02. Partnership Operation AST Subject.pptx

accounting for special transactions

1. PARTNERSHIP OPERATION

2. LEARNING OBJECTIVES Recognize and measure partnership income and expenses; Identify the different methods of allocating partnership profit and loss; Journalize profit or loss distribution to partners; and Identify errors and misstatements in the financial statements.

3. SPECIAL PROBLEMS Closing Entries Distribution of Profits and Losses Preparation of Worksheet/Working Paper Preparation of Financial Statements

4. FACTORS The following are the factors to be considered in establishing a just and fair profit and loss sharing agreement: Services rendered by the partners to the partnership ( Salaries ) Amount of capital contributed by the partners ( Interest on Capital – Beginning, Ending or Average ). Entrepreneurship ability or managerial skills of the partners ( Bonus )

5. RULES IN DIVIDING PROFIT/LOSS As to Capitalist Partners Division of Profits In accordance with agreement In the absence of an agreement, division of profits is in accordance with capital contribution Division of Losses In accordance with agreement If only the division of profits is agreed upon, then the division of losses will follow the same proportion In In the absence of an agreement, division of profits is in accordance with capital contribution

6. RULES IN DIVIDING PROFIT/LOSS As to Industrial Partners Division of Profits In accordance with agreement Division of Losses In accordance with agreement In the absence of an agreement, the industrial partner shall have no share in his character as an industrial partner

7. CORRECTION OF ERRORS The reported net income (loss) of the partnership maybe incorrect due to the possible errors and/or omissions in the prior year or in the current year.

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