PARTNERSHIP

and
Corporation
Accounting

Submitted by: Kimberly I. Nayve

BSBA FM1-A
 CHAPTER 1
BRIEF HISTORY
The idea of partnership is quiet ancient. In 2200 B.C.,
Hammurabi, King of Babylon provided for the regulation of
partnerships. In ancient Rome, the partnership was called a
societa.

In the Philippines, before the effectivity of the new Civil

Code on Aug. 30. 1950, there are two types of partnership:
commercial & civil. Commercial or mercantile partnership
were governed by the Code of Commerce. The old Civil Code
Governed the civil or non-commercial partnership.
DEFINITION

PARTNERSHIP is two or more persons bind themselves to

contribute money, property, or industry to a common
fund, with the intention of dividing profit among
themselves. Two or more persons may also form a
partnership for the exercise of a profession (Civil of
the Philippines, Article 1767).
Each owner is called PARTNER. Partnership are often
formed to bring together various talents and
knowledge. It also provide a means of obtaining more
equity capital than a single individual can obtain and
allow the shaing of risks for rapidly growing
business.
A profession is an occupation that involves a
higher education or its equivalent, and mental
rather than manual labor. The exercise of a
profession is not a business or an enterprise for
profit but the law allows two or more persons to
act as partners in the practice of their
profession. Partnership are generally associated
with the practice of law, public accounting,
medicine and other professionalism. This nature are
called GENERAL PROFESSIONAL PARTNERSHIP.
CHARACTERISTIC OF A PARTNERSHIP

SOME OF MORE IMPORTANT CHARACTERISTICS ARE AS FOLLOW.

• MUTUAL CONTRIBUTION – there cannot be a partnership
without contribution of money,
property or industry.
• Division of profits or losses – the essence of
partnership is that each
partner must share in profits
or losses of the venture.
• Co-ownership of Contributed Assets – all assets contributed
into the partnership are owned by the partnership by
virtue of its separate and distinct juridical personality.
• Mutual agency – any partner can bind the other partners to a
contract if he is acting within his express or implied
authority.
• Limited life – it may be dissolved by the admission, death,
insolvency, incapacity, withdrawal of a partner or
expiration of the term specified in the partnership agreement.
• Unlimited liability – all partners (except limited partners0,
including industrial partners, are personally liable for all
debts, incurred by the partnership.
• Income taxes – except general professional partnership, are
subject to tax at the rate of 30 percent (per R.A No. 9337)
of taxable income.
• Partners equity account – each partners has a capital account and
withdrawal account that serves as similar function as
the related accounts for the sole proprietorship,
ADVANTAGE AND DISADVANTAGE OF A PARTNERSHIP
A partnership offers certain advantage over sole proprietorship
and corporation.
ADVANTAGES VERSUS PROPRIETORSHIP
1. Bring greater financial capability to the business.
2. Combines special skills, expertise and experience of the
partners.
3. Offers relative freedom and flexibility of action in
decision-making.

ADVANTAGES VERSUS CORPORATION

1. Easier and less expensive to organize
2. More personal and informal
DISADVANTAGES
1. Easily dissolved and thus unstable compare to a
corporation.
2. Mutual agency and unlimited liability may create personal
obligation to partners.
3. Less effective than corporation in raising large amount of
capital.

PARTNERSHIP DISTINGISHED FROM CORPORATION.

Manner of Creation – partnership is created by mere agreement
of the partners while a corporation is created by
operational law.
Number of Persons – two or more form by partnership; in
corporation at least five person, not
exceeding fifteen.
• Commerce of Juridical Personality - Juridical personality
commences from the execution of the articles of a
partnership, in a corporation, from the issuance
of certificate of incorporation by the Securities
and Exchange Commission.
• Management – every partner is an agent of the partnership f
the partnership did not appoint a managing
partner; in corporation, management is vested on
the Board of Directors.
• Extend of Liability – each of the partners except limited
partner is liable of his personal assets; in
corporation, stockholders are liable only to the
extend of their interest or investment in the
corporation.
• Right of Succession – in partnership there is no right of
succession; in corporation there is right succession. The
capacity of continued existence regardless of the death,
withdrawal, insolvency or incapacity of its directors or
stockholders.
• Terms of Existence – in partnership for any period of
time stipulated by the partners; in corporation,
not to exceed fifty (50) years but subject to
extension.

• Classification of Partnership
1. According to object
A. Universal partnership of all present property.
B. Universal partnership of profits.
C. Particular partnership.
2. According to liability
A. General
B. Limited
3. According to Duration
A. Partnership with a fixed term or for a particular
undertaking .
B. Partnership at will.
4. According to Purpose
A. Commercial or trading partnership
B. Professional or non-trading partnership.
5. According to Legality of Existence
A. De jure partnership
B. De facto partnership
KINDS OF PARTNERS
1. General Partners
2. Limited partners
3. Capitalist partners
4. Industrial partners
5. Managing partners
6. Liquidating partners
7. Dormant partners
8. Silent partners
9. Secret partners
10.Nominal partner or partner by estoppel
 ARTICLES OF PARTNERSHIP
A partnership may be constituted orally or in writing. In the
letter 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 excess
contribution (as capital or as loans) and the penalties
for a partner’s failure to invest and maintain the agreed
capital.
5. The rights and duties of each partners.
6. The accounting period to be adopted, the nature of
accounting records, financial statements and audits by
independent public accounts.
7. The method of sharing profit or loss, frequency of income
measurement and distribution, including any provisions for
the recognition of differences in contributions.
8. The drawing or salaries to be allowed to partners.
9. The provision for arbitration of disputes, dissolution, and
liquidation.
Securities of Exchange Commission (SEC) – shall not register
any corporation (The Philippine Accountancy Act of
2004, Sec.28).
The purpose of registration is to set “a condition for the
issuance of the licenses to engage in business or trade. In the way,
the tax liability of big partnerships cannot be evaded, and the
public can also determine more accurately their membership and
capital before dealing with them.” (Dean Capistrano, IV Civil Code
of the Philippines).

ACCREDITATION TO PRACTICE PUBLIC ACCOUNTANCY

Certified public accountants (CPA’s), firms and partnership of CPAs,
engages in the practice of public accountancy, including the
partners and staff members thereof , shall register with the
Professional Regulation Commission and the Professional Regulatory
Board of Accountancy. The registration shall be renewed every three
years (The Philippine Accountancy Act of 2004, Sec.31).
The rules and regulations covering the accreditation for the
practice of public accountancy are specified in Annex B of The Rules
and Regulation Implementing Republic Act 9298 otherwise known as the
Philippine Accountancy Act of 2004.

