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© 2009 The McGraw-HillCompanies, Inc.,

ACCOUNTING FOR PARTNERSHIPS

Chapter 12


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McGraw-Hill/Irwin Slide 2McGraw-Hill/Irwin Slide 2

PARTNERSHIP FORM OF

ORGANIZATION

Partnership

Agreement

Voluntary

Association

Limited

Life

Taxation

Unlimited

Liability

Mutual

Agency Co-

Onership

of Property

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ORGANIZATIONS WITH

PARTNERSHIP CHARACTERISTICS

Limited

Partnerships

!LP"

•General partners

assue ana!eent

"ut#es an" unl##te"

l#a$#l#t% &'r partnersh#p

"e$ts(•)##te" partners ha*e

n' pers'nal l#a$#l#t%

$e%'n" #n*este"

a'unts(

Limited

Liability

Partnerships

!LLP"

•Pr'te+ts #nn'+ent

partners &r'

alpra+t#+e 'r

ne!l#!en+e +la#s(

•M'st states h'l" all

partners pers'nall%

l#a$le &'r partnersh#p

"e$ts(

Limited

Liability

Corporations

!LLC"

•O,ners ha*e sae

l##te" l#a$#l#t% &eature

as ',ners '& a

+'rp'rat#'n(

• A l##te" l#a$#l#t%

+'rp'rat#'n t%p#+all%

has a l##te" l#&e(

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CHOOSING A -USINESS FORM

Man% &a+t'rs sh'ul" $e +'ns#"ere" ,henMan% &a+t'rs sh'ul" $e +'ns#"ere" ,hen

+h''s#n! the pr'per $us#ness &'r(+h''s#n! the pr'per $us#ness &'r(


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ORGANIZING A PARTNERSHIP

Partners +an #n*est $'th assets an" l#a$#l#t#es #n

the partnersh#p(

Assets an" l#a$#l#t#es are re+'r"e" at an a!ree".up'n *alue/ n'rall% &a#r ar0et *alue(

Asset +'ntr#$ut#'ns #n+rease the partners +ap#tal

a++'unt(

W#th"ra,als &r' the partnersh#p "e+rease the

partners +ap#tal a++'unt(

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ORGANIZING A PARTNERSHIP

In a++'unt#n! &'r partnersh#psIn a++'unt#n! &'r partnersh#ps

1(1(Partners ,#th"ra,als are "e$#te" t' the#r ',n separatePartners ,#th"ra,als are "e$#te" t' the#r ',n separate

,#th"ra,als a++'unt(,#th"ra,als a++'unt(

2(2(Partners +ap#tal a++'unts are +re"#te" 3'r "e$#te"4 &'rPartners +ap#tal a++'unts are +re"#te" 3'r "e$#te"4 &'r

the#r shares '& net #n+'e 3'r net l'ss4 ,hen +l's#n! thethe#r shares '& net #n+'e 3'r net l'ss4 ,hen +l's#n! thea++'unts at the en" '& the per#'"(a++'unts at the en" '& the per#'"(

5(5(Ea+h partners ,#th"ra,al a++'unt #s +l'se" t' thatEa+h partners ,#th"ra,al a++'unt #s +l'se" t' that

partners +ap#tal a++'unt( Separate +ap#tal an" ,#th"ra,alspartners +ap#tal a++'unt( Separate +ap#tal an" ,#th"ra,als

a++'unts are 0ept &'r ea+h partner(a++'unts are 0ept &'r ea+h partner(

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7/16McGraw-Hill/Irwin Slide 7McGraw-Hill/Irwin Slide 7

6I7I6ING INCOME OR )OSS

Three &re8uentl% use" eth'"s t' "#*#"eThree &re8uentl% use" eth'"s t' "#*#"e

#n+'e 'r l'ss are all'+at#'n 'n#n+'e 'r l'ss are all'+at#'n 'n

1(1( State" rat#'s(State" rat#'s(

2(2( Cap#tal $alan+es(Cap#tal $alan+es(

5(5( Ser*#+es/ +ap#tal an" state" rat#'s(Ser*#+es/ +ap#tal an" state" rat#'s(

Partners are n't epl'%ees '& the partnersh#p $ut are #tsPartners are n't epl'%ees '& the partnersh#p $ut are #ts

