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• Partnership


  A contract between two (2) or more persons who engage in a business undertaking wherein they contribute money, property or professional expertise to a common fund, with the intention of dividing the profits among themselves
• General professional partnerships (GPP)


  • Partnerships established to practice a profession such as public accounting, law, or medicine
• Other partnerships


  • Partnerships established to operate a business other than the practice of a profession
• Characteristics of Partnership

  • Easy to form
  • Separate legal personality
  • Equal responsibility in running the partnership
  • Partners own the properties invested
  • Partners share in the profits or losses
  • Can easily be dissolved
  • Transfer of partner's capital requires consent
  • Partners have personal liability for liabilities
• Advantages of Partnership


  • Easy to form
  • More means of obtaining funds than sole proprietorship
  • Decision-making among partners can easily be made
  • Less regulated by government than corporations
• Disadvantages of Partnership


  • Personal liability for partnership debts
  • Partner liable for wrongful acts of associates
  • Can easily be dissolved
  • Unlimited liability
  • Likelihood of dissension and disagreement
  • Same tax rate as corporations
• Partnership Accounting Transactions

  • Partnership Formation
  • Partnership Operation
  • Partnership Dissolution
  • Partnership Liquidation
• Capital Account


  Account that the partnership maintains for each partner where initial and additional investments are recorded
• Drawing Account


  Account that the partnership maintains for each partner where withdrawal of funds is recorded
• Receivable from partner


  Account that the partnership maintains for a partner who has a liability to the partnership
• Payable to partner


  Account that the partnership maintains for a partner who has a receivable from the partnership
• Partnership is formed as a consensual contract, created by mere agreement of partners, whether oral or written
• When real properties are contributed or total partnership capital is P3,000 or more, the partnership agreement must be in writing
• Valuation of Partners' Contributions

  • Cash at face value
  • Non-cash at fair market value
  • Accounts receivable at gross amount with allowance for bad debts
  • Fixed assets at fair market value, no accumulated depreciation
• Net Investment Method


  Partners credited for net assets invested (fair value of assets less fair value of liabilities)
• Bonus Method


  Partners credited for an amount different from the fair value of contributions, normally exceeding the fair value
• Partnership Formation - Case 1

  • X contributed P50,000 cash, Y contributed P100,000 cash
• Partnership Formation - Case 2

  • X contributed business assets, Y contributed cash
• Partnership Formation - Case 3


  • X and Y, both sole proprietors, contributed various assets
• Application of Bonus Method

  • X contributed P80,000 cash, Y contributed P120,000 cash, partners agreed to equal interest
• Net Investment Method


  • X and Y contributed various assets and liabilities, agreed 60/40 profit/loss share