The document discusses partnerships under Philippine law. It defines a partnership as a legal relationship between two or more persons associated as joint principals in a business. The Civil Code states that in a partnership, parties bind themselves to contribute money, property, or industry to a common fund with the intention of dividing profits. Examples are provided showing how to account for capital contributions and assets brought into partnerships.

1. Financial Accounting and Reporting 2
Module 1 & 2

2. Partnership
╸ a legal relation
existing between
two or more
persons
contractually
associated as joint
principals in a
business
- Meriam-Webster (n.d.)
╸ a partnership is a
formal
arrangement by
two or more
parties to manage
and operate a
business and share
its profits.
- Investopedia (2021)
2
In a 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 profit among
themselves. Two or more persons may also
form a partnership for the exercise of a
profession.
- (Civil Code of the Philippines, Article 1767).

3. True or False
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1. A partnership may be established for charity.
2. A partnership must always have at least two
owners.
3. A group of 100 individuals cannot form a
partnership but a corporation.
4. Supposed A & B are partners. B entered into a
personal contract that caused that partnership a
loss of P1,000,000. Having 50% sharing
agreement, A is liable to shoulder P500,000.
5. Supposed A & B are partners. B entered into a
personal contract that caused that partnership a
gain of P1,000,000. B can deny A of a share in
the said profit.
6. A, a multi-millionaire, is the general partner,
while B is an industrial partner. The stipulation in
the articles of partnership that A is excluded from
profit sharing is void.

4. Accounting Rule for Capital Account
4

5. Illustration 1
╸ Assume that A, B, and C organized
a partnership, with A investing
cash of P50,000, and B investing
equipment originally costing
P120,000 with accumulated
depreciation of P50,000 at the
time of partnership formation. C is
admitted as an industrial partner
with 20% share in partnership
profits.
5

6. Illustration 2
╸ On February 1, 2020, Cami Reyes
and Jun Cruz agreed to form a
partnership. The partnership
agreement stipulates that Reyes is
to invest cash of P500,000 and
building of P1,200,000. Cruz
agreed to contribute land with fair
market value of P2,000,000 with
P250,000 mortgage to be
assumed by the partnership.
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7. Illustration 3
7
╸ Aida Alvarez and Bong Benitez formed a
general professional partnership. Alvarez
agreed to invest an equal interest in the
partnership while Benitez agreed to transfer
the assets and liabilities of his business. His
books have the following balances:
╸ Cash – P18,000
╸ Accounts Receivable – 30,000
╸ Office equipment – 150,000
╸ Accumulated Depreciation – 60,000
╸ Accounts Payable – 15,500
╸ Salaries Payable – 2,500
╸ Benitez, Capital – 120,000

8. Illustration 3 cont.
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╸ For purposes of establishing the Alvarez &
Benitez partnership, the following adjustments
shall be made in the books of Benitez:
╸ An allowance for uncollectible accounts of 5% of
accounts receivable
╸ Prepaid expenses amounting to P3,000 needs to be
recognized
╸ Additional salaries payable of P1,000 should be
established