ACCOUNTING FOR PARTNERS

Owners Equity Accounts
The recording of assets, liabilities, income and expenses is
consistent for both sole proprietorships and partnerships. Comparing
two business of the same nature, one organized as a sole
proprietorship and partnership.

A partner’s capital account is credited for his initial and

additional net investments (assets contributed less liabilities
assumed by the partners), and credit balance of the drawing account
at the end of the period. It is debited for his permanent
withdrawals and debit balance of the drawing account at the end of
the period.
A partner’s drawing account is debited to reflect assets
temporarily withdrawn by him from the partnership. At the end
of each accounting period , the balances in the drawing account
are closed to be related capital accounts.
Partners Capital Accounts
Debit
1. Permanent withdrawals
2. Debit balances of the drawing.
account at the end of the period
Credit
1.Original investments
2. Additional investment
3. Credit balance of the drawing account at the end of the
period.
Partners Drawing Account
Debit
1. Temporary withdrawals
2. Share in loss (this may be debited directly to capital).

Credit
1. Share in profit 9this may be credited directly to capital).
Loans Receivable from or Payable to Partners
If a partner withdraws a substance of money with the
intention of repaying it, the debit should be to Loans
Receivable-Partner account instead of to Partners drawings
account. This account should be classified separately from
the other receivables of the partnership. A partner may lend
amounts to the partnership in excess of his intended
permanent investment.
 PARTNERSHIP FORMATION

• VALUATION OF INVESTMENTS BY PARTNERS

• The book of the partnership are opened with entries reflecting the net contributions of the partners
to the firm. Assets accounts are debited for assets contributed to the partnership, liability accounts
are credited for any liabilities assumed by the partnership and separate capital accounts are credited
for the amount of each partners net investment ( assets less liabilities ).
• FAIR MARKET VALUE
• The estimated amount that a willing seller would receive from a financially capable buyer for the sale of the
asset in a free market

• FAIR VALUE
• The price at which an asset or liability could be exchanged in a current transaction between knowledgeable
unrelated willing parties.
• ADJUSTMENT OF ACCOUNTS PRIOR TO FORMATION
• In case when the prospective partners have existing businesses, their repective books will have to be
adjusted to reflect the fair market values of their assets or to correct misstatements in the accounts. If the
adjustments will not be made, the initial capital balances of the partners may be in equitable.
• To understand the adjustments that will be made prior to formation, it will be helpful to review the basics.
The book ( BASIC FIANCIAL ACCOUNTING AND REPORTING MADE EASY 2018 EDITION by Prof. WIN BALLADA
ably discussed the basics of accounting in a manner similar to the following:

• The accounting equation states that assets must always equal liabilities and owners equity. The basic
accounting model is:

• ASSETS = LIABILITIES + OWNER’S EQUITY

 OPENING ENTRIES OF A PARTNERSHIP UPON
FORMATION

• A pertnership may be formed in any of the following ways:

• 1. Individuals with no existing business form a partnership.

• 2. Conversion of a sole proprietorship to a partnership.
• A. A sole proprietor and an individual without an existing business form a partnership.
• B. Two or more sole proprietors form a partnership.
• 3. Admission or retirement of a partner ( to be covered in Chapter 3 ).
• INDIVIDUALS WITH NO EXISTING BUSINESS FORM A PARTNERSHIP

• The opening entey to recognize the contributions of each partner into the partnership is simply to debit the
assets contributed, and to credit the liabilities assumed and the capital account of each partner.
• A SOLE PROPRIETOR AND ANOTHER INDIVIDUAL FORM A PARTNERSHIP

• A sole proprietor may consider forming a partnership with an individual who has no existing business. Under
this type of formation, the assets and the liabilities of the proprietorship will be transferred to the newly
formed partnership at values agreed upon by all the partners or at their current fair prices.
• NEW BOOKS FOR THE PARTNERSHIP ( required per National Internal Revenue Code )

• The following procedures may be used in recording the formation of the partnership:
• BOOKS OF GALICANO DEL MUNDO:
• 1. Adjust the assets and liabilities of Galacano Del Mundo in accordance with the agreement. Adjustments
are to be made to his capital account.
• 2. Close the books.

• BOOKS OF THE PARTNERSHIP

• 1. Record the investment of Galicano Del Mundo.
• 2. Record the investment of Christine Resultay
• NEW BOOKS FOR THE PARTNERSHIP ( Required per National Internal Revenue Code )

• BOOKS OF DEOGRACIA CORPUZ AND ESTERLINA GEVERA:

• 1. Adjust the accounts of both perties in accordance with the agreement. Adjustments are to be made to
their respe tive capital accounts.
• 2. Close the books.

• BOOKS OF THE PARTNERSHIP:

• 1. Record the investment of Deogracia Corpuz
• 2. Record the investment od Esterlina Gevera
 LIMITED LIABILITY COMPANY

• A limited liability company ( LLC ) is a hybrid form of business for it combines the best features of a
partnership and a corporation. LLC is a form of legal entity that provideslimited liability to its owners. In
1988, the Internal Revenue Service ( IRS ) of the United States of America ruled that LLC may be treated as a
partnership for tax purposes subject to conditions. As a result of this rulin, all 50 U. S. States allow LLCs.
• The owners of an LLC are called members. These owners may be individuals, partnerships, corporations or
other entities. Many states even allow one-person LLCs. The members have limited even if they are active in
the company.
• This typeof entity is attractive for professionalservice firms because the owners will not have personal
liability for the other owner’s malpractice.
 PROBLEM #3 FORMATION OF A PARTNERSHIP

Gogola and Paglinawan have just formed a partnership. Gogola contributed cash of P1,260,000
and computer equipment that cost P540,000. The fair value of the computer is P360,000. Gogola
has notes payable on the computer P120,000 to be assumed by the partnership. Gogola is to
have 60% capital interest in the partnership. Paglinawan contribued only P90,000. The partners
agreed to share profit and loss equally.

Gogola should make an additional investment or (withdrawal) of .

