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 Additional Investment, 3/1 20,000 50,000 Additional Investment, 8/1 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 Additional Investment, 3/1 20,000 50,000 Additional Investment, 8/1 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 Additional Investment, 3/1 20,000 50,000 Additional Investment, 8/1 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 Additional Investment, 3/1 20,000 50,000 Additional Investment, 8/1 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 Additional Investment, 3/1 20,000 50,000 Additional Investment, 8/1 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 Additional Investment, 3/1 20,000 50,000 Additional Investment, 8/1 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 Additional Investment, 3/1 20,000 50,000 Additional Investment, 8/1 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 Additional Investment, 3/1 20,000 50,000 Additional Investment, 8/1 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 Additional Investment, 3/1 20,000 50,000 Additional Investment, 8/1 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 Additional Investment, 3/1 20,000 50,000 Additional Investment, 8/1 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 Additional Investment, 3/1 20,000 50,000 Additional Investment, 8/1 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 Additional Investment, 3/1 20,000 50,000 Additional Investment, 8/1 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.
