PARTNERSHIP FORMATION

Question 1

A contract whereby two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Answer 1

Partnership

Question 2

Characteristics of a Partnership (SECMULI)

Answer 2

1. Separate legal personality
2. Ease of formation
3. Co-ownership of contributed assets
4. Mutual Agency, Mutual participation in the profits
5. Unlimited liability
6. Limited life
7. Income Tax

Question 3

Stages in the Life if the Partnership

Answer 3

1. Formation
2. Operation
3. Dissolution
4. Liquidation

Question 4

The first-time creation of the partnership

Answer 4

Formation

Question 5

This is the reason why a partnership is formed, to operate and earned “profit”

Answer 5

Operation

Question 6

Changes in the partnership agreement or relations among the partners

Answer 6

Dissolution

Question 7

Realization of the assets of the partnership and settlement of partnership liabilities

Answer 7

Liquidation

Question 8

Primary formation issues

Answer 8

1. Valuation of contribution
2. Re-alignment of contribution with partnership agreement

Question 9

Assets contributed by the partners to the partnership should be valued, in what order of priority?

Answer 9

a. Agreed values (Art. 1787 Civil Code)
b. Fair Values (Art. 1787 Civil Code & PFRS 2)

Question 10

Liabilities attached to assets contributed by the partners are recognized only in the partnership books the extent that they are assumed by the partnership. When assumed by the partnership, contributed liabilities operate to decrease the contributed capital of the contributing partner; otherwise the liabilities remain to be personal labilities of the contributing partner. Liabilities assumed by the partner is valued in the following order of priority:

Answer 10

a. Agreed Values (Art. 1787 Civil Code)
b. Fair Value or Present value (Art. 1787 Civil Code & PFRS 2)

Question 11

This represents the net assets invested by a partner

Answer 11

Capital contributions

Question 12

This represents the agreed capital for a partner

Answer 12

Capital credit

Question 13

An accounting issue will arise when this two do not equal

Answer 13

Capital contributions and capital credit

Question 14

Difference is accounted by either

Answer 14

1. Bonus method
2. Goodwill method
3. Revaluation method
4. Additional investment
5. Withdrawal

Question 15

A transfer of capital from one partner to another

Answer 15

Bonus method

Question 16

An increase in the partner’s contributed contributed capital as a result of recording an identifiable. However this method is not allowed under PFRS

Answer 16

Goodwill method

Question 17

An increase in the partner’s contributed capital as a result of an adjustment to an identifiable

Answer 17

Revaluation method

Question 18

An increase in a partner’s contributed capital as a result of additional investment

Answer 18

Additional investment

Question 19

A decrease in a partner’s contributed capital because of withdrawal

Answer 19

Withdrawal

Question 20

If the partner’s agreed capital is known, the partners will contribute an amount that will be the same as their agreed capital

Answer 20

Net Investment Method

Question 21

S1: Selling price of a property contributed in a partnership that was subsequently sold hours, days, or weeks after formation is an indication of its fair value.
S2: Valuation of inventories under PAS 2 is at LOCON / Lower of Cost or NRV

a. True, True
b. True, False
c. False, False
d. False, True

Answer 21

a. True, True

Question 22

In determining the original capital / agreed capital of the partners, which of the following should be used?

a. Capital interest/ratio
b. P&L interest/ratio
c. Either A or B
d. The higher between the capital and P&L ratio

Answer 22

a. Capital interest/ratio