Republic of the Philippines

Laguna State Polytechnic University

ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
LSPU Self-Paced Learning Module (SLM)
Course Partnership and Corporation Accounting
Sem/AY First Semester/2020-2021
Module No. 2
Lesson Title Accounting for Partnership Transaction (part 1) Basic Consideration and Formation

Week
2
Duration
Date
Description This lesson will discuss the basic concept and accounting for a partnership business,
of the Lesson formation, operation, and different profit distribution schemes.

Learning Outcomes
Intended Students should be able to meet the following intended learning outcomes:
Learning  Demonstrate understanding of the nature of partnership-its characteristics, advantages and
Outcomes disadvantages.
 Identify the different kinds of partnerships and the classes of partners
 Prepare accounting entries for partners' initial investments in a partnership.
 Prepare financial statements of a partnership.
Targets/ At the end of the lesson, students should be able to:
Objectives  Understand the concept and nature of a partnership business.
 Differentiate the partnership business, classify classes of partners.
 Prepare journal entries in the formation of partnership.
 Prepare initial statement of financial position of a partnership business.
Student Learning Strategies
Online A. Online Discussion via Google Meet/Zoom
Activities You will be directed to attend in a __________class discussion on the nature and
(Synchrono types of educational technologies. To have access to the Online Discussion, refer
us/ to this link: ____________________.
Asynchron The online discussion will happen on November ____2020, from ____________
ous) AM./PM.
(For further instructions, refer to your Google Classroom and see the schedule of
activities for this module)
B. Learning Guide Questions:
1. What partnership business and how is it formed?
2. How should the investment of partners be measured?
3. What are the journal entries in its formation?

4. Note: The insight that you will post on online discussion forum using Learning Management System (LMS)
will receive additional scores in class participation.

Offline
Activities Lecture Guide

LSPU SELF-PACED LEARNING MODULE: TECHNOLOGY FOR TEACHING AND LEARNING

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
- On prescribed book the students must have read thoroughly and may read other related
books in partnership accounting

1. Nature of Partnership Business:

 Two or more persons bind themselves together to contribute money, property, or
industry to a common fund, with the intention of dividing the profit among themselves.
Two or more persons may also form a partnership for the exercise of a profession. (Civil
Code of the Philippines, Article 1767)

 An association of two or more persons to carry on, as co-owners, a business for profit
(Uniform Partnership Act, Section 6)

 Partnerships resemble sole proprietorships, except that there are two or more owners of
the business. Each owner is called partner. Partnerships are often formed to bring
together various talents and knowledge. Partnerships provide a means of obtaining more
equity capital than a single individual can obtain and allow the sharing of risks for rapidly
growing businesses.

 Characteristics of partnerships
 Mutual Contribution. There cannot be a partnership without contribution of money,
property, or industry.
 Division of profit and losses. The essence of partnership is that each partner must
(e- share in the profits or losses of the venture.
Learning/  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. If
Self-
one partner contributes an asset to the business, all partners jointly own it in a special
Paced) sense.
 Mutual Agency. Any partner can bind the other partners to a contract if he /she is acting
within his/her express or implied authority.
 Limited Life. A partnership has a 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, including industrial partners, are personally liable for
all debts incurred by the partnership.
 Income taxes. Partnerships, except general professional partnerships, are subject to tax
at the rate of 30% of taxable income.
 Partners’ Equity Accounts. Each partner has a capital account and a withdrawal account
that serves similar functions as the related accounts for sole proprietorships.
ADVANTAGES vs PROPRIETORSHIP
 Brings greater financial capability to the business.
 Combines special skills, expertise and experience of the partners.
 Offers relative freedom and flexibility of action in decision-making.
ADVANTAGES vs CORPORATIONS
 Easier and less expensive to organize.
 More personal and informal.

