Partnership

Partnership

Group Members

Syed Muhammad Hamza (31)

Abdul Khaliq (43)

Hassaan Tariq (28)

Zeeshan Islam (40)

Ayeman Malik (14)

Fizza (30)

Huma (48)

Types of Business.

Sole proprietorship.

Partnership.

Corporation.

Partnership Accounts

Opening partnership accounts.

Closing entries.

Division of net income.

Admission of new partner.

Retirement of old

partner.

Death of a partner

Liquidation.

Contents.

Introduction

Definition of Partnership.

Partnership act 1932, defines partnership as:

“The relationship between persons who have

agreed to share the profit and loss of a

business carried on by all or any of them acting

for all”

Limit of Membership.

In Banking Business.

In any other business.

In banking business of partnership the minimum no of

partners are 2 and maximum number of partners are

10.

In any other form of partnership firm tth minimum number of

partners are 2 and the maximum number of partners are 20.

Partnerships?

• No written agreement is required but

agreement is recommended.

Partnership Deed.

• “An agreement among the partners which sets

at the terms on which they were agree to form a

partnership is called partnership deed”

Amount of Capital to be invested

How profits and losses should be shared

Amount of drawings allowed

Interest on Capital

Interest on drawings

Salary agreements

Limited partnership.

General partner.

(at least one)

Limited partner.

(one or more)

General partnership.

General partners.

(all partners are general)

Types of partnership and types of

partners.

Kinds of Partners.

Junior

partner.

Holding out

partner.

Nominal

partner.

Senior

partner.

Sleeping

partner.

Quasi

partner.

Minor

partner.

Active

partner.

Solvent partner.

• If partners are not allowed to change their capitals during the business life except in extra ordinary cases,is called fixed capital

Fixed Capital.

•If partners are allowed to change their capital during the business life with each transactions ,is called fluctuating capital.

Fluctuating capital.

CHARACTERISTICS OF PARTNERSHIPS

Principal characteristics of a partnership

1 Association of individuals

2 Mutual agency

3 Limited life

4 Unlimited liability

5 Co-ownership of property

PARTNERSHIP

CHARACTERISTICS

Mutual Agency.

Collective decision.

Each partner works as an agent of the firm.

Can enter in contracts.

Right to take part in management.

Right to give the openion.

CO-OWNERSHIP OF PROPERTY

• Partnership Assets

Assets invested in the partnership are owned jointly by

all the partners.

If a partner invests building or any other propert he

or she does retain any personal right to the assets

contributed.The property becomes jointly owned by

all partners.

Limited Life

Admission of new partner.

Withdrawal of old partner

Bankrupt case.

Expiration of the period of time.

Complition of the project.

Unlimited Liability

Each partner is personally and individually liable for all partnership liabilities. Creditors'

claims attach first to partnership assets. If these are insufficient, the claims then attach

to the personal resources of any partner, irrespective of that partner's equity in the

partnership. Because each partner is responsible for all the debts of the partnership,

each partner is said to have unlimited liability

Partnership and taxes

The net income of a partnership is not taxed as a separate entity. But, a partnership

must file an information tax return showing partnership net income and each partner's

share of that net income. Each partner's share is taxable at personal tax rates,

regardless of the amount of net income each withdraws from the business during the

year.

Share Income or loss.

Partnership net income (or net loss) is also co-owned.All net income or net loss is

shared according to the given ratio, otherwise shared equally by the partners.

Advantages/Disadvantages of Partnerships

Advantages

Easy to form, no legal

formalities

Partners can combine

expertise

Combine capital

Spread workload

Share decision making

Easier to raise funds

i.e. loans etc

Disadvantages

More people to share

in the profits

General partners have

unlimited liability

Disagreements can

occur

Partnership may be

dissolved if partner

dies

DIVIDING NET INCOME

OR NET LOSS

•Partnership net income or net loss is

shared equally unless the partnership

contract indicates otherwise.

