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8/2/2019 ACTPACO - Lesson 3 (Revised)
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Partnership & Corporation Acctg
Presented by:
Mr. Francis H. Villamin
DLSU
January 26, 2012
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Partnership & Corporation Accounting
Accounting for Division of Profits and Losses
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Partnership Operation Accounting Cycle of Partnership
1. Recording of the business transaction.2. Posting to ledgers.3. Preparing a trial balance.4. Preparing the worksheet.5. Recording adjusting entries.6. Prepare financial statements.
7. Recording and posting closing entries.8. Preparing a post-closing trial balance.9. Recording and posting reversing entries.
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Partnership Operation Recording of partners loan
account when a partner lends
money to the partnership.
Cash Pxxx
Loan Payable to Partner Pxxx
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Partnership Operation Recording of loan extended by the
partnership to the partners.
Receivable/Loan from Partnerxxx
Cash xxx
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Partnership Operation Division of Net Income
Income summaryxxx
Partners Drawingxxx
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Partnership Operation Division of net loss
Partners Drawing ..xxx
Income Summary..xxx
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Division of Profits
The partnership contract must clearly state
or stipulate how the partners will divide theprofits or losses to avoid misunderstandingamong them in the future.
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Division of Profits The following factors are considered in the
equitable distribution of profits or losses:
1. The capital contribution of partner.
2. The services to be rendered by the
partner.
3. The management skill or expertise of
the partner.
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Division of Profits
4. The duties and responsibilities of the
partner/s.5. The time to be spent by the partner/s
in the business.
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Division of Profits
Other factors that may be incorporated in
the profit or loss (p/l) sharing agreement:a. Salary the partners may be allowed
fixed salaries.
b. Interest the partners may allowinterest on capital investments or
withdrawals.
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Division of Profits
c. Bonus the managing partner may be
allowed a certain percentage of thenet profit as bonus.
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Rules in the Division of ProfitsA.As to the Capitalist Partner
Division of Profits1. In accordance with the partners agreement.
2. In the absence of an agreement, profits
should be divided in proportion to theircapital contributions.
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Rules in the Division of ProfitsA.As to the Capitalist Partner
Division of Losses1. In accordance with the partners agreement.
2. If only the division of profits is agreed upon,
the division of losses will be the same as
their profit sharing agreement.3. In the absence of an agreement, losses will be
divided according to their capital contribution.
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Rules in the Division of ProfitsB. As to an Industrial Partner
Division of Profits1. In accordance with the partners agreement.2. In the absence of an agreement , the industrial
partner shall received a just and equitable share inthe profits and the balance will be divided by thecapitalist partners based on their capital contributions.
Note: An industrial partner does not share in the losses.
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Rules in the Division of Profits
C. As to an Capitalist -Industrial Partner
Division of Profits1. In accordance with the partners agreement.2. In the absence of an agreement , he shall
receive in his capacity as an industrialpartner such share as may be just and
equitable and in his character as acapitalist partner, his share should be inproportion to his capital contribution.
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Rules in the Division of Profits
C. As to an Capitalist -Industrial Partner
Division of Losses
1. In accordance with the partners agreement.
2. In the absence of an agreement ,he will not share inthe losses in his capacity as an industrial partner, but
in his character as a capitalist partner, his shareshould be in proportion to his capital contribution.
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Methods in the Division ofProfits and Losses
1. Equally
2. Using an arbitrary ratio
a. Expressed as a percentage.
b. Expressed in fraction.
c. Expressed a a ratio.
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Methods in the Division ofProfits and Losses
3. Using the capital ratio
a. Original capitalthe partners capital
at the date of formation.
b. Beginning capitalthe partners
capital at the beginning of the currentperiod.
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Methods in the Division ofProfits and Losses
3. Using the capital ratio
c. Ending capitalthe partners capital
at the end of the period.
d. Weighted average capital the
weighted average capital during theperiod.
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Methods in the Division ofProfits and Losses
4. Interest is to be allowed on the partners
capital and the balance will be divided
at an agreed ratio.
5. Salaries are to be allowed and the
balance will be divided using an agreedratio.
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Methods in the Division ofProfits and Losses
6. Bonus is to be allowed to the managing
partner and the balance will be divided
using an agreed ratio.
7. Interest on the partners capital, salary
allowances, and bonus will be allowedand the balance will be divided using
an agreed ratio.
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Illustrative Cases
Mark and Spencer are partners whose capital
Investments at the date of formation were
P200,000 and P300,000 respectively. Their
capital accounts at the end of the year
showed the following:
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Illustrative Cases
Mark, Capital
03/01 80,000 01/01 300,000
08/01 280,000
07/01 180,000 01/01 700,000
12/01 480,000
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Illustrative Cases
The Income & Expense Summary account showed a
credit balance of P240,000.
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Illustrative Cases
a. Profits are divided equally.
Income & Expense Summary 240,000
Mark, Drawing (1/2) 120,000
Spencer, Drawing (1/2) 120,000
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Illustrative Cases
b. Profits are divided 20% to Mark and 80%
to Spencer.
Income & Expense Summary 240,000
Mark, Drawing (.20 x P240,000) 48,000
Spencer, Drawing (.80 x P240,000) 192,000
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Illustrative Cases
c. Profits are divided 3:5 for Mark and Spencer
respectively.
Income & Expense Summary 240,000
Mark, Drawing (3/8 x P240,000) 90,000
Spencer, Drawing (5/8 x P240,000) 150,000
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Illustrative Cases
d. Profits are divided 1/4 to Mark and 3/4
to Spencer
Income & Expense Summary 240,000
Mark, Drawing (1/4 x P240,000) 60,000
Spencer, Drawing (3/4 x P240,000) 180,000
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Illustrative Cases
e. Profits are divided using the original capitalratio.
