Parcor Chapter 3

• Dissolution


  • Change in the relation of the partners
  • Partnership is not terminated, but continues until winding up of partnership affairs completed
  • Limited life is one of the characteristics of a partnership
• Winding up


  Process of settling the business or partnership affairs after dissolution
• Termination


  Point in time where all partnership affairs are wound up or completed, and is the end of partnership life
• Causes of Dissolution

  • Admission of a partner
  • Withdrawal or retirement of a partner
  • Death of a partner
  • Incorporation of the partnership
• Admission of a Partner

  • New partner can only be admitted into a partnership with the consent of all the continuing partners
  • Delectus Personae (may karapatang pumili ng gustong partner): No one becomes a member of the partnership without the consent of all members
  • Partnership is based on mutual trust and confidence of the partners
  • A person may become a partner by purchasing an interest from existing partners or investing assets in the partnership
• Investment of Assets in a Partnership


  A person may be admitted by investing cash or other assets in the business
• Total Contributed Capital


  Sum of the capital balances of the old partners and the actual investment of the new partner
• Total Agreed Capital


  Total capital of the partnership after considering the capital credits given to each of the partners. Under the bonus method, it 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


  Amount of capital or equity transferred by one partner to another partner
• Capital Credit


  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


  Payment to old partners is more than the interest purchased, it will be bonus to the old partners
• Bonus to Old Partners


  • Invested 250,000 for a ¼ interest of the partnership, total agreed capital is 850,000
  • 850,000 x ¼ = 212, 500
  • 250,000 – 212,500 = 37,500 (bonus to old partners)
• Bonus to a New Partner


  Payment to old partners is less than the interest purchased
• Bonus to a New Partner


  • Invested 240,000 for a 1/3 interest in the business, total agreed capital is 840,000
  • 840,000 xx 1/3 = 280,000
  • 280,000 – 240,000 = 40,000 (bonus to new partner)
• Withdrawal or Retirement of a Partner


  • The withdrawal of a partner dissolves the old partnership
  • The withdrawing partner is paid from personal assets of the buyer or from the assets of the partnership
• Sale of Interest to a Partner or an Outsider


  1. Debit to the seller's capital account for his capital balance and a credit to the buyer's capital account for the same amounts

  2. Profits and losses should be measured from the last closing of books to the date of withdrawal and distributed according to the sharing agreement
• Sale of Interest to the Partnership


  1. Partner is paid from the assets of the partnership

  2. Equal to, greater than or less than the balance of his capital account

  3. The effect of withdrawal is to reduce the assets and the owner's equity of the partnership
• Death of a Partner


  • Dissolves a partnership
  • Deceased partner may be considered to have retired and his heirs or estate can expect to receive the amount of his interest from the business
• Incorporation of a Partnership


  • Partnership may decide to incorporate after evaluating various advantages of having a corporate form of business organization
  • After the adjusting and closing entries, the assets and liabilities are transferred to the corporation in exchange for shares of stock
  • Shares received are distributed to the partners based on their equity interests
• Dissolution


  Is the change in the relation of the partners caused by any partner ceasing to carrying on
• Winding up


  the process of settling the business or partnership affairs after the dissolution
• Total Contributed Capital


  It is the sum of the capital balances of the old partners and the actual investment of the new 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.
• Delectus Personae


  A principle that a new partner can only be admitted into a partnership with consent of all the continuing partners.
• Bonus


  It is the amount of capital or equity transferred by one partner to another partner
• 1. Death of a partner
  2. Incorporation of partnership
  3. Admission of a partner
  4. Withdrawal or retirement of a partner


  Give the 4 causes of dissolution