LSPU SELF-PACED LEARNING MODULE: TECHNOLOGY FOR TEACHING AND LEARNING

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

DISADVANTAGES
 Easily dissolved and thus unstable compared to a corporation.
 Mutual agency and unlimited liability may create personal obligations to
partners.
 Less effective than a corporation in raising large amounts of capital

 Partnership distinguished from corporation

Partnership Corporation

Manner of creations Created by mere Created by operation of

agreement of the law.
partners.
Number of persons Two or more. At least 5 but not
upon formation exceeding 15.
Commencement of Commences from the From the issuance of
juridical personality execution of the article certificate of
of partnership. incorporation by the
Securities and
Exchange Commission.

Management Every partner is an Management is vested

agent of the partnership on the Board of
if the partners did not Directors.
appoint a managing
partner.

Each partner except a Stockholders are liable

Extent of liability limited partner is liable only to the extent of
to the extent of his /her their interest or
personal assets investment in the
corporation.

Right of There is no right of Has the capacity of

Succession succession continued existence
regardless of the death,
withdrawal, insolvency
or incapacity of its
directors or
Terms of existence stockholders.
For any period of time Not to exceed fifty (50)
stipulated by the years but subject to
partners extension/ renewal.

LSPU SELF-PACED LEARNING MODULE: TECHNOLOGY FOR TEACHING AND LEARNING

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

 Classifications of Partnership
 universal partnership of all present property.
 universal partnership of profits.
 Particular partnership.
 General.
 Limited.
 Partnership with a fixed term or for a particular understanding
 Partnership at will.
 Commercial or trading partnership.
 Professional or non-trading partnership.
 De jure partnership.
 De facto partnership.
 Kinds of Partners
 General Partner. One who is liable to the extent of his/her separate
property
after all the assets of the partnership are exhausted
 Limited Partner. One who is liable only to the extent of his/her capital
contribution. He is not allowed to contribute industry or services only.
 Capitalist Partner. One who contributes money or property to the common fund
of the partnership.
 Industrial Partner. One who contributes his/her knowledge or personal service to
the partnership
 Managing Partner. One whom the partners has appointed as manager of the
partnership.
 Liquidating Partner. One who is designated to wind up or settle the affairs of the

LSPU SELF-PACED LEARNING MODULE: TECHNOLOGY FOR TEACHING AND LEARNING

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
partnership after the dissolution.
 Dormant Partner. One who does not take active part in the business of the
partnership and is not known as a partner
 Silent Partner. One who does not take active part in the business of the
partnership though may be known as partner.
 Secret Partner. One who takes active part in the business but is known to be a
partner by outside parties.
 10. Nominal Partner or Partner by estoppel. One who is actually not a partner but
who represents himself as one.

 Article of Partnership A partnership may be constituted orally or in writing.

In the latter case, partnership agreements are embodied in the Articles of
Partnership.
 SEC Registration
When the partnership capital is P3,000 or more, in money or property, the public
instrument must be recorded with the Securities and Exchange Commission
(SEC). Even if it not registered, the partnership having a capital of P3,000 or more
is still valid and therefore has legal personality.

Engaging Activities: Enumerate some provisions contained in an article of

partnership.

2. ACCOUNTING FOR PARTNERSHIPS FORMATION

 PARTNERSHIP FORMATION
Valuation of investments by Partners - Partners may invest cash or non-cash
assets in the partnership. When a partner invests non-cash assets, they are to be
recorded at values agreed upon by the partners. In the absence of any agreement,
the contributions will be recognized at their fair market value at the date of
transfer to the partnership.
Fair Market Value of an asset is 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 is the price at which an asset or liability could be exchanged in a
current transaction between knowledgeable, unrelated willing parties.

 Owners’ Equity Accounts

A partner’s capital account is credited for his/her initial net investments,
and credit balance of the drawing account at the end of the period. It is debited for
his/her permanent withdrawals and debit balance of the drawing account at the
end of the period.
 Adjustment of Accounts Prior to Formation
In cases when the prospective partners have existing businesses, their
respective 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 inequitable.
Assets= Liabilities + Equity
 Note: the assets are on the left side of the equation opposite the liabilities
and owner’s equity. This explains why increases and decreases in assets are

LSPU SELF-PACED LEARNING MODULE: TECHNOLOGY FOR TEACHING AND LEARNING

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
recorded in the opposite manner as liabilities and owner’s equity are recorded.
The equation also explains why liabilities and capital follow the same rules of
debit and credit. The logic of debiting is related to the accounting equation.