• The same basis of division usually applies

to both net income and net loss, and is

called the income ratio, or the profit and

loss ratio.

• A partner’s share of net income or net loss

is recognized in the accounts through

closing entries.

Opening the accounts of a

new partnership

Fair market values

when a partner contributes assets

other than cash, the value of such assets

arises.

The valuations assigned must be agreed

to by all partners

John Blair Partnership Investment.

Recording the investment in the partnership

Cash 40000

Accounts receivable 60000

Inventory 90000

Accounts payable 30000

John Blair capital 160000

Richard cross partnership investment

Second partner investment.

Cash 10000

Inventory 60000

Land 60000

Building 100000


Richard Cross Capital 160000

• Partnership accounting is similar to that in

a sole proprietorship except that separate

capital and drawing accounts are

maintained for each partner.

• The capital and drawing accounts show

the amount invested for each partner.

Similar To Sole Proprietorship

• The additional investments are credited to

the capital accounts as shown below

Additional investment

Cash 20000

John Blair capital 10000

Richard cross capital 10000

• Cash or other assets withdrawn by a

partner.

• Payments from partnership funds of the

personal debts of the partner.

• Partnership cash collected on behalf of the

firm by the partner but retained by the

partner personally.

Drawing Accounts

• Transfer of funds to the firm by any partner

is consider as loan. It is recorded by

crediting the liability accounts

• It happens when no partner is willing to

increase its capital but firm is in need of

funds so any partner can advance a loan

to the firm

Loans from partners

Closing the Accounts of a

Partnership at Year-End

CLOSING ENTRIES

The following 4 closing entries are required for a partnership:

1) Debit each revenue account for its balance and

credit Income Summary for total revenues.

2) Debit Income Summary for total expenses and

credit each expense account for its balance.

3) Debit (credit) Income Summary for its balance and

credit (debit) each partner’s capital account for his

or her share of net income (net loss).

4) Debit each partner’s capital account for the

balance in that partner's drawing account and

each partner’s drawing account for the same amount.

DIVIDING NET INCOME

OR NET LOSS

•Partnership net income or net loss is

shared equally unless the partnership

contract indicates otherwise.

• The same basis of division usually applies

to both net income and net loss, and is

called the income ratio, or the profit and

loss ratio.

• A partner’s share of net income or net loss

is recognized in the accounts through

closing entries.

CLOSING ENTRIES

The first 2 entries are the same as a

proprietorship, while the last 2 entries are

different because:

1) There are 2 or more owners’

capital and drawing accounts

2) It is necessary to divide net

income or loss among the

partners.

Closing Income Summary and

DrawingsJoan Blair and Richard Cross have net income

of $60,000, which they decided to equally

divided and their drawings are $24,000 and

$16000 respectively.Date Particular Debit Credit

June 5

June 5

Income Summary

Joan Blair, Capital

Richard Cross, Capital

(Divide net income with agreement to share

equally)

Joan Blair, Capital

Richard Cross Capital

Joan Blair, Drawings

Richard Cross, Drawings

(Drawings accounts close their respective

capital accounts)

60,000

24,000

16,000

30,000

30,000

24,000

16,000

Income Statement for a Partnership

• Income statement for a partnership differs

from that of a sole proprietorship in only

one respect: a final section may be added

to show the division of net income

between the partnerships.

• Income Statement showing no income

taxes and no salaries expense relating to

services rendered by partners.

BLAIR AND CROSS

Income Statement

As on December 31,Revenue:

Sales

Expense:

Cost of goods sold:

Inventory, Jan 1

Purchases

Cost of good available for sale

Less: Inventory, Dec. 31

Cost of goods sold

Gross profit on sales

Operating Expenses:

Selling expenses

General & administrative expenses

Net Income

Division of net income:

To Joan Blair (50%)

To Richard Cross (50%)

150,000

460,000

610,000

210,000

100,000

40,000

30,000

30,000

600,000

400,000

200,000

140,000

60,000

60,000

_________

_________

_________

_________

_________

__________________

_________ __________________

Statement of Partners’ Capital

Partners want an explanation of the change in their capital

accounts from one year-end to next and for this purpose

Statement of Partner’s Capital prepared.