PROBLEM #6 A SOLE PROPRIETOR AND AN INDIVIDUAL WITH NO BUSINESS FORM A
PARTNERSHIP
On Apr. 8, 2018, Tolentino who has has her own retail business and Tan, decided to form a partnership where in
they will divide profits in the ratio of 40:60, respectively. The statement of financial position of Tolentino is as
follows:
Tolentino Marketing
Statement of Financial Position
April 8, 2018

Assets
Cash P 4,000
Accounts Receivable P160,000
Less: Allowance for Uncollectible Accounts 16,000 144,000
Inventory 200,000
Equipment P 50.000
Less: Accumulated Depreciation 10,000
Total Assets P388,000
Liabilities
Accounts Payable P 36,000
Tolentino, Capital 352,000
Total Liabilities and Capital P388,000
ACCOUNTING FOR
PARTNERSHIP
(PARTNERSHIP OPERATIONS AND FINANCIAL REPORTING)
CHAPTER 2

LEARNING OBJECTIVES:
Contrast a partner’s equity in assets from
share in profit or losses.
Summarize the rules for the distribution of
profits or losses.
Explain prior period errors and interpret the
effects on partners’ shares in profit or losses.
Identify, describe and account for the
different methods of dividing partnership
profits or losses based on agreement.
Ascertain the effects of usining original,
beginning, ending and average capitals on the
partners’ share in profits or losses.
Show the treatment of interests on capital,
partners’ salaries and bonus in the distribution
of profits or losses.
33
Propose equitable profits or losses sharing
schemes after considering the partners’
contributions and other performance criteria.
Understand and appreciate the usefulness
of financial statements.
Pinpoint the differences in the financial
statements of a partnership as compared to a
sole proprietorship.
Develop skills in the preparation of basic
financial statements.
Differentiate between the capital account
and the current account of a partner used in
other jurisdictions.
Show the treatment of interest on
drawings in other jurisdictions.
 34

HELLO!
I am Claire R, Rabe
BSBA-FM 1A
PARNER’S EQUITY IN ASSETS
CONTRASTED WITH SHARE IN PROFITS OR
LOSSES
 36

PARNER’S EQUITY IN ASSETS CONTRASTED WITH SHARE IN

PROFITS OR LOSSES

▫ The basis on which profits or losses are shared is a matter of agreement among the partners and
may not necessarily be the same as their capital ratio.

▫ The equity of a partner in the net assets of the partnership should be distinguished from a partner’s
share in profits or losses.
 37

FACTORS TO CONSIDER IN ARRIVING AT A PLAN FOR DIVIDING

PROFITS OR LOSSES
Money, Property, or Industry
▫ Partnership profits are realized as a result of putting together the contributions- money, property or
industry- of the partners.
▫ The amount of capital invested by each partner, the amount of time each partner devotes to the
business and other contributions are the factors being considered in the formulation of an equitable
profit and loss ratio.
 38

PERFORMANCE METHODS

Chargeable hours Write-offs

Profits in
excess of
Use performance
specified levels
e

of criteria

Total billings Promotional and

civic activities
 39

RULES FOR THE DISTRIBUTION OF

PROFITS OR LOSSES
▫ The profit or losses shall be distributed in conformity with the agreement.
▫ If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall
be in the same proportion.
▫ In the absence of stipulation, the share of each partner in profits or losses shall be in proportion to what he
may have contributed, but the industrial partner may not be liable for the losses.

LEGAL PROVISION IS PREPARED AS FOLLOWS:
1. Profits
a. the profits will be divided according to
partners’ agreement.
b. if there is no agreement:
 as to capitalist partners, the profits
shall be divided according to their
capital contributions.
 as to industrial partner, such share
as may be just and equitable under
the circumstances, provided, that
the industrial partner shall receive
such share before the capitalist
partners shall divide the profits.
40
2. Losses
a. the losses will be divided according to
partners’ agreement.
b. if there is no agreement as to distribution
of losses but there is an agreement as to
profits, the losses shall be distributed
according to the profit sharing ratio.
c. in the absence of any agreement:
 as to capitalist partners, the losses
shall be divided according to their
capital contributions.
 as to purely industrial partners, (if
there’s any), shall not be liable for
any losses.
 41

CORRECTION OF PRIOR
PERIOD ERRORS

Any business entity will from time discover errors made

in the measurement of profit in prior accounting periods.
Per International Accounting Standards (IAS) Accounting
Estimates and Errors, prior period errors are omissions
from and other misstatements of the entity’s financial
statements for one or more prior periods that are
discovered in the current period.
Errors may occur as a result of mathematical mistakes.
 42

DISTRIBUTION OF PROFITS
OR LOSSES BASED ON
PARTNERS’ AGREEMENT

In general, profits or losses shall be divided in accordance

with the agreement of the partners. The ratio in which
profits or losses from partnership operations are
distributed is recognized as the profit and loss ratio.
 43

THE PARTNERS MAY AGREE ON ANY OF THE

FOLLOWING SCHEME IN DISTRIBUTING PROFIT
OR LOSSES:

1. Equally or in other agreed ratio

2. Based on partners’ capital contributions:
a. ratio of original capital investments
b. ratio of capital balances at the beginning
of the year
c. ratio of capital balances at the end of the
year
d. ratio of average capital balances
3. By allowing interest on partners’ capital and
the balance in an agreed ratio
 44

THE PARTNERS MAY AGREE ON ANY OF THE

FOLLOWING SCHEME IN DISTRIBUTING PROFIT
OR LOSSES:

4. By allowing salaries to partners and the

balance in agreed ratio
5. By allowing bonus to the managing partner
based on profit and the balance in an agreed
ratio.
6. By allowing salaries, interest on partners’
capital, bonus to the managing partner and
the balance in an agreed ratio.
 45

BASED ON PARTNERS’ CAPITAL CONTRIBUTIONS

 Division of partnership profits in proportion to the

capital invested by each partner is most likely to be
found in partnerships in which substantial investments
is the principal ingredient for success.

It is essential that the partnership contract be specific

with respect to the concept of capital.
 46

CAPITAL MAY REFER TO EITHER OF THE FOLLOWING:

Ratio of Original Capital Investments.

