# Partnership Operations

```ACP 311: PARTNERSHIP
OPERATIONS
Walter S. Delig, CPA
Illustration of Profit and Loss Distribution
Assume that on January 1, 2021, Ace and Bryan formed a partnership with an investment of
Php 40,000 by Ace and Php 60,000 by Bryan. On December 31, 2021, after closing all
income and expense accounts, the Income Summary account shows a credit balance oh Php
60,000, representing the profit for the year 2021. Changes in the capital accounts during
2021 are summarized as follows:
Ace
Bryan
Beginning Capital, 1/1/2021
40,000
60,000
20,000
50,000
20,000
40,000
Withdrawal, 10/1
(20,000)
-
Withdrawal, 11/1
-
(50,000)
Capital balances, 12/31/2021
60,000
100,000
1. What is the journal entry and each partner’s share of profit if the profit of Php 60,000 is to
be divided among them equally as agreed? What if there is a loss of Php 10,000?
Illustration of Profit and Loss Distribution
Assume that on January 1, 2021, Ace and Bryan formed a partnership with an
investment of Php 40,000 by Ace and Php 60,000 by Bryan. On December 31, 2021,
after closing all income and expense accounts, the Income Summary account shows a
credit balance oh Php 60,000, representing the profit for the year 2021. Changes in the
capital accounts during 2021 are summarized as follows:
Ace
Bryan
Beginning Capital, 1/1/2021
40,000
60,000
20,000
50,000
20,000
40,000
Withdrawal, 10/1
(20,000)
-
Withdrawal, 11/1
-
(50,000)
Capital balances, 12/31/2021
60,000
100,000
2. Assume that the 2021’s profit is Php 60,000 and that the partners agreed to divide
profits and losses in the ratio of 6:4 respectively, how much is each partner’s share?
Illustration of Profit and Loss Distribution
Assume that on January 1, 2021, Ace and Bryan formed a partnership with an
investment of Php 40,000 by Ace and Php 60,000 by Bryan. On December 31, 2021,
after closing all income and expense accounts, the Income Summary account shows a
credit balance oh Php 60,000, representing the profit for the year 2021. Changes in the
capital accounts during 2021 are summarized as follows:
Ace
Bryan
Beginning Capital, 1/1/2021
40,000
60,000
20,000
50,000
20,000
40,000
Withdrawal, 10/1
(20,000)
-
Withdrawal, 11/1
-
(50,000)
Capital balances, 12/31/2021
60,000
100,000
3. Assume that the 2021’s profit is Php 60,000 and that the partners agreed to divide
profits and losses based on their original capital contributions?
Illustration of Profit and Loss Distribution
Assume that on January 1, 2021, Ace and Bryan formed a partnership with an
investment of Php 40,000 by Ace and Php 60,000 by Bryan. On December 31, 2021,
after closing all income and expense accounts, the Income Summary account shows a
credit balance oh Php 60,000, representing the profit for the year 2021. Changes in the
capital accounts during 2021 are summarized as follows:
Ace
Bryan
Beginning Capital, 1/1/2021
40,000
60,000
20,000
50,000
20,000
40,000
Withdrawal, 10/1
(20,000)
-
Withdrawal, 11/1
-
(50,000)
Capital balances, 12/31/2021
60,000
100,000
4. Assume that the 2021’s profit is Php 60,000 and that the partners agreed to divide
profits and losses based on their original capital contributions?
Illustration of Profit and Loss Distribution
Assume that on January 1, 2021, Ace and Bryan formed a partnership with an
investment of Php 40,000 by Ace and Php 60,000 by Bryan. On December 31, 2021,
after closing all income and expense accounts, the Income Summary account shows a
credit balance oh Php 60,000, representing the profit for the year 2021. Changes in the
capital accounts during 2021 are summarized as follows:
Ace
Bryan
Beginning Capital, 1/1/2021
40,000
60,000
20,000
50,000
20,000
40,000
Withdrawal, 10/1
(20,000)
-
Withdrawal, 11/1
-
(50,000)
Capital balances, 12/31/2021
60,000
100,000
5. Assume that the 2021’s profit is Php 60,000 and that the partners agreed to divide
profits and losses based on their beginning capital balances?