Blair And Cross

Statement of Partner’s Capital

For the Year Ended December 31

Blair Cross Total

Balances, Jan 1, 19

Add: Additional investments

Net income for the year

Subtotals

Less: Drawings

Balances, Dec. 31

160,000

10,000

30,000

200,000

24,000

176,000

160,000

10,000

30,000

200,000

16,000

184,000

320,000

20,000

60,000

400,000

40,000

360,000

_________ _________ _________

_________ _________ _________

__________________ __________________ __________________

Partnership Profits and Income Taxes

• Partnerships are not required to Pay Income

Taxes.

• Partnership required to file an information tax

return showing the amount of the partnership net

income and shares.

• Partners net income taxable to the partners

individually in year in which earned.

• Partners pay taxes on their share in net income

not on the drawings

• Net income of the partnership is taxable to the

partners each year.

The Nature of Partnership Profits

• Nature of Profit earned in Partnership is like sole

proprietorships, compensate the owners

1) Personal services rendered

2) Capital investments

3) Entrepreneurial risks

• Profit may be divided between partners on the basis of:

1) Time they devotes to business

2) Partners possess personal skill

3) Different amount of capital they provided

• But all of these things should have explained in

agreement

• Partnership profits and loss sharing agreements usually

includes salary allowances and interest on capital

Division of

partnership Net

Income.

Dividing of Net Income among

Partner• The partnership agreement should specify the basis for sharing net

income or net loss. The basis should reflect the partners’ capital

investment and service to the partnership.

• The following are typical of the ratios that may be used:

1) A fixed ratio, expressed as a proportion (6:4), a percentage (60% and

40%), or a fraction (3/5 and 2/5).

2) Salary allowances to the partners, with remaining net income or loss

divided in a fix ratio.

3) Interest allowances on a partners’ capital balances, with remaining net

income or loss divided in a fix ratio.

4) Salary allowances to partners, interest allowances on partners’ capital

balances, and remaining in a fixed ratio.

• These methods of sharing net income of partners recognized

differences in the personal service and capital invested in firm by

partners.

Division Partnership Net Income

Among Partner

Most profit earning agreement fall under one of

the following types:

1.A fixed ratio method;partner may agree upon

any fixed ratio such as 40% and 60% or70% and

30%.

2.Salary allowance to partner.

3. Interest allowance on partners capital balances.

4.Salary allowances to the partners,interest

allowances,or loss divided in fixed ratio.

Division of partnership net incomeFor example

Annual salary allowance $24000 for Adams and $48000 for Barnes, Which total

$72000 per year,The partnership net income is $96000.The remaining is

divided in fixed ratio.

Division of partnership net income Adams Barnes N.I

Net income is to be divided……………………………………………………………… $96000

Salary allowances to partner ………………………$24000 $48000 (72000)

Remaining income after salary …………………………………………………………… 24000

Allocating in fixed ratio:

Adams(50%) …………………………………… 12000

Barnes(50%) …………………………………………………12000

Total share to each partner……. .………………… $36000 $60000 $-0-

The entry to close the income summary

Income summary…………………....96000

Brooke Adams,capital……36000

Ben Barnes,capital…60000

(to close the income summary account)

Interest allowances on partners capital

Both are to be allowed interest at 15% on beginning capital. That is Adams$160000 and Barnes$140000.

Division of partnership net incomeAdams Barnes N.I

Net income to be divided……………………….. $96000

Interest allowances on beginning capital:

Adams(160000*15%) ……………………………….. 24000

Barnes(40000*15%)…………………………………………………6000

Total allocating as interest allowances……… (30000)

Remaining income after interest allowance… 66000


Adams(50%)……………………………………………33000

Barnes(50%)……………………………………………………… 33000 (66000)

Total share to each partner…………………………...$57000 $39000 $-0-


account.

