The document discusses partnership formation, defining partnerships as unincorporated associations of two or more individuals who co-own a business and share profits. It highlights key features such as ease of formation, mutual agency, and unlimited liability, along with advantages and disadvantages compared to other business entities. Also covered are important accounting considerations for partnerships, including initial investment, profit sharing, the impact of new partners, and the treatment of capital accounts.

1. Accounting For Special
Transaction
Chapter 1

2. PARTNERSHIP
FORMATION
Chapter 1

3. Partnership – is 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.
The following distinguish a partnership from other types of
entities:
- A partnership is owned by two or more individuals, while a
sole proprietorship is owned by only one individual.
- A partnership is created by agreement between the
partners, while a corporation or cooperative is created by
the operation of law.
- A partnership is 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.

4. Characteristics of a partnership
A. Ease of formation
B. Separate legal personality
C. Mutual agency
D. Co-ownership of property
E. Co-ownership of profits
F. Limited life
G. Transfer of ownership
H. Unlimited liabity

5. ADVANTAGE DISADVANTAGE
EASEOF FORMATION LIMITED LIFE/ EASILY DISSOLVED
SHARED RESPONSIBILITYOF RUNNING
THE BUSINESS
UNLIMITED LIABILITY
FLEXIBILITY IN DECISION MAKING CONFLICT AMONG PARTNERS
GREATERCAPITAL COMPAREDTO
SOLE PROPRIETORSHIP
LESSERCAPITAL COMPAREDTO A
CORPORATION
RELATIVE LACK OF REGULATION BY
THE GOVERNMENTAS COMPAREDTO
CORPORATIONS
A PARTNETSHIP (OTHERTHAN A
GENERAL PROFESSIONAL
PARTNERSHIP) ISTAXED LIKE A
CORPORATION
ADVANTAGES AND DISADVANTAGES OF A PARTNERSHIP

6. Partnership –The Conceptual Framework for Financial
Reporting and the PFRSs are applicable to all reporting
entities regardless of the type of organization.Thus, most
accounting procedures used for other types of business
organizations are also applicable to partnership.The main
distinction lies on the accounting for equity. In addition,
the accounting for partnerships should also comply with
relevant provisions of the Civil Code of the Philippines.
The following are the major considerations in the
accounting for the equity of a partnership:

7. The following are the major considerations in the accounting for
the equity of a partnership:
A. Formation – accounting for initial investments to the
partnership
B. Operations – division of profits or losses
C. Dissolution – admission of a new partner and withdrawal,
retirement or death of a partner
D. Liquidation – winding up of affairs

8. Formation
A contract of partnership is consensual. It is created by the
agreement of the partners which may be constituted in any
form, such as oral or written.
However,Articles 1771 and 177 of the Phil. Civil code require
that a partnership agreement must be made in a public
instrument and recorded with the securities and exchange
commission SEC when:
a. immovable property or real right are contributed to the
partnership eg, PPE
B. the partnership has a capital of 3000 or more

9. ILLUSTRATION
a b
Cash 100,000 -
ACCOUNTS
PAYBLE
50,000 -
INVENTOR
Y
80,000 -
LAND 50,000
BUILDING 120,000
230,000 170,000
NOTES PAYABLE 60,000
A. CAPITAL 170,000
B. CAPITAL 170,000
TOTAL 230,000 170,000

10. INCLUDE IN ACCOUNTS RECEIVABLE IS AN ACCOUNT AMOUTING TO 20,000WHICH IS DEEMED
UNCOLLECTIBLE.
THE INVENTORY HAS AN ESTIMATED SELLING PRICE OF 100,000 AND ESTIMATED COSTSTO SELL OF
10,000
THE PARTNERSHIP ASSUMED A 10,000 UNPAID MORTGAGE ONTHE LAND
THE BUILDING IS UNDER-DEPRECIATED BY 25,000
THERE IS AN UNPAID MORTGAGE OF 15,000 ONTHE BUILDINGWHICH B AGREEDTO SETTLE USING
HIS PERSONAL FUNDS.
THE NOTE PAYABLE IS STATED AT FACE AMOUNT. A PROPERVALUATION REQUIRESTHE
RECOGNITION OF A 15,000 DISCOUNT ON NOTE PAYABLE
A AND B SHALL SHARE IN PROFITS AND LOSSES ON A 60:40 RATIO, RESPECTIVELY

11. Bonus on initial investments
Accounting problem exist when a partners capital account
is credited for an amount greater than the fair value of his
contributions.
For instances, a partnership agreement may allow a
certain partner who is bringing in expertise or special skills
to the company to have a capital credit greater than the
fair value of his contributions. In such case, the additional
credit to the partners capital is accounted for as a
deduction from the capital of the other partners.This
accounting method is called the bonus method.

12. Variations to the bonus method
a partnership agreement may stipulate a certain ratio to be
maintained by the partners representing their specific
interests on the equity of the partnership. this stipulation
may give rise to adjustments to the initial contributions of
the partners. Since technically there is no bonus being
given to a certain partner, any increase or decrease to the
capital credit of a partner is not deducted from his co-
partners capital accounts. instead, the capital adjustment
will accounted for as either;
cash settlement among the partners or
additional investment or withdrawal of investment of
partner