1 Click to edit Master title style 12 Accounting for Partnerships 1 2 Click to edit Master title style After studying this chapter, you should be able to: 1. Describe the basic characteristics of proprietorships, partnerships, and limited liability companies. 2. Describe and illustrate the accounting for forming a partnership and for dividing the net income and net loss of a partnership. 2 3 Click to edit Master title style After studying this chapter, you should be able to: 3. Describe and illustrate the accounting for partner admission and withdrawal. 4. Describe and illustrate the accounting for liquidating a partnership. 5. Prepare the statement of partnership equity. 3 4 Click to edit Master title style Objective 1 12-1 Describe the basic characteristics of proprietorships, partnerships, and limited liability companies. 4 5 Proprietorship Click to edit Master title style 12-1 A proprietorship is a business enterprise owned by a single individual. Advantages Disadvantages • Simple to form • Difficulty in raising large amounts of capital • Ability to be one’s own boss • Unlimited liability 5 6 Partnership Click to edit Master title style 12-1 A partnership is an association of two or more individuals who own and manage a business for profit. Advantages • More financial resources than a proprietorship • Additional management skills • • • • Disadvantages Limited life Unlimited liability Co-ownership of partnership property Mutual agency 6 7 Partnership Click to edit Master title style 12-1 An important right of partners is to participate in the income of the partnership. A partnership, like a proprietorship, is a nontaxable entity. A partnership is created by a contract, known as the partnership agreement or articles of partnership. 7 8 CV (Commonditaire Vennootschap) Click to edit Master title style 12-1 In Indonesia, Limited Partnership is called CV (Commonditaire vennootschap). CV is a partnership consisting of one or more (active partner) and one or more silent partner (or passive partner). Example = CV Cemara Group Indonesia in Medan that sells palm oil, coconut, and spices. 8 9 Firma Click to edit Master title style 12-1 Firma is another common form of partnership in Indonesia. Firma or abbreviated as Fa is widely used for professional firm such as law firm or accounting firm. The example of a accounting firm is KAP Purwantono, Sarwoko and Sandjaja, and accounting firm affiliated with Ernst and Young which is about 17 partners in the firm. 9 10 Click2 to edit Master title style Characteristics of Proprietorships, Partnerships, and CV and firma 12-1 Ease of Formation Proprietorship Partnership CV and Firma Simple Moderate Moderate 10 10 11 Click2 to edit Master title style Characteristics of Proprietorships, Partnerships, CV and Firma 12-1 Legal Liability Proprietorship Partnership CV and Firma No limitation No limitation Limited liability 11 12 Click2 to edit Master title style Characteristics of Proprietorships, Partnerships, CV and Firma 12-1 Taxation Proprietorship Partnership CV and Firma Nontaxable* Nontaxable* Nontaxable** *Pass-through entity **Pass-through entity by election 12 12 13 Click2 to edit Master title style Characteristics of Proprietorships, Partnerships, CV and Firma 12-1 Limitation on Life of Entity Proprietorship Partnership CV and Firma Yes Yes Yes 13 13 14 Click2 to edit Master title style Characteristics of Proprietorships, Partnerships, CV and Firma 12-1 Access to Capital Proprietorship Partnership CV and Firma Limited Limited Limited 14 14 15 Click to edit Master title style Objective 2 12-2 Describe and illustrate the accounting for forming a partnership and for dividing the net income and net loss of a partnership. 