Income summary…………………. 96000

Brooke Adams,capital……57000

Ben Barnes,capital……….39000

(To close the income summary account by

cr each partner with interest at 15% on

beginning capital)

Salary allowances,interest on

capital,remainder in fixed ratio

Salary allowances$24000for adams,$48000for Barnes,Beginningcapital$160000for Adams,$40000for Barnes,allowed interest 10%,profit or loss equally divided.

Division of partnership net income

Adams Barnes N.I

Net income to be divided………………………………. $96000

Salary allowances to partners………………………… $24000 $48000 (72000)

Income after salary allowances……………………… $24000


Adams(160000*10%)……………………………………..16000

Barnes(40000*10%)…………………………………….. 4000

Total allocating as interest allowances………………. (20000)

Remaining income after salary and interest allowances $4000


Adams(50%)………………………………………………… 2000

Barnes(50%)………………………………………………. 2000 (4000)

Total share to each partner……………………………. $42000 $54000 $-0-


account

Income summary………………...........96000

Brooker Adams,capital ……….. 42000

Ben Barnes,Capital…………54000

(To close the income summary account by

cr each partner with salary,interest at 10%

on capital,divide profit equally)

Authorized salary and interest allowances in

excess of net incomeThe income for the year is less than the total of authorized salary the net

income of firm only$80000.

Division of partnership net incomeAdams Barnes N.I

Net income to be divided………………… $80000

Salary allowances to partner………………. $24000 $48000 (72000)

Income after salary allowances………….. $8000


Adams($160000*10%)……………………… 16000

Barnes($40000*10%)………………………. 4000

Total allocated as interest allowances….. (20000)

Residual loss after salary and interest …. $(12000)

Allocated in fixed ratio:

Adams(50%)…………………………………….. (6000)

Barnes(50%)……………………………………. (6000) 12000

Total share to each partner……………………… .$34000 $46000 $-0-

To Close the income summary

account

Income summary……………………….80000

Brooke Adams,capital……………..34000

Ben Barnes,capital……………46000

(To close the income summary account by cr each

partner with salary,lnterest on invested capital

and dividing the residual loss)

ADMISSION OF A NEW PARTNER

Admission of a new partner.

ADMISSION

By purchase of interest in the business

Bonus method

Goodwill method

By purchase of interest from a partner

HOW TO ADMIT A NEW PARTNER

1) PURCHASING THE

CAPITAL INTEREST OF

EXISTING PARTNERS.

2) OR PURCHASING THE

CAPITAL INTEREST

FROM AN EXISTING

PARTNER.

1) INVESTING ASSETS

IN A PARTNERSHIP.

2) MAKING

INVESTMENT

DIRECTLY IN THE

FIRM`.

PROCEDURES IN ADDING PARTNERS

PURCHASE OF A PARTNER’S INTEREST

A PERSONAL

TRANSACTION

BETWEEN ONE OR

MORE EXISTING

PARTNERS AND THE

NEW PARTNER.

THE PRICE PAID IS

NEGOTIATED AND

DETERMINED BY THE

INDIVIDUALS INVOLVED.

IT MAY BE EQUAL TO OR

DIFFERENT FROM THE

CAPITAL EQUITY

ACQUIRED.

THE TOTAL NET ASSETS

AND TOTAL CAPITAL OF

THE PARTNERSHIP DO

NOT CHANGE DUE TO

PARTNERSHIP.

Note

ANY MONEY OR OTHER CONSIDERATION EXCHANGED IS THE PERSONAL PROPERTY

OF THE PARTICIPANTS AND NOT THE PROPERTY OF THE PARTNERSHIP.