 Loans Receivable from or Payable to Partners

Partnership Formation Case1: Individuals with no existing business

Labausa contributed land, inventory, and P280,00 cash to a partnership. The
land has a book value of P650,000 and a market value of P1,350,000. The inventory
has a book value of P600,000 and a market value of P510,000. The partnership also
assumed a P350,000 note payable owned by Labausa that was used to purchase the
land. Balhag agreed to put up cash equivalent to Labausa’s net investment.
Prepare the journal entry to record Labausa’s and Balhag’s investment.
Answer:
Date Particular PR Debit Credit
a. Cash 280,000
Inventory 510,000
Land 1,350,000
Note payable 350,000
Labausa, Capital 1,790,000
To record investment of Labausa.

Date Particular PR Debit Credit

b. Cash 1,790,000
Balhag, Capital 1,790,000
To record investment of Balhag

Engaging Activities: Answer Problem #2 & 3, page 37 of Partnership and

corporation accounting by Ballada.

Case 2: A sole proprietor and another individual form a partnership

Espanol operated a specialty shop that sold fishing equipment and
accessories Her post-closing trial balance on Dec. 31, 2019 is as follows:
Fish
Post-Closing Trial Balance
Dec. 31, 2019
Debit Credit
Cash 36,000
Accounts Receivable 150,000
Allow. for Uncollectible accounts 16,000
Inventory 440,000
Equipment 135,000
Accumulated Depreciation 75,000
Accounts Payable 30,000
Espanol, Capital 640,000
761,000 761,000

Espanol plans to enter into a partnership with trusted associate, Quino,

effective January 1, 2020. Profit and losses will be shared equally, Espanol is to transfer

LSPU SELF-PACED LEARNING MODULE: TECHNOLOGY FOR TEACHING AND LEARNING

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
all assest and liabilities of her shop to the partnership after revaluation.
Quino will invest cash equal to Espanol’s investment after revaluation. The
agreed values are as follows: accounts receivable (net), P140,000, Inventory, P460,000,
and equipment (net), P124,000. The partnership will operate under the business name
of Fish R’Us.
1. Prepare the opening journal entries in the book of the partnership.

Answer: Book of the partnership Fish R’Us:

Date Particular PR Debit Credit
a. Cash 36,000
Accounts Receivable 150,000
Inventory 460,000
Equipment 124,000
Allow. For Uncollectible Acc ts 10,000
Accounts Payable 30,000
Espanol, Capital 730,000
To record investment of Espanol.

b. Cash 730,000
Quino, Capital 730,000
To record investment of Quino

2. Prepare the partnership’s statement of financial position as of the date of formation.

Answer: Fish R’Us

Statement of Financial Position
January 1, 2020
Asset Liabilities & Equity
Cash P 766,000 Accounts Payable P 30,000
Accounts Receivable 150,000
Allow. For Uncollectible (10,000) Quino, Capital 730,000
Inventory 460,000
Equipment 124,000 Espanol, Capital 730,000
Total P1,490,000 Total P1,490,000
========== ==========

Case 3: Two sole proprietors form a partnership

On. Oct. 31, 2019, Apalisoc and Tuddao agreed to combine their proprietorships
as a partnership. Their statements of financial position are s follows:

Apalicsoc’s Business Tuddao’s Business

Assets Book Value Current Market Book Value Current Market
Value Value

LSPU SELF-PACED LEARNING MODULE: TECHNOLOGY FOR TEACHING AND LEARNING

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
Cash P 37, 000 P37,000 P 80,000 P80,000
Accounts Receivable (net0 220,000 202,000 80,000 63,000
Inventory 510,000 460,000 340,000 351,000
Property Plant and Equipment 1,218,000 1,235,000 535,000 574,000
Total Asset P 1,985,000 P 1,934,000 P 1,035,000 P 1,068,000

Liabilities and Capital

Accounts Payable P 236,000 P 236,000 P 91,000 P 91,000
Accrued Expenses 22,000 22,000 14,000 14,000
Notes Payable 750,000 750,000
Apalisoc, Capital 977,000
Tuddao, Capital 930,000
Total Liabilities and Capital P 1,985,000 P 1,934,000 P 1,035,000 P 1,068,000

Required: 1. Prepare the partnership formation.