15 16 Forming a Partnership Click to edit Master title style 12-2 Joko Suhendro and Endang Fauzi agree to combine their hardware businesses in a partnership. Each is to contribute certain amounts of cash and other assets. They also agree that the partnership is to assume the liabilities of the separate businesses. 16 17 Click to edit Master title style 12-2 Joko’ Transfer of Assets, Liability, and Equity Apr. 1 Cash Accounts Receivable Merchandise Inventory Store Equipment Office Equipment Allowance for Doubtful Accounts Accounts Payable Joko Suhendro, Capital 7 200 16 300 28 700 5 400 1 500 000 000 000 000 000 1 500 000 2 600 000 55 000 000 17 17 18 Click to edit Master title style 12-2 A similar entry would record the assets contributed and the liabilities transferred by Fauzi. In each entry, the noncash assets are recorded at values agreed upon by the partners. These values normally represent current market values. 18 19 12-2 Click to edit Master title style Example Exercise 12-1 Riana Hasibuan contributed equipment, inventory, and Rp34,000,000 cash to a partnership. The equipment had a book value of Rp23,000,000 and market value of Rp29,000,000. The inventory had a book value of Rp60,000,000 but only had a market value of Rp15,000,000 due to obsolescence. The partnership also assumed a Rp12,000,000 note payable owed by Howell that was used originally to purchase the equipment. Provide the journal entry for Hasibuan’s contribution to the partnership. 19 19 20 12-2 Click to edit Master title style Follow My Example 12-1 Cash 34,000,000 Inventory 15,000,000 Equipment 29,000,000 Notes Payable 12,000,000 Riana Hasibuan, Capital 66,000,000 For Practice: PE 12-1A, PE 12-1B 20 20 21 Dividing Income—Services of Partners Click to edit Master title style 12-2 The partnership agreement of Jamila Sari and Chandra Mono provides for Sari to receive a monthly allowance of Rp 5,000,000 (Rp 60,000,000 annually) and Mono is to receive Rp 4,000,000 a month (Rp 48,000,000 annually). If there is any remaining net income, it is to be divided equally. The firm had a net income of Rp 150,000,000 for the year. 21 22 12-2 Division of Net Income Click to edit Master title style J. Sari C. Mono Total Annual salary allowance Remaining income Rp 60,000,000 Rp48,000,000 Rp 108,000,000 21,000,000 21,000,000 42,000,000 Division of net income Rp 81,000,000 Rp69,000,000 Rp 150,000,000 to journal entry (Slide 24) 22 22 23 Click to edit Master title style 12-2 The entry for dividing net income is as follows: Dec. 31 Income Summary 150 000 000 Jamila Sari, Capital 81 000 000 Chandra Mono, Capital 69 000 000 23 23 24 Dividing Income—Services of Partners and Investments Click to edit Master title style 12-2 The partnership agreement for Sari and Mono divides income as follows: 1. Monthly salary allowance of Rp 5,000,000 for Stone and Rp 4,000,000 for Mills. 2. Interest of 12% on each partner’s capital balance on January 1. 3. If there is any remaining net income, it is to be divided equally between the partners. 24 25 Division of Net Income Click to edit Master title style 12-2 Net income of Rp 150,000,000 is divided. J. Sari Salary allowance Interest allowance C. Mono Rp60,000,000 Rp48,000,000 19,200,000 14,400,000 Total Rp108,000,000 33,600,000 25 25 26 Division of Net Income Click to edit Master title style 12-2 Net income of Rp 150,000,000 is divided. J. Sari Salary allowance Interest allowance C. Mills Total Rp 60,000,000 Rp 48,000,000 Rp108,000,000 19,200,000 14,400,000 33,600,000 12% x Sari’s capital account balance on Jan. 1 of Rp 160,000,000 26 26 27 Division of Net Income Click to edit Master title style 12-2 Net income of Rp 150,000,000 is divided. J. Sari Salary allowance Interest allowance C. Mono Total Rp 60,000,000 Rp 