ACCTG 314n – ACCOUTNING FOR SPECIAL TRANSACTION
CHAPTER 1 – Partnerships: Basic Considerations
and Formation
ADVANTAGES and DISADVANTAGE OF
PARTNERSHIP
PARTNERSHIP
Article 1767 of the Partnership Law
“by the contract of partnership,
two or more persons bind
themselves to contribute money,
property or industry to a common
fund with the intention of dividing
the profits among themselves.”
- An unincorporated association of two or
more individuals to carry on, as co-owners, a
business, with the intention of dividing the
profits among themselves.
- A contract of partnership is concensual.
Distinct factors of partnership:
a) Association of Two or More Persons
b) To Carry On as Co-Owners
c) Business for Profit
Partnership vs. Sole Proprietorship
- Owned by two or more individuals, while a
sole proprietorship is owned by only one
individual.
Partnership vs. Corporation/Cooperative
- Created by agreement between the
partners, while a corporation or cooperative is
created by the operation of law.
-
- 0Shared
responsibility of
running the business
- Flexibility in
decision making
- Greater capital
compared to sole
proprietorship
- Relative lack of
regulation by the
government as
compared to
corporations.
CHARACTERISTICS OF A PARTNERSHIP
- Separate Legal Personality
- Ease of formation
- Co-ownership of Partnership Property and
Profits
- Mutual Agency
- Unlimited Life
- Limited Life
- Transfer of Ownership
Disadvantage
- Limited life/ Easily
dissolved
- Unlimited liability
- Conflict among
partners
- Lesser capital
compared to a
corporation
- A partnership
(other than a general
professional
partnership) is taxed
like a corporation.
Partnership Agreement
- The framework within which the parents
are to operate or conduct partnership business.
- The formulation must be done at the
inception of organization of the partnership
- May be oral, implied or written
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
Partnership vs. Joint Venture
- Formed for a business undertaking that is
normally of continuing nature, while a joint
venture may be formed for a limited purpose
and ends when its goal is achieved.
Advantage
Ease of formation


ACCOUNTING FOR PARTNERSHIP
The conceptual framework for financial
reporting and the PFRSs are applicable to all
reporting entities regardless of the type of
organization.
Must accounting procedures used for other
type of business organization are also
applicable to partnerships.
Main distinction lies on the accounting for
equity.
Accounting for partnership should also comply
with relevant provisions of the Civil Code of
the Philippines.
Major consideration in the accounting for the
equity of a partnership
o Formation -accounting for initial
investments to the partnership.
o Operation -Division of Profit or Losses
ACCTG 314n – ACCOUTNING FOR SPECIAL TRANSACTION
o Dissolution -admission of a new partner
and withdrawal, retirement or death of a
new partner.
o Liquidation -winding-up of affairs.
FORMATION

Partnership agreement must be made in a
public instrument and recorded with the
Securities and Exchange Commission (SEC)
when:
a) Immovable Property or real rights are
contributed to the partnership.
(ex. PPE)
b) Partnership has a capital of P3,000 or
more.
Article 1771,1772
- Inventory of any immovable property
contributed to the partnership mut be signed
by the parties and attached to the public
instrument, otherwise the partnership is
deemed void.
Article 1773
- Partnership’s legal existence begins from
the execution of the contract, unless otherwise
stipulated.
Valuation of contributions of partners