Illustration of Profit and Loss Distribution
Assume that on January 1, 2021, Ace and Bryan formed a partnership with an
investment of Php 40,000 by Ace and Php 60,000 by Bryan. On December 31, 2021,
after closing all income and expense accounts, the Income Summary account shows a
credit balance oh Php 60,000, representing the profit for the year 2021. Changes in the
capital accounts during 2021 are summarized as follows:
Ace
Bryan
Beginning Capital, 1/1/2021
40,000
60,000
20,000
50,000
20,000
40,000
Withdrawal, 10/1
(20,000)
-
Withdrawal, 11/1
-
(50,000)
Capital balances, 12/31/2021
60,000
100,000
6. Assume that the 2021’s profit is Php 60,000 and that the partners agreed to divide
profits and losses based on their average capital balances (simple average method)?
Illustration of Profit and Loss Distribution
Assume that on January 1, 2021, Ace and Bryan formed a partnership with an investment of
Php 40,000 by Ace and Php 60,000 by Bryan. On December 31, 2021, after closing all
income and expense accounts, the Income Summary account shows a credit balance oh Php
60,000, representing the profit for the year 2021. Changes in the capital accounts during
2021 are summarized as follows:
Ace
Bryan
Beginning Capital, 1/1/2021
40,000
60,000
20,000
50,000
20,000
40,000
Withdrawal, 10/1
(20,000)
-
Withdrawal, 11/1
-
(50,000)
Capital balances, 12/31/2021
60,000
100,000
6. Assume that the 2021’s profit is Php 60,000 and that the partners agreed to divide profits
and losses based on their average capital balances (peso-month/peso-day method)?
Illustration of Profit and Loss Distribution (With Interest)
Assume that on January 1, 2021, Ace and Bryan formed a partnership with an investment of
Php 40,000 by Ace and Php 60,000 by Bryan. On December 31, 2021, after closing all
income and expense accounts, the Income Summary account shows a credit balance oh Php
60,000, representing the profit for the year 2021. Changes in the capital accounts during
2021 are summarized as follows:
Ace
Bryan
Beginning Capital, 1/1/2021
40,000
60,000
20,000
50,000
20,000
40,000
Withdrawal, 10/1
(20,000)
-
Withdrawal, 11/1
-
(50,000)
Capital balances, 12/31/2021
60,000
100,000
Assume that the partnership had a profit of Php 60,000 in 2021. Provided further that interest
on partner’s average capital balances of 12% is given to each partner, and any remainder to
be divided equally. Compute for their share in the profit distribution (with journal entries).
Illustration of Profit and Loss Distribution (With Interest)
Assume that on January 1, 2021, Ace and Bryan formed a partnership with an investment of
Php 40,000 by Ace and Php 60,000 by Bryan. On December 31, 2021, after closing all
income and expense accounts, the Income Summary account shows a credit balance oh Php
60,000, representing the profit for the year 2021. Changes in the capital accounts during
2021 are summarized as follows:
Ace
Bryan
Beginning Capital, 1/1/2021
40,000
60,000
20,000
50,000
20,000
40,000
Withdrawal, 10/1
(20,000)
-
Withdrawal, 11/1
-
(50,000)
Capital balances, 12/31/2021
60,000
100,000
Assume that the partnership had a loss of Php 10,000 in 2021. Provided further that interest
on partner’s average capital balances of 12% is given to each partner, and any remainder to
be divided equally. Compute for their share in the loss distribution (with journal entries).
Illustration of Profit and Loss Distribution (With Interest)
Assume that on January 1, 2021, Ace and Bryan formed a partnership with an investment of
Php 40,000 by Ace and Php 60,000 by Bryan. On December 31, 2021, after closing all
income and expense accounts, the Income Summary account shows a credit balance oh
Php 60,000, representing the profit for the year 2021. Changes in the capital accounts
during 2021 are summarized as follows:
Ace
Bryan
Beginning Capital, 1/1/2021
40,000
60,000
20,000
50,000
20,000
40,000
Withdrawal, 10/1
(20,000)
-
Withdrawal, 11/1
-
(50,000)
Capital balances, 12/31/2021
60,000
100,000
Assume that the partnership had a loss of Php 1,000 in 2021. Provided further that interest
on partner’s average capital balances of 12% is given to each partner, and any remainder to
be divided equally. Compute for their share in the loss distribution (with journal entries).