48,000,000 Rp 108,000,000 19,200,000 14,400,000 33,600,000 12% x Mono’s capital account balance on Jan. 1 of Rp120,000,000 27 27 28 Division of Net Income Click to edit Master title style 12-2 Net income of Rp 150,000,000 is divided. J. Sari Salary allowance Interest allowance Remaining income C. Mono Total Rp 60,000,000 Rp48,000,000 Rp108,000,000 19,200,000 14,400,000 33,600,000 4,200,000 4,200,000 8,400,000 Division of net income Rp 83,400,000 Rp66,600,000 Rp150,000,000 28 28 29 Click to edit Master title style 12-2 The entry for dividing net income is as follows: Dec. 31 Income Summary Jamila Sari, Capital Chandra Mono, Capital 150 000 00 83 400 00 66 600 00 29 29 30 Partnership Alternative Click to edit Master title style 12-2 The entry for dividing net income is as follows: Dec. 31 Income Summary 150 000 00 Jamila Sari, Member Equity 83 400 00 Chandra Mono, Member Equity 66 600 00 30 30 31 Dividing Income—Allowances Exceed Net Income Click to edit Master title style 12-2 Assume the same facts as before except that the net income is only Rp100,000,000. 31 32 12-2 Division of Net Income Click to edit Master title style Net income of Rp100,000,000 is divided. J. Sari Salary allowance Interest allowance Total C. Mono Total Rp60,000,000 Rp48,000,000 Rp108,000,000 19,200,000 14,400,000 33,600,000 Rp79,200,000 Rp62,400,000 Rp141,600,000 This amount exceeds net income by Rp41,600,000. 32 32 33 Division of Net Income Click to edit Master title style Net income of Rp100,000,000 is divided. J.Sari C. Mono 12-2 Total Salary allowance Rp60,000,000 Rp48,000,000 Rp108,000,000 Interest allowance 19,200,000 14,400,000 33,600,000 Total Rp79,200,000 Rp62,400,000 Rp141,600,000 Deduct excess of allowance over income 20,800,000 20,800,000 <41,600,000> Net income Rp58,400,000 Rp41,600,000 Rp100,000,000 33 33 34 12-2 Click to edit Master title style Example Exercise 12-2 Steven Pamungkas and Cinta Bimantara formed a partnership, dividing income as follows: 1. Annual salary allowance to Prince of Rp42,000,000. 2. Interest of 9% on each partner’s capital balance on January 1. 3. Any remaining net income divided equally. Pamungkas and Bimantara had Rp20,000,000 and Rp150,000,000 in their January 1 capital balances, respectively. Net income for the year was Rp240,000,000. How much net income should be distributed to Pamungkas? 34 34 35 12-2 Click to edit Master title style Follow My Example 12-2 Monthly salary Rp 42,000,000 Interest (9% x Rp20,000,000) 1,800,000 Remaining income 91,350,000* Total distributed to Pamungkas Rp135,150,000 *(Rp240,000,000 – Rp42,000,000 – Rp1,800,000 – Rp13,500,000) x 50% For Practice: PE 12-2A, PE 12-2B 35 35 36 Click to edit Master title style Objective 3 12-3 Describe and illustrate the accounting for partner admission and withdrawal. 36 37 Admitting a Partner Click to edit Master title style 12-3 A person may be admitted to a partnership only with the consent of all the current partners by: 1. Purchasing an interest from one or more of the current partners. 2. Contributing assets to the partnership. 37 38 Purchasing an Interest in a Partnership Click to edit Master title style 12-3 Partners Toni Asikin and Nani Bunga have capital balances of Rp50,000,000 each. On June 1, each sells one-fifth of his equity to Joko Cahyadi for Rp10,000,000 in cash. 38 39 Click to edit Master title style 12-3 The only entry required in the partnership accounts is as follows: June 1 Toni Asikin, Capital Nani Bunga, Capital Joko Cahyadi, Capital 10 000 000 10 000 000 20 000 000 39 39 40 Click to edit Master title style 12-3 The effect of the transaction on the partnership accounts is presented in the following diagram: Partnership Accounts Asikin, Capital 50,000,000 10,000,000 Cahyadi, Capital 