Ratio of Capital Balances at the Beginning of the
Year.
Ratio of Capital Balances at the Beginning of the
Year.
Ratio of Average Capital Balances.
 47

BY ALLOWING INTERESTS ON CAPITAL AND THE

BALANCE IN AN AGREED RATIO
The plan for dividing the total profits in the ratio of partners’
capital balances was based on the assumption that capital
investments were the controlling factor in the success of the
partnership.
To allow interest on partners’ capital account balances is almost
similar to dividing part of profits in the ratio of partners’ capital
balances.
Partners invested in a partnership for profits, not for interests.
 48

BY ALLOWING INTERESTS ON CAPITAL AND THE

BALANCE IN AN AGREED RATIO
The interest in partners’ capital, along with the other profit
sharing plans, to be considered as mere techniques to share
partnership profits or losses equitably and not as expenses of the
partnership.
The interest on loans from partners is recognized as expense and
a factor in the measurement of profit or loss of the partnership.
Interest earned on loans to partners is recognized as partnership
income.
 COMPARISON OF DISTRIBUTION BASED SOLELY ON CAPITAL 49

RATIOS AS AGAINST DISTRIBUTION WITH INTEREST ON CAPITAL

BALANCES.
There will be a significant difference between the two distribution
plans if the partnership is operating at a loss.
Under capital ratio plan, the partner who invested more capital
will ultimately shoulder a bigger share of the loss.
Under the interest plan, the partner who invested more capital is
credited (increased) for an interest on his capital and is ultimately
debited (decreased) with a lesser share of the loss; in some cases,
the result may even be a net credit ( increased).
 50

BY ALLOWING SALARIES TO PARTNERS AND THE BALANCE

IN AGREED RATIO
 The sharing agreement may provide for variations in
compensating the personal services contributed by partners.
 The partnership agreement should be clear on the treatment of
salary allowances when losses are incurred.
 In the absence of an agreement to govern this situation, salary
allowances will be provided even when operations yielded losses.
 Partners are the partnerships’ owners; they are not employees of
the business.
BY ALLOWING BONUS TO THE MANAGING PARTNER
51

BASED ON PROFIT AND THE BALANCE IN AN AGREED

RATIO
 A partnership contract may provide for a special
compensation in the form of bonus to the managing
partner when the results of operations of the partnership
are favorable.

 Bonus is not being considered in the computation of profit,

rather it is a mere technique to distribute profits.
BY ALLOWING SALARIES, INTERESTS ON CAPITAL, BONUS
52

TO THE MANAGING PARTNER AND THE BALANCE IN AN

AGREED RATIO
 The service contributions and capital contributions of the
partners are often not equal.
 If the service contributions are not equal, salary allowances can
compensate for the differences.
 The provisions for salaries and interest in the partnership
agreement are called allowances.
 Allowances are not reported in the statement of recognized
income and expense as salaries and interests expense; they are
merely means of allocating profit to the partners.
FINANCIAL REPORTING
 54

PURPOSE OF FINANCIAL STATEMENTS

 Financial Statements are structured representation with the
objective of providing information about the financial position,
financial performance and cash flows of an entity that is useful to a
wide range of users in making economic decisions.
 Financial statements also show the results of the management’s

stewardship of the resources entrusted to it.

 To meet the objective, financial statements provide information

about an entity’s assets, liabilities, equity, income and expenses,

other changes in equity and cash flows.
 55

MAPS

Overall
Considerations
 56

Fair Presentation and Compliance with International

Financial Reporting Standards (IFRSs).

THE FINANCIAL STATEMENTS SHALL PRESENT FAIRLY

THE FINANCIAL POSITION, FINANCIAL PERFORMANCE
AND CASH FLOWS OF THE ENTITY.

FAIR PRESENTATION REQUIRES THE FAITHFUL

REPRESENTATION OF THE EFFECTS OF
TRANSACTIONS, OTHER EVENTS AND CONDITIONS IN
ACCORDANCE WITH THE DEFINITIONS AND
RECOGNITION CRITERIA FOR ASSETS, LIABILITIES,
 57

Under IAS No. 1 (revised 2007), entities are required to

make an explicit and unreserved statement of
compliance with IFRS in the notes.

 Going Concern
 Accrual Basis of Accounting
 Materiality and Aggregation
 Offsetting
 Frequency of Reporting and Comparative
Information
 Consistency of Presentation
 Identification of the Financial Statements
 58

Statement of Changes in Equity

An entity shall present a statement of changes in
equity, showing in statement:

a. total comprehensive income for the period showing separately the

total amounts attribute to owners of the parent and to minority
interests;
b. for each component of equity, the effects of retrospective
restatement recognized in accordance with IAS
c. the amounts of transactions with owners in their capacity as
owners, showing separately contributes by and distribution to
owners; and
d. for each component of equity, a reconciliation between the carrying
amount at the beginning and the end of the period, separately
disclosing each change.
 59

Statement of Financial Position

 The preparation of the statement of financial position will no major
difficultly.
The face of the statement of financial position shall include line
items that present the following amounts:
a. Property, plant and equipment;
b. Investment property;
c. Intangible assets;
d. Financial assets (excluding amount shown under e, h and I );
e. Investment accounted for using the equity method;
f. Biological assets;
g. Inventories;
h. Trade and other receivables;
i. Cash and cash equivalents;
 60

Statement of Financial Position

j. The total assets classified as held for sale and assets included in
disposal groups classified as held for sale in accordance with
IFRS 5;
k. Trade and other payables;
l. Provisions;
m. Financial liabilities (excluding amounts shown under k and l) ;
n. Liabilities and assets for current tax as defined in IAS 12;
o. Deferred tax liabilities and deferred tax assets, as defined in IAS
12;
p. Liabilities in disposal groups classified as held for sale in
accordance with IFRS 5 ;
q. Minority interest, presented within equity; and
r. Issued capital and reserves attributable to equity holders of the

STATEMENT OF FINANCIAL POSITION
Entity makes the judgement
about wether to present
additional items separately on
the basis of an assessment of:
a. the nature and
liquidity of assets.
b. the function of assets
within the entity; and
c. the amounts, nature
and timing of liabilities
Entity shall classify an asset as
current asset when it satisfies
any of the following criteria:
▫ it expects to realized the
assets, intends to sell or
consume it, in its normal
operating cycle; or
▫ it holds the asset primarily for
the purpose of trading; or
▫ it expects to realize the assets
within 12 months after the end
of the reporting period; or
▫ the asset is cash or a cash
equivalent as defined in IAS No.
7
61
A liability should be classified
as a current liability when it:
▫ is expected to be settled in the
normal operating cycle, or
▫ is held primarily for the
purpose of trading; or
▫ is due to be settled within 12
months after the end of the
reporting period; or
▫ does not have an unconditional
right to defer settlement of the
liability for at least 12 months
after reporting period.
 Current and noncurrent assets and liabilities should be
separately classified on the face of the statement of
financial position expect when a presentation based on
liquidity provides more reliable and relevant
information.