2. Prepare the partnership’s statement of financial position as of Oct. 31, 2019

1. Prepare the partnership formation:

Date Particular PR Debit Credit
Oct. 31 Cash 37,000
Accounts Receivable 202,000
Inventory 460,000
Property Plant and Equipment 1,235,000
Accounts Payable 236,000
Accrued Expenses 22,000
Notes Payable 750,000
Apalisoc, Capital 926,000
Apalisoc investment in the partnership.

31 Cash 80,000
Accounts Receivable 63,000
Inventory 351,000
Property Plant and Equipment 574,000
Accounts Payable P 91,000
Accrued Expenses 14,000
Tuddao, Capital 963,000
Tuddao investment in the partnership.

2. Prepare the partnership’s statement of financial position as of Oct. 31, 2019

Apalisoc and Tuddao Partnership

Statement of financial position
As of Oactober 31, 2019

LSPU SELF-PACED LEARNING MODULE: TECHNOLOGY FOR TEACHING AND LEARNING

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
Assets Liabilities & Partners
Equity
Cash 117,000 Accounts Payable 327,000
Accounts Receivable 265,000 Accrued Expenses 36,000
Inventory 811,000 Notes Payable 750,000
Property Plant Equipment 1,809,000 Apalisoc, Capital 926,000
Tuddao, Capital 963,000
Total assets 3,002,000 Total Liabilities & Partners 3,002,000
Equity

Engaging Activities: Solve problem 7 and 8, pages 41and 42 of Partnership and

corporation accounting by Ballada.

Performance Tasks

Performance task 1: Answer the Multiple Choice problems on pages 46 to 50 of Ballada, W. L.

Partnership and Corporation Accounting, 21st edition
Has to be submitted on __________, 2020

Intellectual Property This module is for educational purpose only. Under section Sec. 185 of RA 8293, which states,
“The fair use of a copyrighted work for criticism, comment, news reporting, teaching including multiple copies for
classroom use, scholarship, research, and similar purposes is not an infringement of copyright”. The unauthorized
reproduction, use, and dissemination of this module, without joint consent of the authors and LSPU, is strictly
prohibited and shall be prosecuted to the full extent of the law, including appropriate administrative sanctions, civil,
and criminal. --------------------------------------------------------------------------------------

LSPU SELF-PACED LEARNING MODULE: TECHNOLOGY FOR TEACHING AND LEARNING

 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Learning Resources
Ballada, W. L. ,(2019), Partnership and Corporation Accounting, 21st edition, Dom Dane Publishing

Ballada, W. L. (2019), Basic Financial Accounting and Reporting, 22nd edition, Dom Dane Publishing

Reyes, V. D. , (2017), A study on accounting for Partnerships and Corporation, 2017 edition,
GIC Enterprises & Co., Inc.

Palma, R., (2014), Basic Accounting 2: Partnership and Corporation, 2014 edition, Rex Bookstore

Saguinsin, A. T.,( 2010), Introduction to Accounting, 2010 edition, Rex Bookstore

Macapilit, C.H. ,( 2010), Partnership and Corporation Accounting and their Legal Bases, 2010 edition
REX Book Store, Inc.

Valix, C. T . et al (2016) , Financial Accounting, vol 1, 2016 edition, GIC Enterprises & Co., Inc.

Guerrieri, D. J. (2013) Glencoe Accounting Real World Applications and Connections, McGrawHill
https://www.goodreads.com > show

LSPU SELF-PACED LEARNING MODULE: TECHNOLOGY FOR TEACHING AND LEARNING