20,000,000 Bunga, Capital 10,000,000 50,000,000 40 40 41 Contributing Assets to a Partnership Click to edit Master title style 12-3 Partners Dudi Lintang and Guntur Margono have capital balances of Rp35,000,000 and Rp25,000,000 respectively. On June 1, Suci Nadera joins the partnership by permission and makes an investment of Rp20,000,000 cash. 41 42 Click to edit Master title style 12-3 The entry to record this transaction is as follows: June 1 Cash Suci Nadera, Capital 20 000 000 20 000 000 42 43 43 12-3 Click to edit Master title style The effect of the transaction on the partnership accounts is presented in the following diagram: Partnership Accounts Net Assets 60,000,000 20,000,000 Lintang, Capital 35,000,000 Nadera, Capital 20,000,000 Margono, Capital 25,000,000 43 44 44 LLC Alternative Click to edit Master title style June 1 Cash Suci Nadera, Member Equity 12-3 20 000 000 20 000 000 44 45 45 Revaluation of Assets Click to edit Master title style 12-3 If the asset accounts do not reflect approximate current market values when a new partner is admitted, the accounts should be adjusted (increased or decreased) before the new partner is admitted. 45 46 Click to edit Master title style Partners Dudi Lintang and Guntur Margono have capital balances of Rp35,000,000 and Rp25,000,000 respectively. The balance in Merchandise Inventory is Rp14,000,000 and the current replacement value is Rp17,000,000. The partners share net income equally. 12-3 46 47 Click to edit Master title style 12-3 The revaluation is recorded as follows: June 1 Merchandise Inventory Dudi Lintang, Capital Guntur Margono, Capital 3 000 000 1 500 000 1 500 000 Because the LLC alternative follows a pattern of replacing “Capital” with “Member Equity,” the LLC entry will not be shown again. 47 48 48 12-3 Click to edit Master title style Example Exercise 12-3 Budi Nadera invested Rp45,000,000 in the Lestari & Kulsum partnership for ownership equity of Rp45,000,000. Prior to the investment land was revalued to a market value of Rp260,000,000 from a book value of Rp200,000,000. Lila Lestari and Tami Kulsum share net income in a 1:2 ratio. a. Provide the journal entry for the revaluation of land. b. Provide the journal entry to admit Nadera. 48 49 49 12-3 Click to edit Master title style Follow My Example 12-3 a. Land Lila Lestari, Capital Tami Kulsum, Capital 60,000,000 20,000,000¹ 40,000,000² ¹Rp60,000,000 x l/3 ²Rp60,000,000 x 2/3 b. Cash Budi Nadera, Capital For Practice: PE 12-3A, PE 12-3B 45,000,000 45,000,000 49 50 50 Click to edit Master title style 12-3 50 51 51 Partner Bonuses Click to edit Master title style 12-3 On March 1, the partnership of Maryanti Juwita and Heni Kurniasari admit Arif Dunia as a new partner. The assets of the old partnership are adjusted to current market values and the resulting capital balances for Juwita and Kurniasari are Rp20,000,000 and Rp24,000,000 respectively. 51 52 Click to edit Master title style 12-3 Juwita and Kurniasari agree to admit Dunia as a partner for Rp31,000,000. In return, Dunia will receive a onethird equity in the partnership and will share income and losses equally with Juwita and Kurniasari. 52 53 Click to edit Master title style Equity of Juwita Equity of Kurniasari Dunia’s Contribution Total equity after admitting Dunia Dunia’s interest (1/3 x $75,000) Dunia’s contribution Dunia’s equity after admission Bonus paid to Juwita and Kurniasari 12-3 Rp20,000,000 24,000,000 31,000,000 Rp75,000,000 Rp25,000,000 Rp31,000,000 25,000,000 Rp 6,000,000 53 54 54 Click to edit Master title style 12-3 The entry to record the admission of Dunia to the partnership is as follows: Mar. 1 Cash Arif Dunia, Capital 31 000 000 25 000 000 Maryanti Juwita, Capital 3 000 000 Heni Kurniasari, Capital 3 000 000 Rp6,000,000/2 54 55 55 Adjusting for New Partner’s Unique Qualities or Skills Click to edit Master title style 12-3 After adjusting the market values, the capital balance of Juwita Cahyani is Rp80,000,000 and the capital balance of Sri Darmawan is Rp40,000,000. Elisa Chairunisa receives a one-fourth interest in the partnership for a contribution of Rp30,000,000. Before admitting Chairunisa, Cahyani and Darmawan shared net income using a 2:1 ratio. 