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    Partnership Operations

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    Kristel Sumabat
    The document discusses how profits and losses are distributed among partners in a partnership based on their agreement. It provides the following rules: 1. Partners share profits and losses according to their partnership agreement. If only profit shares are specified, loss shares are proportional. 2. If the agreement does not stipulate shares, partners contribute proportionately to profits and losses based on their contributions, though industrial partners are not liable for losses. 3. Designation of profit/loss shares cannot be assigned to one partner alone. Excluding a partner from any profit/loss share is void.

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    Partnership Operations

    Uploaded by

    Kristel Sumabat
    414 views2 pages
    The document discusses how profits and losses are distributed among partners in a partnership based on their agreement. It provides the following rules: 1. Partners share profits and losses according to their partnership agreement. If only profit shares are specified, loss shares are proportional. 2. If the agreement does not stipulate shares, partners contribute proportionately to profits and losses based on their contributions, though industrial partners are not liable for losses. 3. Designation of profit/loss shares cannot be assigned to one partner alone. Excluding a partner from any profit/loss share is void.

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    The document discusses how profits and losses are distributed among partners in a partnership based on their agreement. It provides the following rules: 1. Partners share profits and losses according to their partnership agreement. If only profit shares are specified, loss shares are proportional. 2. If the agreement does not stipulate shares, partners contribute proportionately to profits and losses based on their contributions, though industrial partners are not liable for losses. 3. Designation of profit/loss shares cannot be assigned to one partner alone. Excluding a partner from any profit/loss share is void.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    414 views2 pages

    Partnership Operations

    Uploaded by

    Kristel Sumabat
    The document discusses how profits and losses are distributed among partners in a partnership based on their agreement. It provides the following rules: 1. Partners share profits and losses according to their partnership agreement. If only profit shares are specified, loss shares are proportional. 2. If the agreement does not stipulate shares, partners contribute proportionately to profits and losses based on their contributions, though industrial partners are not liable for losses. 3. Designation of profit/loss shares cannot be assigned to one partner alone. Excluding a partner from any profit/loss share is void.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Partnership Operations

    In this topic, we are going to deal on how profit and loss will be distributed depending on the
    agreement or allocation tool agreed by all of the partners. Given below the rules on how profits
    or loss will be divided among the partners.

    Division of profits and losses

    • First priority, partners shall share in the profits or losses of a partnership in


    accordance with the partnership 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 the profits and
    losses shall be in proportion to what he may have contributed, but the
    industrial partner shall not be liable for the losses. (Art. 1797 of the
    Philippine Civil Code)
    • The designation of losses and profits cannot be entrusted to one of the
    partners (Art. 1798).
    • A stipulation which excludes one or more partners from any share in the
    profits or losses is void (Art. 1799).

    Other stipulations that affect division of P/L

    a. Salaries – normally, an industrial partner shall receive salary, in addition to


    his share in the partnership’s profits, as compensation for his services to the
    partnership.
    b. Bonuses – the partnership agreement may stipulate a bonus to be given to a
    managing partner to encourage excellent management performance. Unlike
    for salaries though, a partner is entitled to a bonus only if the partnership
    earns profit.
    c. Interest on capital contributions – the partnership agreement may
    stipulate that each partner may be entitled to a per annum interest
    computed on his capital contributions.
    d. The above-mentioned items are normally provided first to the respective
    partners and any remaining amount of the profit or loss is shared based on
    the stipulated profit or loss ratio.

    Changes in Capital

    Capital beginning xxx


    Additional investment xxx
    Drawings (permanent/temporary) (xx)
    Share in NI (NL) x(x)
    Capital ending xxx

    Drawings

    1. Permanent capital drawings


    - Directly affects capital balance
    2. Regular/Temporary drawings
    - For anticipation for share in share in net income
    - Yearly withdrawal

    *If net loss is generated, regular/temporary withdrawal is considered as


    permanent withdrawal. *If silent, it is permanent.

    Partnership Operation 1
    Illustration Problem 1
    Partners A and B share in profits and losses equally after salaries of P100,000 for A and
    P60,000 for B. The business earned profit of P200,000 before deduction for the salaries.
    Requirements:
    a. Compute for the partners' respective shares in the profit.
    b. Provide the journal entries (the salaries are withdrawn periodically).

    Solution:
    Requirement (a):
    A B Total
    Amount being allocated 200,000
    Allocation:
    1. Salaries 100,000 60,000 160,000
    2. Allocation of remaining profit
    (200K profit – 160K salaries) = 40K
    (40K x 50%); (40K x 50%) 20,000 20,000 40,000
    As allocated 120,000 80,000 200,000

    Requirement (b):
    Monthl A, Drawings 100,000
    y
    B, Drawings 60,000
    entries
    Cash 160,000
    to record the withdrawal of salary allowances
    Year- Income summary 200,000
    end
    A, Capital 120,000
    entry
    B, Capital 80,000
    to record the distribution of profit
    Year- A, Capital 100,000
    end B, Capital 60,000
    entry
    A, Drawings 100,000
    B, Drawings 60,000
    to close the drawings accounts

    Illustration Problem 2
    A and B's partnership agreement provides for annual salary allowances of P160,000 for A and
    P80,000 for B. Profits are shared equally, while losses on a 60:40 ratio. The partnership earned
    profit of P200,000.

    Requirement: Compute for the respective shares of the partners in the profit.

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