 All assets are noncurrent. Operating cycle is the time

between the acquisition of assets for processing and
their realization in cash equivalents.

 All other liabilities should be classified as non- current

liabilities. 62
Statement of Cash Flows
• The cash flow statement serves as a basis for
evaluating the entity’s ability to generate cash and cash
equivalents and the needs to utilize these cash flows.

• The statement of cash flows provides information

about the cash receipts and cash payments of an entity
during a period.

• It is a formal statement that classifies cash receipts

(inflows) and cash payments ( outflows) into operating,
63

investing and financing activities.

Cash Flows from Operating Activities
• Operating activities generally involve providing
services, and producing and delivering goods.

• Cash flows from operating activities are generally the

cash effects of transactions and other events that enter
into the determination of profit or loss.

• This cash flow can be presented using either the direct

or the indirect method. 64
 65

Direct Method- the entity’s net cash provided by (used

in) operating activities is obtained by adding the
individual operating cash inflows and then subtracting
the individual operating cash outflows.

Indirect Method- derives the net cash provided by

(used in) operating activities by adjusting profit for
income and expense items not resulting from cash
transactions.
THE MAJOR CLASSES OF OPERATING CASH FLOWS
USING THE DIRECT METHOD:

Cash Inflows
• Receipts from sale of goods and performance of services
• Receipts from royalties, fees, commissions and other revenues.

Cash Outflows
• Payments to suppliers of goods and services
• Payments to employees
• Payments for taxes
• Payments for interest expense
• Payments for other operating expenses 66
CASH FLOWS FROM INVESTING ACTIVITIES
Investing activities include making and collecting loans;
acquiring and disposing of a investments in debt or equity
securities; and obtaining and selling of property and equipment
and other productive assets.
Cash Inflows
• receipts from sale of property and equipment
• receipts from sale of investments in dept or equity securities
• receipts from collections on notes receivable
Cash Outflows
• payments to acquire property and equipment
• payments to acquire dept or equity securities
• payments to make loans to other generally in the form of notes
67

receivable.
CASH FLOWS FROM FINANCING ACTIVITIES
Financing activities include obtaining resources from owners
and creditors.

Cash Inflows
• receipts from investments by owners
• receipts from inssuance of notes payable

Cash Outflows
• payments to owners in the form of withdrawals
• payments to settle notes payable

68
 69

Partner’s Equity
CAPITAL ACCOUNTS
• The capital accounts of each partner will be credited with the
partner’s original and additional capital contributions, and debited
with any payment withdrawals.
• The balances of the partner’s account will not change frequently.
• Capital accounts prepared in this manner are referred to as fixed
capital accounts.
Current Accounts
• The current accounts will be credited for salaries and interest on
capital ( in this case, with a debit to profit and loss appropriation
account).
• It will debited for interest on drawings. At the end of the year, it
70
will be debited with the drawings account balance.
 71

PARTNER’S CURRENT ACCOUNT

Debit Credit

1. Interest on Drawings 1. Interest on Capital

2. Drawings 2. Partner’s Salaries
3. Share in Residual 3.Share in Residual
Losses Profits
 72

Drawing Accounts
•A drawing account is maintained for each partner.
•This will debited for any cash drawings during the year.
•The balance of this account is transferred to the partner’s current
account at the end of the year.
Interest on Drawings
•Some partnership agreements will provide the partners will be charged
interest on any drawings made during the year.
• This is to defer partners from drawing cash from the business.
• The interest on drawings is added to the profit for the year.
•It is debited to the individual partner’s current accounts and credited to
the profit and loss appropriation account.
 PROBLEM #2: FORMATION AND OPERATIONS OF A PARTNERSHIP
On June 30, San Mateo and Caballes formed a partnership. The partners agreed to invest equal amounts of capital. San Mateo invested his propreitorship’s assets and
liabilities as follows:
San Mateo’s
Book Value Fair Market Value
Accounts Receivable P72,000 P72,000
Allowance for Uncollectible Accounts -0- 10,500
Merchandise Inventory 223,400 241,000
Prepaid Expenses 17,000 17,000
Office Equipment 459,000 276,000
Accumulated Depreciation 153,000 -0-
Accounts Payable 191,000 191,000

On June 30, Caballes invested cash in an amount equal to the current market value of San Mateo’s partnership capital. San Mateo, the managing partner, would earn
two-thirds of partnership profits. Caballes agreed to accept one-third of the profits.
During the remainder of the year, the partnership earned P450,000. the temporary withdrawals of San Mateo and Caballes were P352,000 and P230,000, respectively.
Required:
1. Journalize the partner’s initial investments in a new set of books.
2. Prepare the partnership’s statement of financial position immediately after its formation on June 30.
3. Journalize the entries to close the income summary and the drawing accounts.
PROBLEM #15: DISTRIBUTION OF PROFITS OR LOSSES BASED ON PARTNER’S AGREEMENT

• A summary of changes in the capital accounts of the Rialubin, Rabena and Dela Cruz partnership for 2018, before closing, follows:

Rialubin Rabena Dela Cruz Total

Balance, Jan. 1, 2018 P80,000 P80,000 P90,000 P250,000
Investment, Apr. 1 20,000 20,000
Withdrawal, May 1 (15,000) (15,000)
Withdrawal, July 1 (10,000) (10,000)
Withdrawal, Sept. 1 (30,000) (30,000)
P90,000 P65,000 P60,000 P215,000

Required:
Determine the allocation of the 2018 profit to the partner’s under each of the following independent assumptions:
1. Profit is P48,000 and profit is divided on the basis of average capital balances.
2. Profit is P50,000. Rialubin receives a bonus of 10% of profit for managing the business, and the balance to be divided on the basis of
beginning capital balances.
3. Loss is P35,000, each partner is allowed 10% interest on beginning capital balances and the balance to be divided equally.
CHAPTER 3:

DISSOLUTION- CHANGES IN OWNERSHIP

DEFINITION

The dissolution of a partnership 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 business of the partnership (Civil Code of the Philippines, Article
1828).