55 56 12-3 Click to edit Master title style The bonus is computed as follows: Equity of Cahyani Rp 80,000,000 Equity of Darmawan 40,000,000 Chairunisa’s Contribution 30,000,000 Total equity after admitting Chairunisa Rp150,000,000 Chairunisa’s equity interest after admission x 25% Chairunisa’s equity after admission Rp 37,500,000 Chairunisa’s contribution 30,000,000 Bonus paid to Chairunisa Rp 7,500,000 56 57 57 Click to edit Master title style 12-3 The entry to record the bonus and admission of Chairunisa to the partnership is as follows: June 1 Cash 30 000 000 Juwita Cahyani, Capital 5 000 000 Sri Darmawan, Capital 2 500 000 Elisa Chairunisa, Capital 37 500 000 57 58 58 Click to edit Master title style 12-3 The entry to record the bonus and admission of Chou to the partnership is as follows: June 1 Cash 2/3 Juwita Cahyani, xRp7,500,00 Capital Sri Darmawan, Capital0 Elisa Chairunisa, Capital 30 000 000 5 000 000 2 500 000 37 500 000 58 59 59 Click to edit Master title style 12-3 The entry to record the bonus and admission of Chou to the partnership is as follows: June 1 Cash Juwita Cahyani, Capital 1/3 x Sri Darmawan, Capital Rp7,500,000 Elisa Chairunisa, Capital 30 000 000 5 000 000 2 500 000 37 500 000 59 60 60 Withdrawal of a Partner Click to edit Master title style 12-3 On June 1, the partnership of X, Y, and Z have capital balances of Rp50,000,000, Rp80,000,000, and Rp30,000,000, respectively. Z decides to retire from the partnership and sells his interest to Y for Rp35,000,000. 60 61 Click to edit Master title style 12-3 The following entry is required to record Z selling his interest to Y. June 1 Z, Capital Y, Capital Transfer ownership 30 000 000 30 000 000 from Z to Y. The amount paid to Y by Z has no impact on the partnership’s accounting records. 61 62 62 Click to edit Master title style 12-3 If Z had sold his interest directly to the partnership, both the assets and the owner’s equity of the partnership would have been reduced. 62 63 12-3 Click to edit Master title style Example Exercise 12-4 Luki has a capital balance of Rp45,000,000 after adjusting assets to fair market value. Cindy contributes Rp26,000,000 to receive a 30% interest in a new partnership with Luki. Determine the amount and recipient of the partner bonus. 63 64 64 12-3 Click to edit Master title style Follow My Example 12-4 Equity of Luki Rp45,000,000 Cindy contribution 26,000,000 Total equity after admitting Cindy Rp71,000,000 Cindy’s equity interest x 30% Cindy’s equity after admission Rp21,300,000 Cindy’s contribution Cindy’s equity after admission Bonus paid to Luki For Practice: PE 12-4A, PE 12-4B Rp26,000,000 21,300,000 Rp 4,700,000 64 65 65 Click to edit Master title style Objective 4 12-4 Describe and illustrate the accounting for liquidating a partnership. 65 66 Liquidating Partnerships Click to edit Master title style 12-4 When a partnership goes out of business, the winding-up process is called the liquidation of a partnership. 66 67 Liquidation Process Click to edit Master title style 12-4 1. Sell the partnership assets. This step is called realization. 2. Distribute any gains or losses from realization to the partners based upon their incomesharing ratio. 3. Pay the claims of creditors using the cash from step 1 realization. 