ENTRY TO RECORD ON PARTNER’S ADMISSION

BY BUYING CAPITAL INTEREST

Example (Purchasing from a single partner)

Pam lee has an $80,000 equity interest in the partnership of Lee, Martin, and Nash. Lee sells

his entire equity to Paul Trent for $100,000. entry passed would be

srParticulars Debit CreditPam Lee, capital

80,000

Paul Trent, Capital 80,000

Example (purchasing from multiple partners)

Trent is to gain admission to the firm of Lee, Martin, and Nash. By purchasing

one-forth of the equity interest of each. The present accounts are Lee $80,000,

Martin $60,000,and Nash $100,000. Trent makes payment directly to all

partners, not to the partnership.

To record purchase of 25% of the Partner’s Equity by Paul Trent.

=(80,000+60,000+100,000)*25%=60,000

Particulars Debit CreditPam Lee, Capital 20,000Pam Martin, Capital 15,000Tom Nash, Capital 25,000

Paul Trent, Capital 60,000

DIRECT INVESTMENT IN PARTNERSHIP

INVESTING ASSETS IN A PARTNERSHIP.

MAKING INVESTMENT DIRECTLY IN THE

FIRM.

BOTH THE TOTAL NET ASSETS AND THE

TOTAL PARTNERSHIP CAPITAL CHANGE.

Note

When the new partner’s investment differs from the capital equity acquired, the

difference is considered a bonus either to:

1) THE EXISTING (OLD) PARTNERS OR 2) THE NEW PARTNER.

ENTRY TO RECORD ON PARTNER’S ADMISSION

BY INVESTING IN THE FIRMEXAMPLE

Assume that Ann Philips and Judy Ryan are partners having capital account of $100,000. They

agree to admit Bart Smith and give him one-half equity interest for his investment of $200,000.

Net Assets (Owner’s Equity)………………………………………………......

$200,000

Cash Investment By Bart Smith……………………………………..................

$200,000

Net Assets of new partnership……………………………………………...

$400,000

Smith’s one-half interest……………………………………………................

$200,000

To acquire interest of $200,000 entry passed is

One-half or 50% equity

=(200000+200000)*50%

=200000

Journal Entry

Sr. Particulars Debit CreditCash

200,000

Bart Smith, Capital 200,000

BONUS IS WHEN NEW PARTNER'S INVESTMENT IN THE FIRM IS

GREATER THAN THE CREDIT TO HIS CAPITAL ACCOUNT ON THE

DATE OF ADMITTANCE.

EXISTING PARTNERSHIP HAS EXCEPTIONALLY HIGH EARNING

YEAR AFTER YEAR AND THEY MAY DEMAND A BONUS AS A

CONDITION OF ADMISSION.

EXAMPLE

Jane Rogers and Richard Steel have the 60% equity interest and 40% equity interest respectively. Agrees to admit David Taylor on his investment of $120,000 for one-forth interest in partnership. Entry to record

Net assets (owners’ equity) of old partnership……………………. $200,000

Cash Investment By David Taylor…………………………… $120,000

Net assets of new partnership………………………………. $320,000

Taylor's one-forth interest…………………………………… $80,000

To check his total share of 25%

=320000*25%

=80,000

His rest 40,000 is considered as a Bonus to former partners. According to their shares in equity interest.

ALLOWING A BONUS TO FORMER PARTNERS

Rogers share in bonus = 40000*60%

= 24,000

Steels Share in bonus = 40000*40%

= 16,000

The entry to record

Total capital of new partnership is now $320,000 in which

Tray has one-forth Interest (80,000)

Rogers Capital is $124,000

Steels Capital is $116,000

NoteTHE PROFIT SHARING RATIO OF PARTNERS MAY NOT BE THE SAME.

Particulars Debit CreditCash 120,000

David Taylor, Capital 80,000

Janet Rogers, capital 24,000

Richard Steel, capital 16,000

ALLOWING A BONUS TO NEW PARTNER

WHEN THE NEW PARTNER'S INVESTMENT IS

LESS THAN HIS OR HER CAPITAL CREDIT IN

THE FIRM.

CASH IS NEEDED AND NEW PARTNER IS

ASKED TO JOIN THE PARTNERSHIP.

