Mark and P50,000 to Spencer plus a bonus of 20% of the net profit after subtracting interest, salaries and bonus; the residual profit to be divided equally.

Mark, Drawing Spencer, Drawing Income and Expense Summary

40,000
10,000 30,000

Note: No profit, no bonus.

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Computation for Case (n)

Mark 10% interest Salaries Balance: Equally Spencer Total

30,000 70,000 100,000 40,000 50,000 90,000 (110,000) (110,000) (220,000) --------------------------(40,000) 10,000 (30,000) ===== ====== =====
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Net Profit is insufficient to cover interest and salary allowances.

The capital balances of Philip and Stein on December 31, 2009 are P200,000 and P300,000, respectively. Their profit and loss sharing agreement provides for the ff: a. 10% interest on the beginning capital balance. b. Salaries Philip, P60,000 and Stein, P80,000 c. Balance equally.

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Net Profit is insufficient to cover interest and salary allowances.

Assumption:

Net profit before interest and salaries of P160,000

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Assume a net profit before interest and salaries

Philip 10% interest Salaries Balance: Equally 20,000 60,000 (15,000) -------65,000 ===== Stein Total

30,000 50,000 80,000 140,000 (15,000) (30,000) -------------------95,000 160,000 ====== =====
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Journal Entry:
Income and Expense Summary 160,000 Mark, Drawing 65,000 Spencer, Drawing 95,000

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Treatment of Interest and Salary Allowances

Philip and Stein are partners with beginning capital balances of P100,000 and P200,000, respectively. They share profits and losses as follows: 1. Salaries allowed: Philip P15,000 Stein 10,000 2. Interest of 10% on beginning capital. 3. Balance, equally.
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Treatment of Interest and Salary Allowances

Assume a net profit of P80,000 before salaries and interest.

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Treatment of Interest and Salary Allowances

a. If the allowances are treated as distribution of profit, the net profit of P80,000 is already the divisible profit (net profit before deducting salary and interest allowances)

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Treatment of Interest and Salary Allowances

Philip
Salaries 10% Interest Balance: Equally 15,000 10,000 12,500 ---------37,500 =====

Stein
10,000 20,000 12,500 --------42,500 =====

Total
25,000 30,000 25,000 --------80,000 =====
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Journal Entry:

Income and Expense Summary 80,000 Philip, Drawing 37,500 Stein, Drawing 42,500

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Treatment of Interest and Salary Allowances

b. If the allowances are treated as expenses, this means that the allowances should be subtracted from the net profit to arrive at the divisible profit (net profit after deducting salary and interest allowances)

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Treatment of Interest and Salary Allowances

Net profit before salaries and interest P80,000 Salaries (25,000) Interest (30,000) ----------Net profit after salaries and interest P25,000 =====

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Treatment of Interest and Salary Allowances

Philip
Balance: Equally 12,500 ====

Stein

Total

12,500 25,000 ===== =====

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Journal Entry:

Income and Expense Summary 25,000 Philip, Drawing 12,500 Stein, Drawing 12,500

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Computation and Treatment of Bonus

The net income of FV partnership for the year ended December 31, 2009 is P117,500. The profit and loss sharing agreement provides that F, the managing partner is allowed a bonus of 25% of the net income. Income tax is 30%.

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Computation and Treatment of Bonus

Assume that the partnership is not subject to income tax and the bonus is based on net income before bonus. Computation:
Net income before bonus Bonus (25% of P117,500) Net income after bonus 100% 25% -----75% === P117,500 29,375 ----------P 88,125 ======
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Computation and Treatment of Bonus

Assume that the partnership is not subject to income tax and the bonus is based on net income after bonus.
Computation: Net income before bonus 125% Bonus (25% of P94,000 ) 25% -----Net income after bonus 100% ===

P117,500 23,500 ----------P 94,000 (117,500/125%) ======

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Computation and Treatment of Bonus

Assume that the partnership is subject to income tax and the bonus is based on net income after tax before bonus. Computation:
Net income before bonus and tax Income tax 100% 30% -----Net income after tax 70% === Bonus (25% x P82,250) = P20,562.50 ======= P117,500 35,250 ----------P 82,250 ======

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Computation and Treatment of Bonus

Assume that the partnership is subject to income tax and the bonus is based on net income after bonus and tax.
Computation: Net income before bonus and tax Bonus (25% x 70%) Net income after bonus before tax Income tax Net income after bonus and tax 117.5% 17.5% --------100% 30% -------70% ==== P117,500 17,500 ----------100,000 30,000 ----------P 70,000 ======
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Computation and Treatment of Bonus

Bonus (.25 x P70,000) = P17,500 =====

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Interest, Salaries and Bonus Allowances

The capital accounts of Philip and Stein on December 31, 2009 were P100,000 and P200,000 respectively. They divide profits and losses as follows: 1. 6% interest on beginning capital. 2. Salaries: Philip, P14,400; Stein, P15,400 3. Stein, the managing partner is allowed a bonus of 10% of the net profit. 4. Remainder, equally. The net profit on December 31, 2009 before interest, salaries and bonus was P50,000.
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Interest, Salaries and Bonus Allowances

Assume that the bonus is based on the net

profit before interest, salaries and bonus (bonus is treated as distribution of profit).

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Treatment of Interest and Salary Allowances

Philip
6% Interest Salaries Bonus (10%) Balance: Equally 6,000 14,400 (1,400) ---------19,000 =====

Stein

Total
18,000 29,800 5,000 (2,800) --------50,000 =====
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12,000 15,400 5,000 (1,400) --------31,000 =====

Interest, Salaries and Bonus Allowances

Assume that the bonus is based on the net

profit after interest and salaries but before bonus (interest and salaries are treated as expenses but bonus is treated as distribution of profit).

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Treatment of Interest and Salary Allowances

Philip
6% Interest Salaries Bonus (.10 x 2,200) Balance: Equally 6,000 14,400 990 ---------21,390 =====

Stein

Total

12,000 18,000 15,400 29,800 220 220 990 1,980 --------- --------28,610 50,000 ===== =====
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Interest, Salaries and Bonus Allowances

Net profit Interest Salaries

P50,000 (18,000) (29,800) ---------Net profit before bonus P 2,200 =====

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Interest, Salaries and Bonus Allowances

Assume that the bonus is based on the net

profit after interest, salaries and bonus (bonus, interest and salaries are treated as expenses).

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Treatment of Interest and Salary Allowances

Philip
6% Interest Salaries Bonus (.10 x 2,000) Balance: Equally 6,000 14,400 1,000 ---------21,400 =====

Stein

Total

12,000 18,000 15,400 29,800 200 220 1,000 2,000 --------- --------28,600 50,000 ===== =====
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Interest, Salaries and Bonus Allowances

Net profit Interest Salaries

Net profit before bonus Bonus (10% x 2000)

Net profit after bonus

110% 10% ------100%

P50,000 (18,000) (29,800) ---------2,200 200 --------2,000 (2,200/110%)

===

===
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Thank you. Thats all for today!!

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