4. After satisfying the creditors, distribute the remaining cash to the partners based on the balances in their capital accounts. 67 68 Click to edit Master title style 12-4 68 69 69 Liquidation Process Click to edit Master title style 12-4 Febriani, Gilang, and Hasanah share income and losses in a ratio of 5:3:2. On April 9, after discontinuing operations, the firm had the following trial balance. Cash Rp11,000,000 Noncash Assets 64,000,000 Liabilities Rp 9,000,000 Juju Febriani, Capital 22,000,000 Bayu Gilang, Capital 22,000,000 Anggi Hasanah, Capital 22,000,000 Total Rp75,000,000 Rp75,000,000 69 70 Liquidation Process Click to edit Master title style 12-4 Between April 10 and April 30, 2006, Febriani, Gilang, and Hasanah sell all noncash assets for Rp72,000,000. Thus, a gain of Rp8,000,000 (Rp72,000,000 – Rp64,000,000) is realized. 70 71 Gain on Realization Click to edit Master title style 12-4 Febriani, Gilang and Hasanah Statement of Partnership Liquidation For Period April 10-30, 2008 Balances before realization Sale of assets and division of gain Balances after realization Payment of liabilities Balances after payment of liabilities Cash distributed to partners Final balances Cash + Rp11 000 000 +72 000 000 Rp83 000 000 -9 000 000 Rp74 000 000 -74 000 000 Rp 0 Noncash Assets = Rp64 000 000 -64 000 000 Rp 0 0 Rp 0 0 Rp 0 Capital Febriani Gilang Liabilities + (50%) + (30%) Rp9 000 000 Rp22 000 000 Rp22 000 0 4 000 000 2 400 Rp9 000 000 Rp26 000 000 Rp24 400 -9 000 000 0 Rp 0 Rp26 000 000 Rp24 400 0 -26 000 000 -24 400 Rp 0 Rp 0 Rp Gain Rp8,000,000 Hasanah + (20%) 000 Rp22 000 000 000 1 600 000 000 Rp23 600 000 0 0 000 Rp23 600 000 000 -23 600 000 0 Rp 0 71 72 Entries to Record the Steps in the Liquidation Process Click to edit Master title style 12-4 Step 1: Sale of assets Cash Noncash Assets Gain on Realization 72 000 000 64 000 000 8 000 000 72 73 73 Entries to Record the Steps in the Liquidation Process Click to edit Master title style 12-4 Step 2: Division of gain Gain on Realization Juju Febriani, Capital 8 000 000 4 000 000 Bayu Gilang, Capital 2 400 000 Anggi Hasanah, Capital 1 600 000 73 74 74 Entries to Record the Steps in the Liquidation Process Click to edit Master title style 12-4 Step 3: Payment of liabilities Liabilities Cash 9 000 00 9 000 00 74 75 75 Entries to Record the Steps in the Liquidation Process Click to edit Master title style 12-4 Step 4: Distribution of cash to partners Juju Febriani, Capital 26 000 000 Bayu Gilang, Capital 24 400 000 Anggi Hasanah, Capital 23 600 000 Cash 74 000 000 75 76 76 Loss on Realization Click to edit Master title style 12-4 Febriani, Gilang, and Hasanah sell all noncash assets for Rp44,000,000. A loss of Rp20,000,000 (Rp64,000,000 – Rp44,000,000) is realized. 76 77 Entries to Record the Steps in the Liquidation Process Click to edit Master title style 12-4 Step 1: Sale of assets Cash 44 000 000 Loss on Realization 20 000 000 Noncash Assets 64 000 000 77 78 78 Loss on Realization Click to edit Master title style 12-4 Febriani, Gilang and Hasanah Statement of Partnership Liquidation For Period April 10-30, 2008 Balances before realization Sale of assets and division of gain Balances after realization Payment of liabilities Balances after payment of liabilities Cash distributed to partners Final balances Cash + Rp11 000 000 +44 000 000 Rp55 000 000 -9 000 000 Rp46 000 000 -46 000 000 Rp 0 Noncash Assets = Rp64 000 000 -64 000 000 Rp 0 0 Rp 0 0 Rp 0 Capital Febriani Gilang Liabilities + (50%) + (30%) Rp9 000 000 Rp22 000 000 Rp22 000 0 -10 000 000 -6 000 Rp9 000 000 Rp12 000 000 Rp16 000 -9 000 000 0 Rp 0 Rp12 000 000 Rp16 000 0 -12 000 000 -16 000 Rp 0 Rp 0 Rp Rp20,000,000 Loss Hasanah + (20%) 000 