On dissolution, the partnership is not terminated, but continues until the winding up of
partnership affairs is completed (Article 1829). Winding up is the process of settling the
business or partnership affairs after dissolution. Termination is that point in time when all
partnership affairs are wound up or completed, snd is the end of the partnership life.
Causes of Dissolution

Partnership dissolution due to changes in ownership occurs for

varying reasons and the following are more prevalent:

1. Admission of a partner
2. Withdrawal or retirement of a partner
3. Death of a partner
4. Incorporation of the partnership
Admission of a Partner

A new partner can only be admitted into a partnership with the consent of all the
continuing partners. This is based on the principle of delectus personae. No one
becomes a member of the partnership without the consent of all the members. This is
because a partnership is based on mutual trust and confidence of the partners.

By admission of a new partner, the old partnership has been dissolved and it is
important that a new agreement be formulated to govern the continuing business
operations. A person may become a partner in an existing partnership by either of the
following:
1. Purchase of an interest from one or more of the existing partners.
2. Investment of assets in the partnership by the new partner.
Liability of Incoming Partner for Existing Obligations

A person admitted as a partner into an existing

partnership is liable for all the obligations of the
partnership incurred before his admission as though he
had been a partner when such obligations were
incurred. Such liability is limited to his capital
contribution, unless otherwise agreed.
Purchase of an Interest from Existing Partners

With the consent of all continuing partners, a person may be admitted into an existing
partnership by purchasing an interest directly from one or more of the existing partners.
Payment is made personally to the partner from whom the interest is obtained resulting
to mere transfers among capital accounts.

This type of admission will only result to a debit to the capital account of the selling
partner for the interest sold and a credit to the capital account of the buying partner for
the interest purchased. The amount debited and credited is not affected by the actual
price for the equity interest. In this type of admission, the total assets, total liablities and
total partners’ equity of the partnership are not affected upon admission.
Illustration. Elizabeth Salvador and Reynaldo San Mateo are
partners with capital balances of P400,000 and P200,000,
respectively. They share profits in the ratio of 3:1. Their
business has been very successful. All indications show that it
will continue be.
CASE 1. PAYMENT TO OLD PARTNERS IS EQUAL TO INTEREST
PURCHASED.
Partners Elizabeth Salvador and Reynaldo San Mateo received an offer from Janet Mataguinas to
purchase directly one-fourth of each of their interest in the partnership for P150, 000. The partners
agreed to admit Janet Mataguinas into the firm.
Elizabeth Salvador Capital. 100,000
Reynaldo San Mateo, Capital. 50,000
Janet Mataguinas, Capital. 150,000
To record admission of Mataguinas.

Computation:
Salvador: P400, 000×1/4. P100, 000
San Mateo: P200, 000×1/4. 50,000
Interest transferred to Mataguinas. P 150,000
One-fourth of each partners capital was transferred to the new partner. The partnership did not receive tha
cash paid because the transaction is between Matuguinas and partners Salvador and San Mateo personally,
not between Matuguinas and the partnership.

Case 2. Payment to old partners is less than the interest purchased. Assume that Janet Matuguinas directly
purchased one-third of each partners interest in the business. Mataguinas paid P160, 000 for one-third of
each partner’s capital.

Elizabeth Salvador Capital. 133,000

Reynaldo San Mateo, Capital. 66,667
Janet Mataguinas, Capital. 200,000
To record admission of Mataguinas.
 Computation:
Salvador: P400, 000×1/3 P133,333
San Mateo: P200, 000×1/3 66,667
Interest transferred to Mataguinas. P200,000

The new partner was credited for P200, 000 interest in the new
partnership. The equity is transferred to Mataguinas as its book value
to the old partners of P200,000. The negotiated price of P16,000
does not affect the entry because the exchange is between
Matuguinas and the old partners and does not involve partnership
assets.
Case 3. Payment to old partners is more than the interest purchased. Partners Elizabeth Salvador and
Reynaldo San Mateo received an offer from Janet Matuguinas to purchase directly 30%of each of their
interest in the partnership for P200,000. The partners agreed to admit Janet Matuguinas as a member of
the firm.

Elizabeth Salvador Capital. 120,000

Reynaldo San Mateo, Capital. 60,000
Janet Mataguinas, Capital. 180,000
To record admission of Mataguinas.
Computation:
Salvador: P400, 000×30% P120,000
San Mateo: P200, 000×30% 60,000
Interest transferred to Matuguinas. P180, 000

Thirty percent of each partner’s capital was transferred to the new partner. Just like in the oder preceding
cases, the partnership did not receive cash paid because the transaction is between Matuguinas and
partners Salvador and San Mateo personally, not between Matuguinas and the partnership.
Investment of Assets in a Partnership

A person may be admitted into a partnership by

investing cash or other assets in the business. The
assets are invested into the partnership and not given
to the individual partners. The investment will increase
the total assets and the total partners’ equity.
Definition of Terms
Total Contributed Capital. It is the sum of the capital balances of the old
partners and the actual investment of the new partner.
Total Agreed Capital. It is the total capital of the partnership after
considering the capital credits given to each of the partners. Under the
bonus method, total agreed capital is equal to the total contributed capital
though the capital credits to each partner may be equal to, greater than
or less than his capital contributions.
Bonus. It is the amount of capital or equity transferred by one partner to
another partner.
Capital Credit. It is the equity of a partner in the new partnership and is
obtained by multiplying the total agreed capital by the applicable
percentage interest of the partner.
Bonus to Old Partners

A partnership may be exceptionally attractive because of

superior earnings record such that the old partners may
demand a premium from a new partner. This premium
increases the old partners’ capital interest.
Case 1. Total Agreed Capital is stated.

Illustration. Rebecca Miranda and Stephanie Calamba are partners with

capital balances of P400,000 and P200,000, respectively. They share
profits in the ratio of 3:1. the partners agreed to admit Gualberto
Magdaraog Jr. As a member of the firm. The foregoing information will be
the basis of the following cases.