GOOD WILL OF NEW PARTNER IS NEEDED

EXAMPLE

John Bryan and Merlin Davis are partners in an existing

partnership and have 70% and 30% of equity interest

respectively. Capital accounts are $120,000 and $100,000

respectively, and offer to admit Kay Grant to a One-third equity

interest in the firm upon investing $80,000.

Bonus given by Bryan = 20000*70%

= 14,000

Bonus given by Davis = 20000*30%

= 6,000

Entry to record

Particulars Debit CreditCash 80,000

John Bryan, Capital 14,000

Merle Davis, Capital 6,000

Kay Grant capital 100,000

Net assets (owners equity) of old partnership……………… $220,000

Cash invested by Kay Grant…………………………………... $80,000

Net assets of new partnership………………………………... $300,000

Grant’s One third……………………………………………….. $100,000

Grant’s one- third share = 300000*33.33%

= 100,000

Withdrawal of a partner

A partner may retire and be permitted to withdrawassets equal to, less than, or greater than theamount of his interest in the partnership.

Partnership starts between Chris, Brit

Bundy & john Coe .

Description Capital Account Share of profits

Chris acres 75000 20%

Brit Bundy 125000 30%

John Coe 100000 50%

Total partner Capital 300000 100%

o Coe wants to retire or the withdrawal of john

Coe and the treatment accorded the partners

capital accounts under several different

assumptions.

Coe sells his interest to someone else.

• Coe with the consent of Acres and Bundy

,sell his equity to a new partner

• In this case the payment coming partner

goes directly to Coe and there no change

in assets and liabilities of the partnership

• Only the entry that isDescription Debit Credit

Coe’s capital 100000

New partner 100000

Acres and Bundy pay Personal funds.

Description Debit credit

John Coe capital 100000

Chris Acers capital 50000

Brit Bundy capital 50000

Coe’s Interest is purchased by the

partnership.

• Partnership pays Coe in cash for his

equity in the business

• Partnership pays Coe exactly $100000

cash for his equity an amount equal to the

balance in his capital account

• The entry is simple Description Debit Credit

Coe’s capital a/c 100000

To cash a/c 100000

Partnership pays Coe more than the

balance in his capital account

• Current market value

• Unrecorded goodwill

• Bonus to the withdrawal partner

Relative profit ratio

• Describe the relationship between the

profit and loss-sharing ratio between

continuing partners excluding the retiring

partner

• Relative profit ratio = percentage received

by retiring partner/total percentage

of continuing partners

Acres (20% /50%) 40%

Bundy (30% /50%) 60%

Assume that Coe receive 140000

the capital is 100000 and 40000 is

bonus from acres & bundyDescription Debit credit

Coe capital 100000

Acres capital 16000

Bundy capital 24000

To Cash a/c 140000

Partnership pays less than the balance

in his capital account

• Coe receive 80000 cash in full

settlement of his 100000 capital

account

Description Debit Credit

Coe capital a/c 100000

To cash a/c 80000

To Acres a/c 8000

To Bundya/c 12000

Death of partner

• A partnership dissolved by the death of

any member

• When a partner dies, the partner’s equity at

the date of his / her death has to be

determined. This is done by:

1) Calculating the Net Income or Loss for

the YTD

2) Closing the books

3) Preparing the financial statements

Insurance on lives of partner

• For easier payment for the partner’s

assets, many partnerships obtain life

insurance policies on each partner. The

partnership is named as the beneficiary.

The proceeds from the insurance are then

used to settle with the estates.

• In the absence of insurance on lives of

partner it is difficult to pay from cash

available without disrupting business

operation

Sale of Assets.

• Assets are sold ,if loss is occurred then it is divided among the partners in a fixed ratio.

Payment of Liabilities.

• Liabilities are paid.

Distribution of capital.

• Partner’s capitals are refunded.If any amount is left it is divided in profit&loss sharing ratio.

Liqudation Process.

Financial position of the Firm.