Rp22 000 000 000 -4 000 000 000 Rp18 000 000 0 0 000 Rp18 000 000 000 -18 000 000 0 Rp 0 78 79 Entries to Record the Steps in the Liquidation Process Click to edit Master title style 12-4 Step 2: Division of loss Juju Febriani, Capital 10 000 000 Bayu Gilang, Capital 6 000 000 Anggi Hasanah, Capital 4 000 000 Loss on Realization 20 000 000 79 80 80 Entries to Record the Steps in the Liquidation Process Click to edit Master title style 12-4 Step 3: Payment of liabilities Liabilities Cash 9 000 000 9 000 000 80 81 81 Entries to Record the Steps in the Liquidation Process Click to edit Master title style 12-4 Step 4: Distribution of cash to partners: Juju Febriani, Capital 12 000 000 Bayu Gilang, Capital 16 000 000 Anggi Hasanah, Capital 18 000 000 Cash 46 000 000 81 82 82 12-4 Click to edit Master title style Example Exercise 12-5 Prior to liquidating their partnership, Toni and Gendis had capital accounts of Rp50,000,000 and Rp100,000,000, respectively. The partnership assets were sold for Rp220,000,000. The partnership had Rp20,000,000 of liabilities. Toni and Gendis share income and losses equally. Determine the amount received by Gendis as a final distribution from liquidation of the partnership. 82 83 83 12-4 Click to edit Master title style Follow My Example 12-5 Gendis’s equity prior to liquidation Rp100,000,000 Realization of asset sale Rp220,000,000 Book value of assets (Rp50,000,000 + Rp100,000,000 + Rp20,000,000) 170,000,000 Gain on liquidation Rp50,000,000 Gendis’s share of gain (50% x Rp50,000,000) 25,000,000 Gentry’s cash distribution Rp125,000,000 For Practice: PE 12-5A, PE 12-5B 83 84 84 Loss on Realization—Capital Deficiency Click to edit Master title style 12-4 Febriani, Gilang, and Hasanah sell all of the noncash assets for Rp10,000,000. A loss of Rp54,000,000 (Rp64,000,000 – Rp10,000,000) is realized. The share of the loss allocated to Febriani, Rp27,000,000 (50% of Rp54,000,000), exceeds the Rp22,000,000 balance in her capital account. Febriani contributes Rp5,000,000 to the partnership. 84 85 Loss on Realization— Capital Deficiency Click to edit Master title style 12-4 Febriani, Gilang and Hasanah Statement of Partnership Liquidation For Period April 10-30, 2008 Balances before realization Sale of assets and division of gain Balances after realization Payment of liabilities Balances after payment of liabilities Receipt of Deficiency Balances Cash distributed to partners Final balances Cash + Rp11 000 000 +10 000 000 Rp21 000 000 -9 000 000 Rp12 000 000 5 000 000 Rp17 000 000 -17 000 000 Rp 0 Noncash Assets = Rp64 000 000 -64 000 000 Rp 0 0 Rp 0 0 Rp 0 0 Rp 0 Capital Febriani Gilang Liabilities + (50%) + (30%) Rp9 000 000 Rp22 000 000 Rp22 000 0 -27 000 000 -16 200 Rp9 000 000 Rp(5 000 000) Rp5 800 -9 000 000 0 Rp 0 Rp(5 000 000) Rp5 800 0 5 000 000 Rp 0 Rp 0 Rp5 800 0 0 -5 800 Rp 0 Rp 0 Rp Febriani’s Contribution Hasanah + (20%) 000 Rp22 000 000 000 -10 800 000 000 Rp11 200 000 0 0 000 Rp11 200 000 0 0 000 Rp11 200 000 000 -11 200 000 0 Rp 0 85 86 Click to edit Master title style 12-4 Step 1: Sale of assets Cash 10 000 000 Loss on Realization 54 000 000 Noncash Assets 64 000 000 86 87 87 Click to edit Master title style 12-4 Step: Payment of liabilities Juju Febriani, Capital 27 000 000 Bayu Gilang, Capital 16 200 000 Anggi Hasanah, Capital 10 800 000 Loss on Realization 54 000 000 87 88 88 Click to edit Master title style 12-4 Step 3: Payment of liabilities Liabilities Cash 9 000 000 9 000 000 88 89 89 Click to edit Master title style 12-4 Receipt of deficiency Cash Juju Febriani, Capital 5 000 000 5 000 000 Having the partner with a deficiency pay all or part of the deficiency is not one of the four liquidation steps, but it should make the other partners happy. 