Assume that Gualberto Magdaraog Jr. Invested P250,000 for a one-

fourth interst in the business. The partners decided not to revalue the
assets of the partnership and that the total agreed capital is P850,000.
 Contributed. Bonus. Agreed
Rebecca Miranda P400, 000. P28,125. P428,125
Stephanie Calamba. 200,000. 9,375. 209,375
Total P600, 000 P37,500 P637,500
Gualberto. 250,000. (37,500). 212,500*.
Magdaraog Jr. 1/4 Agreed
Capital
Total 850,000. P-0- P850,000
 *850,000×1/4=P212,500.
Distribution of Bonus:
Miranda: P37,500×3/4 =P28,125
Calamba: P37,500×1/4= 9,375

The investment of Magdaraog resulted to a bonus because the total contributed capital of
P850,000 is equal to the agreed capital. The partnership net assets are increased only by
the amount of the new investment. The capital credit for Magdaraog of P212,500 is
P37,500 less than his actual investment. The difference represented the bonus allocated
to the old partners in their profit and loss ratio. The use of superscripts in all the cases will
facilitate the formulation of the entries.
 (1)
Cash. 250,000
Gualberto Magdaraog Jr., Capital. 250,000
To record the investment of Magdaraog.

(2)
Gualberto Magdaraog Jr., Capital. 37,500
Rebecca Miranda, Capital. 28,125
Stephanie Calamba, Capital. 9,375
To record bonus to old partners.
Case 2. Total agreed capital is not explicitly stated. Assume that
Gualberto Magdaraog Jr. invested P300,000 in the business. Out of the
total cash investment, P 100,000 is considered as a bonus to Partners
Rebecca Miranda and Stephanie Calamba. The investment of Magdaraog
resulted to a bonus as stated. Under the bonus method, the total
contributed capital is equal to the total agreed capital. It is also clearly
specified that the old partners will receive the bonus.
Contributed. Bonus. Agreed
Rebecca Miranda P400, 000. P75,000 P475,000
Stephanie Calamba. 200,000. 25,000 225,000
Total P600, 000 P 100,000 P700,000
Gualberto. 400,000. (100,000). 300,000
Magdaraog Jr.
Total P1,000,000. P-0- P1,000,000
 Distribution of Bonus:
Miranda: P100,000×3/4 =P75,000
Calamba: P100,000×1/4= 25,000

(1)
Cash. 400,000
Gualberto Magdaraog Jr., Capital. 400,000
To record the investment of Magdaraog.

(2)
Gualberto Magdaraog Jr., Capital. 100,000
Rebecca Miranda, Capital. 75,000
Stephanie Calamba, Capital. 25,000
To record bonus to old partners.
• The capital credit for Magdaraog is P100,000 less than his
actual investment. The difference represented the bonus
allocated to the old partners in their profit and loss ratio.
 BONUS TO NEW PARTNER
A NEW PARTNER MAY BE ADMITTED INTO THE PARTNERSHIP BECAUSE OF HIS VAST
FINANCIAL RESOURCES , EXTENSIVE BUSINESS NETWORK , DISTINCTIVE REPUTATION
, UNIQUE MANAGEMENT AND/OR TECHNICAL SKILLS. THE OLD PARTNERS MAY BE
WILING TO GIVE A PREMIUM FOR ALL THESE EXCEPTIONAL QUALIFICATION BY
ALLOWING A CAPITAL CREDIT GREATER THAN THE PROSPECTIVE PARTNERS
INVESTMENT JUST TO ENSURE HIS ASSOCIATION WITH THE PARTNERSHIP. THIS
PREMIUM WILL BE TREATED AS A BONUS FROM THE EQUITIES OF THE OLD
PARTNERS AND CREDITED TO THE NEW PARTNER.
CASE 1. TOTAL AGREED CAPITAL IS STATED.
ASSUME THAT GUALBERTO MAGDARAOG JR.
INVESTED P240,000FOR ONE-THIRD INTEREST
IN THE BUSINESS . THE TOTAL AGREED CAPITAL
IS P840,000.THE INVESTMENT OF
MAGDARAOG RESULTED TO A BONUS AS
SHOWN BY THE FOLLOWING TABLE:
 Contributed Capital Bonus Agreed Capital
Rebecca Miranda P400,000 P(30,000)2 P370,000
Stephanie Calamba 200,000 (10,000) 2 190,000
Total P600,000 P(40,000) P(560,000)
Gualberto 240,000 40,0002 280,000*
Magdaraog Jr.
Total P840,000 P-0- P840,00

(1)
Cash 240,000
Gualberto Magdaraog Jr.,Capital 240,000
To record the investment of Magdaraog.
(2)
Rebecca Miranda,Capital 30,000
Stephanie Calamba,Capital 10,000
Gualberto Magdaraog Jr.,Capital 40,000
To record bonus to new partner.
The capital credit for MAgdaraog of P280,000 is P40,000 more than his
actual investment . This difference represented a bonus a new partner
because the total contributed capital is equal to the total agreed capital ,
and the capital credit to the new partner is more than his actual
investment . the equities of the old partners are decrease by P40,000 in
their profit and loss ratio.

Case 2
Total agreed capital is not explicitly stated. Assume that Gualberto
Magdaraog Jr. invested P300,000 for a 50% interest in the business .
Rebecca Miranda and Stephanie Calamba transferred part of their
capital balance to that of Gualberto Magdaraog Jr. as a bonus. The
investment of Magdaraog resulted to a bonus as stated . Under the
bonus method , the total contributed capital is equal to the total agreed
capital.
 Contributed Capital Bonus Agreed Capital
Rebecca Miranda P400,000 P(112,500)2 P287,000
Stephanie Calamba 200,000 (37,500) 2 162,500
Total P600,000 P(150,000) P(450,000)
Gualberto 300,0001 150,0002 450,000*
Magdaraog Jr.
Total P900,000 P-0- P900,000

(1)
Cash 300,000
Gualberto Magdaraog Jr.,Capital 3000,000
To record the investment of Magdaraog.

(2)
Rebecca Miranda,Capital 112,500
Stephanie Calamba,Capital 37,500
Gualberto Magdaraog Jr.,Capital 150,000
To record bonus to new partner.
• The capital credit for Magdaraog of P450,000 is P150,000 more than his actual investment.
This differences represented the bonus a located to the new partner. The equities to the old
partner are decrease by P150,000 in their profit and loss ratio.

Withdrawal or Retirement of a partner

• A partner may withdraw retire from a partnership for various reasons . Disputes of other
partners old age and pursuit for better opportunities are among possible explanations . The
withdrawal dissolves the old partnership. This type dissolution may be accomplish by ethier
of the following ways:

• 1.by selling his equity interest to or more of the remaining partners.