Income & Expense Summary 240,000
Mark, Drawing (2/5 x P240,000) 96,000
Spencer, Drawing (3/5 x P240,000) 144,000
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Illustrative Cases
f. Profits are divided using the beginningcapital ratio.
Income & Expense Summary 240,000
Mark, Drawing (3/10 P240,000) 72,000
Spencer, Drawing (7/10 x P240,000) 168,000
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Illustrative Cases
f. Profits are divided using the ending capitalratio.
Income & Expense Summary 240,000
Mark, Drawing (5/15 P240,000) 80,000
Spencer, Drawing (10/15 x P240,000) 160,000
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Illustrative Cases
h. Profits are divided using the weightedaverage capital ratio.
Income & Expense Summary 240,000
Mark, Drawing (35/100P240,000) 84,000
Spencer, Drawing (65/100 x P240,000) 156,000
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Illustrative Cases
Computation of weighted average capitalMark
Date Capital Balance Months Unchanged Total01.01 300,000 x 2 = 600,000
03.01 220,000 x 5 = 1,100,000
08.01 500,000 x 5 = 2,500,000
------ ------------
12 4,200,000=== ======
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Illustrative Cases
Average Capital of Mark
4,200,000 / 12 = 350,000
=====
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Illustrative Cases
Computation of weighted average capitalSpencer
Date Capital Balance Months Unchanged Total01.01 700,000 x 6 = 4,200,000
07.01 520,000 x 5 = 2,600,000
12.01 1,000,000 x 1 = 1,000,000
------ -------------
12 7,800,000=== =======
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Illustrative Cases
Average Capital of Spencer
7,800,000 / 12 = 650,000
=====
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Illustrative Cases
i. Interest of 10% on the beginning capitalwill be allowed and the balance to be
divided equally.
Income & Expense Summary 240,000
Mark, Drawing 100,000
Spencer, Drawing 140,000
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Illustrative Cases
Mark Spencer Total
Interest of 10% on
beginning capital 30,000 70,000 100,000
Balance: Equally 70,000 70,000 140,000
-------- --------- -----------100,000 140,000 240,000
===== ===== =====
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Illustrative Cases
j. Mark and Spencer are allowed salaries of
P60,000 and P80,000, respectively, and the
balance is to be divided 40% for Mark and 60%for Spencer.
Income & Expense Summary 240,000
Mark, Drawing 100,000
Spencer, Drawing 140,000
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Illustrative Cases
Mark Spencer Total
Salaries 60,000 80,000 140,000
Balance: 40%, 60% 40,000 60,000 100,000
-------- --------- -----------
100,000 140,000 240,000===== ===== =====
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Illustrative Cases
k. Spencer, the managing partner is allowed a bonus
of 20% of the net profit before bonus and
the balance is to be divided equally.
Income & Expense Summary 240,000
Mark Drawing 96,000
Spencer Drawing 144,000
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Illustrative Cases
Mark Spencer Total
Bonus (.20 x 240,000) 48,000 48,000
Balance: Equally 96,000 96,000 192,000
-------- --------- -----------
96,000 144,000 240,000===== ===== =====
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Illustrative Cases
l. Spencer, the managing partner is allowed a bonus
of 20% of the net profit after bonus and
the balance is to be divided 2:8 for Mark andSpencer.
Income & Expense Summary 240,000
Mark, Drawing 40,000
Spencer, Drawing 200,000
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Illustrative Cases
Mark Spencer Total
Bonus (.20 x 200,000) 40,000 40,000
Balance: 2:8 40,000 160,000 200,000
-------- --------- -----------
40,000 200,000 240,000===== ===== =====
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Illustrative Cases
Computation of bonus:
Net profit before bonus 120% P240,000
Less: Bonus 20% 40,000 (.20 x 200,000)
-------- -----------
Net profit after bonus 100% P200,000 (240,000/120%)
===== =======
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Illustrative Cases
m. 10% interest is allowed on the beginning capital;
each partner is allowed a salary of P50,000. Spencer, themanaging partner is entitled to a bonus of 10% of the net
profit before interest, salaries and bonus, the remainingprofit is to be divided equally.
Income & Expense Summary 240,000
Mark, Drawing 88,000
Spencer, Drawing 152,000
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Illustrative Cases
Mark Spencer Total
10% interest 30,000 70,000 100,000
Salaries 50,000 50,000 100,000
Bonus (10% x 240,000) 24,000 24,000
Balance: Equally 8,000 8,000 16,000
---------- ---------- ----------88,000 152,000 240,000
===== ===== =====
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Illustrative Cases
n. 10% interest is allowed on the beginning capital;
P40,000 salary to Mark and P56,000 to Spencerplus a bonus of 10% of the net profit aftersubtracting interest, salaries and bonus, theremaining income is to be divided equally.
Income & Expense Summary 240,000
Mark, Drawing 90,000
Spencer, Drawing 150,000
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Illustrative Cases
Mark Spencer Total
10% interest 30,000 70,000 100,000
Salaries 40,000 56,000 96,000
Bonus (10% x 40,000) 4,000 4,000
Balance: Equally 20,000 20,000 40,000
---------- ---------- ----------90,000 150,000 240,000
===== ===== =====
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Illustrative Cases
Computation of bonus:
Net profit 240,000
Interest (100,000)
Salaries (96,000)-----------
Net profit before bonus 110% 44,000
Bonus 10% 4,000 (.10 x 40,000)
-------- ---------100% 40,000 (44,000/110%)
==== =====
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Thank you.
Thats all for today!!