89 90 90 Loss on Realization— Capital Deficiency Click to edit Master title style 12-4 Febriani, Gilang and Hasanah Statement of Partnership Liquidation For Period April 10-30, 2008 Balances before realization Sale of assets and division of gain Balances after realization Payment of liabilities Balances after payment of liabilities Receipt of Deficiency Balances Cash distributed to partners Final balances Cash + Rp11 000 000 +10 000 000 Rp21 000 000 -9 000 000 Rp12 000 000 5 000 000 Rp17 000 000 -17 000 000 Rp 0 Noncash Assets = Rp64 000 000 -64 000 000 Rp 0 0 Rp 0 0 Rp 0 0 Rp 0 Capital Febriani Gilang Liabilities + (50%) + (30%) Rp9 000 000 Rp22 000 000 Rp22 000 0 -27 000 000 -16 200 Rp9 000 000 Rp(5 000 000) Rp5 800 -9 000 000 0 Rp 0 Rp(5 000 000) Rp5 800 0 5 000 000 Rp 0 Rp 0 Rp5 800 0 0 -5 800 Rp 0 Rp 0 Rp The remaining cash is distributed. Gilang receives Rp5,800,000 and Hasanah receives Rp11,200,000. Hasanah + (20%) 000 Rp22 000 000 000 -10 800 000 000 Rp11 200 000 0 0 000 Rp11 200 000 0 0 000 Rp11 200 000 000 -11 200 000 0 Rp 0 90 91 Click to edit Master title style 12-4 Distribution of cash to partners: Bayu Gilang, Capital Anggi Hasanah, Capital Cash 5 800 000 11 200 000 17 000 000 91 92 92 12-4 Click to edit Master title style Example Exercise 12-6 Prior to liquidating their partnership, Sundari and Baskoro had capital accounts of Rp20,000,000 and Rp80,000,000, respectively. The partnership assets were sold for Rp40,000,000. The partnership had no liabilities. Sundari and Baskoro share income and losses equally. a. Determine the amount of Sundari’s deficiency b. Determine the amount distributed to Baskoro assuming Sundari is unable to satisfy the 92 93 deficiency. 93 12-4 Click to edit Master title style Follow My Example 12-6 a. Sundari’s equity prior to liquidation Rp 20,000,000 Realization of asset sales Rp 40,000,000 Book value of assets 100,000,000 Loss on liquidation Rp 60,000,000 Sundari’s share of loss (50% x Rp60,000,000) 30,000,000 Sundari’s deficiency Rp(10,000,000) Rp80,000,000 – Rp30,000,000 share of loss – Rp10,000,000. Sundari’s deficiency also equals the amount realized from asset sales. 93 94 For Practice: PE 12-6A, PE 12-6B b. Rp40,000,000 94 Click to edit Master title style 12-5 Objective 5 Prepare the statement of partnership equity. 94 95 Statement of Partnership Equity Click to edit Master title style 12-5 The change in the owners’ capital accounts for a period of time is reported in a statement of partnership equity. 95 96 Statement of Partnership Equity Click to edit Master title style 12-5 Investors Associates Statement of Partnership Equity For the Year Ended december 31, 2008 Balance, January 1, 2008 Capital additions Net income for the year Less partner withdrawals Balance, December 31, 2008 Deny Chandra capital Rp 245 000 50 000 40 000 (5 000 Rp 330 000 000 000 000 000) 000 Kiranti, Capital Rp 365 000 000 80 000 (45 000 Rp4 000 000 000 000 000 000) 000 Total Partnership Capital Rp 610 000 000 50 000 000 120 000 000 (50 000 000) Rp 730 000 000 96 97 12-5 Financial Analysis and Interpretation Click to edit Master title style KAP Shaleh & Banu had the following information for the last two years: 2008 2007 Revenues Rp220,000,000,000 Rp180,000,000,000 Number of employees 160 150 Revenue per employee, 2008 Revenue per employee, 2007 Rp220,000,000,000 = Rp137,500,000 = 160 Rp180,000,000,000 = Rp120,000,000 = 150 97 99 98 Financial Analysis and Interpretation Click to edit Master title style 12-5 The revenues per employee showed improvement in 2008. Thus, each employee is producing more revenues in 2008, than in 2007, which may indicate improved productivity. Overall, it appears the firm is properly managing the growth in staff. 98