• 2.by selling interest to an outsider
• 3.by selling interest to the partnership.
SALE OF INTEREST TO A PARTNER OR AN OUTSIDER
When a partners interest is sold to another partner to an outsider, withdrawing partners os paid for
personal asset of the buyer. Accounting is similar to admission by purchase interest. The total assets of the
partnership are not affected by the consideration involved. The required entry will only be a debit to the sellers
capital account for his capital balance and a credit to the buyers capital account for the same amount.
There are times when a partner withdraws in the middle of the account ting period; In such a case the
books of the partnership should be updated to determine the retiring partners capital balance. Profit or losses
should be measured from the last closing of books to the date of withdrawal and distributed according to their
profit or loss sharing agreement.

SALE OF INTEREST TO THE PARTNERSHIP

When a withdrawing partners sells his interest to the partnership , the partner is paid from the assets of the
partnership . He may receive an amount equal to , greater than or less than the balance of his capital account. The
effect of withdrawal is to reduce the assets and the owners equity of the partnership.
ILLUSTRATION

Suppose that Remedios Palaganas is retiring mid year from the

partnership of Selisana , Dela Cruz and Palaganas because of family
relocation .Physical distance will prevent her from coping with the daily rigors
of their fashion and beauty consulting business. After the books have been
adjusted for the semi annual profits but before revaluation, their balances are
as follows:

Jessica Selisana, Capital P540,000

Daisy Dela Cruz, Capital 430,000
Remedios Palaganas, Capital 210,000
To revalue cosmetics inventory per appraisal
An independent appraiser revalued their cosmetics inventory p380,000 (a decrease of p60,000) and
their land to p1,000,000 (an increase of p460,000).The profit and loss ratio of the parners is 1:2:1.

Jessica Selisana, capital P15,000

Daisy Dela Cruz, capital 30,000
Remedios Palaganas, capital 15,000
Cosmetics inventory 60,000
To revalue cosmetics inventory per appraisal.

Land 460,000
Jessica Selisana, capital 115,000
Daisy Dela Cruz, capital 230,000
Remedios Palaganas, capital 115,000
To revalue land appraisal.

After revaluation, the capital balances of the partners are shown below:
Jessica Selisana, capital P640,000
Daisy Dela Cruz, capital 630,000
Remedios Palaganas, capital 310,000
Case 1 Withdrawal at book value.Assume that Remedios Palaganas agreed to accept payment equal to her interest.

Remedios Palaganas, capital 310,000

Cash 310,000
To record retirement of Palaganas.

Case 2. Withdrawal at more than book value. Assume that Remedios Palaganas demanded a p400,000 settlement fo
interest because she firmly believed that she has contributed so much to the success of the business. The remaining
partners agreed for old times sake.
Jessica Selisana, capital P30,000
Daisy Dela Cruz, capital 60,000
Remedios Palaganas, capital 310,000
Cash 400,000
To record retirement of Palaganas with bonus from continuing partners.
Case 3. Withdrawal at less than book value. Assume that remedies palaganas is very eager to retire and willing to
accept settlement at 280,000. When palaganas, the retiring partner, received as settlement an amount less than her
capital balances, in effect, the partner is giving a part of her equity interest to continuing partners as a bonus.

Remedios Palaganas, capital 310,000

Cash 280,000
Jessica Selisana, capital 10,000
Daisy Dela Cruz, capital 20,000
To record retirement of Palaganas with bonus from continuing partners.
DEATH OF A PARTNER
Dissolves a partnership . When the death partner does not result to liquidation, the accounting
procedures to be followed are similar to those discussed in the withdrawal of a partner . The decreased
partner may be considered to have retired from the partnership[p and his heirs or estate can expect to
receive the amount of his interest from the business.

INCORPORATION OF A PARTNERSHIP
A partnership decide to incorporate after evaluating the various advantages of having a corporate
form of business organization. After the necessary adjusting and closing entries , the assets and liabilities
of a partnership are transferred to the corporation in exchange for shares of stock . The shares receive by
the partnership are distributed to the partners based on their equity interest. In books of the corporation ,
the receipt transfered assets and liabilities will be recorded along with the insurance of share capital to
the incorporations , the “former” partners.
ILLUSTRATION. Partners Madelyn Rialubin and Juanita Rabena , who share equally in profits and losses
, have the following items in their partnership`s statement of financial position as at December.31,2018:

Cash P120,000 Accounts Payable P172,000

Accounts Receivable 100,000 Accum. Depreciation 8,000
Inventory 140,000 Madelyn Rialubin,Capital 140,000
Equipment 80,000 Juanita Rabena,Capital 120,000
Total P440,000 Total P440,000
They agreed to incorporate their partnership , with a new corporation absorbing the net assets after the following
adjustments : providing for allowances for doubtful accounts of P10,000,restatement of the inventory to its current fair
value of P160,000 and , additional recognition of depreciation on the equipment of P3,000.
The corporation`s share capital will have a par value of P100 and the partners will be issued the shares equivalent to
their adjusted capital balances. The journal entries to incorporate the partnership will be:

Cash 120,000
Accounts receivable 100,00
Inventory 160,000
Equipment 69,000
Allowance for Doubtful Accounts 10,000
Accounts Payable 172,000
Ordinary shares 267,000
PROBLEM #8 ADMISSION BY PURCHASE OF
INTEREST OF INVESTMENT OF ASSETS
• Castro and Falceso are partners who share profits and losses in a ratio of 2:3 respectively, and
the following capital balances on Sept. 30, 2019: Castro, Capital, P100, 000 Cr. And Falceso,
Capital, P150, 000 Cr. The partners agreed to admit Garachico to the partnership.
• Required: Calculate the capital balances of each partner after the admission of Garachico,
assuming that bonuses are recorded when appropriate for each of the following assumptions:
1. Garachico paid Castro P 50,000 for 40% of interest.
2. Garachico invested P50, 000 for one-sixth interest in the partnership.
3. Garachico invested P50, 000 for a 25%interest in the partnership
4. Garachico ininvested have for a 15% interest in the partnership.
PROBLEM #18 WITHDRAWAL OF A PARTNER

• Gregorio is retiring from the partnership of Guerra, Guillermo, and Gregorio. The profit and loss
ratio is 2:2:1,respectively. After the accountant has posted the revaluation and closing entries,
the credit balances In the capital accounts are: Guerra, P530, 000, Guillermo P430, 000, and
Gregorio, P210,000.
• Required: Journalize the journal entries to record the retirement of Gregorio under each of the
following unrelated assumptions :
1. Gregorio retires , taking P210,000 of partnership cash for her equity.
2. Gregorio retires, taking P270, 000 of partnership cash for her equity.