Illustration of Profit and Loss Distribution (With Salary and Bonus Allowances)
Assume that on January 1, 2021, Ace and Bryan formed a partnership with an
investment of Php 40,000 by Ace and Php 60,000 by Bryan. On December 31, 2021,
after closing all income and expense accounts, the Income Summary account shows a
credit balance oh Php 60,000, representing the profit for the year 2021. Changes in the
capital accounts during 2021 are summarized as follows:
Ace
Bryan
Beginning Capital, 1/1/2021
40,000
60,000
20,000
50,000
20,000
40,000
Withdrawal, 10/1
(20,000)
-
Withdrawal, 11/1
-
(50,000)
Capital balances, 12/31/2021
60,000
100,000
Assume that the partnership had a profit of Php 60,000 in 2021. Provided further that
Ace and Bryan are to receive an annual salary of Php 30,000 and Php 20,000
respectively (to be paid monthly), and any remainder to be divided equally. Compute for
their share in the profit distribution (with journal entries).
Illustration of Profit and Loss Distribution (With Salary and Bonus Allowances)
Assume that on January 1, 2021, Ace and Bryan formed a partnership with an investment of
Php 40,000 by Ace and Php 60,000 by Bryan. On December 31, 2021, after closing all
income and expense accounts, the Income Summary account shows a credit balance oh Php
60,000, representing the profit for the year 2021. Changes in the capital accounts during
2021 are summarized as follows:
Ace
Bryan
Beginning Capital, 1/1/2021
40,000
60,000
20,000
50,000
20,000
40,000
Withdrawal, 10/1
(20,000)
-
Withdrawal, 11/1
-
(50,000)
Capital balances, 12/31/2021
60,000
100,000
Assume that the partnership had a loss of Php 20,000 in 2021. Provided further that Ace and
Bryan are to receive an annual salary of Php 30,000 and Php 20,000 respectively (to be paid
monthly), and any remainder to be divided equally. Compute for their share in the loss
distribution (with journal entries).
Bonus to Managing Partner based
on Net Income
A partnership contract may provide for a bonus to the managing partner equal to a
specified percentage of income. When bonuses are to be allowed, the agreement must
clearly specify the basis of the bonus. The computation may be based on:
1. Net income before allowances for salaries, interest and bonus.
2. Net income before allowance for salaries and interest but after deduction of the
bonus.
3. Net income after allowances for salaries and interest but before bonus.
4. Net income after allowances for salaries, interest and bonus.
ILLUSTRATION. Assume that the partnership of Ace and Bryan has a net income of Php
190,200 before salaries, interest and bonus to partners. The partnership contract
provides for the following:
A.
Salaries to Ace and Bryan, Php 30,000 each.
B. Interest on capital account balances:
1. Ace
Php 7,000
2. Bryan
Php 3,200
C. Bonus to Ace, 20% of net income.
D. Remaining profit or loss after salaries, interest and bonus, equally.
Compute the partner’s share of the net income if bonus is computed based on net
income before allowances for salaries, interest and bonus.
ILLUSTRATION. Assume that the partnership of Ace and Bryan has a net income of Php
190,200 before salaries, interest and bonus to partners. The partnership contract
provides for the following:
A.
Salaries to Ace and Bryan, Php 30,000 each.
B. Interest on capital account balances:
1. Ace
Php 7,000
2. Bryan
Php 3,200
C. Bonus to Ace, 20% of net income.
D. Remaining profit or loss after salaries, interest and bonus, equally.
Compute the partner’s share of the net income if bonus is computed based on net
income before allowances for salaries, interest but after deduction of bonus.
ILLUSTRATION. Assume that the partnership of Ace and Bryan has a net income of Php
190,200 before salaries, interest and bonus to partners. The partnership contract
provides for the following:
A.
Salaries to Ace and Bryan, Php 30,000 each.
B. Interest on capital account balances:
1. Ace
Php 7,000
2. Bryan
Php 3,200
C. Bonus to Ace, 20% of net income.
D. Remaining profit or loss after salaries, interest and bonus, equally.
Compute the partner’s share of the net income if bonus is computed based on net
income after allowances for salaries, interest but before deduction of bonus.
ILLUSTRATION. Assume that the partnership of Ace and Bryan has a net income of Php
190,200 before salaries, interest and bonus to partners. The partnership contract provides for
the following:
A.
Salaries to Ace and Bryan, Php 30,000 each.
B. Interest on capital account balances:
1. Ace
Php 7,000
2. Bryan
Php 3,200
C. Bonus to Ace, 20% of net income.
D. Remaining profit or loss after salaries, interest and bonus, equally.
Compute the partner’s share of the net income if bonus is computed based on net income
after allowances for salaries, interest and bonus.
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