Royal simms and Tate

Balance Sheet

December 31,19…Assets Amounts Liabilities Amount

Cash 50000 Accounts payable 100000

Inventory 200000 Ann Royal, capital 140000

Other assets 1500000 Ed Simms capital 120000

Jon Tate capital 40000

Total 400000 Total 400000

• The terms of sale provide that the inventory and other

assets will be sold to the north corporation for a

consideration of 230000 ,a price resulting in a loss of

120,000.

Cash…………………………………..230000

Loss on sale of business……..120000

Inventory ……………………….200000

other assets …………..........150000

(to record the sale of all assets other than cash to North

Corporation)

Entry to divide loss on sale

Ann Royal capital……......….40000

Ed Simms capital………………40000

John Tate capital……………..40000

loss on the sale of

business………..120000

(to divide the loss on the sale of business

among the partner in the establishes ratio

for sharing profit and loss)

Balance sheet after sale of assets

Royal, Simms, And Tate

Balance Sheet

Assets Amoun

ts

Liabilities Amount

Cash 28000

0


Ann Royal, capital 100000

Ed Simms capital 80000

Jon Tate capital 0

Total 28000

0

Total 280000

• The creditors must be paid in full before

cash is distributed to the partners.

(to complete liquidation of businessDate Description Debit Credit


cash 100000

Ann Royal capital

Ed Simms capital

100000

80000

Cash 180000

Treatment of debit balance in capital account

• To illustrate the situation lets change our assumptions

concerning the sale of the assets by the firm of Royal

Simms and Tate and say that the partnership

assets(except cash) are sold to North Corporation for

$206000. the amount of cash received by the

partnership is $24000 less than in the prior example.

And the loss incurred on the sale of assets is $144000

rather than the $120000 Tate one third share of a

$144000 loss would be $48000, which would wipe out

the $40000 credit balance in his capital account and

create an $8000 debit balance. After the liabilities are

paid , the balance sheet for the partnership would

appear as follow:


Balance Sheet

(After the sale of all assets except cash)Assets Amount

$

Liabilities Amount

$

Cash 156000 Ann Royal, capital 92000


John Tate

capital(deficiency)

(8000)

Total 156000 Total 156000

Entry to record distribution of cash on hand.

Ann Royal capital………….88000

Ed Simms capital……….…68000

cash a/c………………156000

(to divide the remaining cash by paying the

capital account of Royal and Simms to a

balance of 4000 each representing the

sdivision of Tate loss between them)


Trial balance

After cash distribution

Ann Royal capital 4000


John Tate capital

( deficiency) 8000

Detail. Total Debit. Total credit.

TOTAL $8000 $8000

12B-5

Admission of a New partner.

Four conditions.

PART A & B

Howell, Capital 220,000

Lee, Capital 220,000

To record transfer of one-half capital interest in partnership

from Howell to new partner, Lee

(440,000 * 50%)


So, Capital 80,000


To record transfer of one-half interest of present partners

to new partner, Lee

PART C

Cash 300,000


So, Capital 28,000


To record 300000 investment by Lee for a one-half interest in

partnership:

Total capital before admission…… 440,000

Lee’s investment……………………300,000

Total capital of a new partnership 740,000

Lee’s Interest (one-half)………… 370,000

Bonus to Lee (370,000-300,000 invested) 70,000

Bonus to Lee reduces capital of old partners:

Howell (60%, or 3/5)………………42,000

So (40%, or 2/5)……………………28,000

PART DCash 560,000



So, Capital 24,000

To record admission of Lee to a one-half interest in capital

and income:

Total capital before investment by Lee… 44,000

Cash invested by Lee……………………… 560,000

Total capital of new partnership………… 1,000,000

One-half Interest to Lee…………………… 500,000`

Excess of 560,000 investment by Lee over credit

to his capital account…………………….60,000

Bonus of 60,000 divided:

Three-fifths to Howell……………………36,000

Two-fifths to So…………………………..24,000

Partnership

Documents