',ners( Th#s eans there are n' salar#es rep'rte" as',ners( Th#s eans there are n' salar#es rep'rte" as

e9pense 'n the #n+'e stateent( Pr'ts 'r l'sses '& thee9pense 'n the #n+'e stateent( Pr'ts 'r l'sses '& the

partnersh#p are "#*#"e" 'n s'e a!ree" up'n rat#'(partnersh#p are "#*#"e" 'n s'e a!ree" up'n rat#'(

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A6MISSION AN6 WITH6RAWA) OF

PARTNERS

When the a0eup '& the partnersh#p +han!es/

the e9#st#n! partnersh#p #s "#ss'l*e"(

A ne, partnersh#p a% $e #e"#atel%&'re"(

Ne, partner a+8u#res partnersh#p #nterest $%

1( Pur+has#n! #t &r' the 'ther partners/ 'r 2( In*est#n! assets #n the partnersh#p(

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PURCHASE OF PARTNERSHIP

INTEREST

A ne, partner +an pur+hase A ne, partner +an pur+hase

partnersh#p #nterest "#re+tl% &r'partnersh#p #nterest "#re+tl% &r'

the e9#st#n! partners(the e9#st#n! partners(The +ash !'es t' the partners/ n'tThe +ash !'es t' the partners/ n't

t' the partnersh#p(t' the partnersh#p(

T' $e+'e a partner/ the ne,T' $e+'e a partner/ the ne,

partner ust $e a++epte" $% thepartner ust $e a++epte" $% the

+urrent partners(+urrent partners(

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IN7ESTING ASSETS IN A PARTNERSHIP

The ne, partner +an !a#n

partnersh#p #nterest $%

+'ntr#$ut#n! assets t' thepartnersh#p(

The ne, assets ,#ll #n+rease

the partnersh#ps net assets(

A&ter a"#ss#'n/ $'th assets

an" e8u#t% ,#ll #n+rease(

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-ONUS TO O)6 OR NEW PARTNERS

#onus to Old

Partners

$hen the current %alue of a

partnership is greater than the

recorded amounts of e&uity' the old

partners usually re&uire a ne partner

to pay a bonus hen (oining)

#onus to *e

Partners

The partnership may grant a bonus to

a ne partner if the business is in

need of cash or if the ne partner has

exceptional talents)

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6EATH OF A PARTNER

A partners "eath "#ss'l*es a partnersh#p( A "e+ease" A partners "eath "#ss'l*es a partnersh#p( A "e+ease"

partners estate #s ent#tle" t' re+e#*e h#s 'r her e8u#t%( Thepartners estate #s ent#tle" t' re+e#*e h#s 'r her e8u#t%( The

partnersh#p a!reeent sh'ul" +'nta#n pr'*#s#'ns &'rpartnersh#p a!reeent sh'ul" +'nta#n pr'*#s#'ns &'r

settleent( These pr'*#s#'ns usuall% re8u#resettleent( These pr'*#s#'ns usuall% re8u#re

1(1(Cl's#n! the $''0s t' "eter#ne #n+'e 'r l'ss s#n+e theCl's#n! the $''0s t' "eter#ne #n+'e 'r l'ss s#n+e theen" '& the pre*#'us per#'"/ an"en" '& the pre*#'us per#'"/ an"

2(2(6eter#n#n! an" re+'r"#n! +urrent ar0et *alues &'r $'th6eter#n#n! an" re+'r"#n! +urrent ar0et *alues &'r $'th

assets an" l#a$#l#t#es(assets an" l#a$#l#t#es(

Settleent '& the "e+ease" partners estate +an #n*'l*eSettleent '& the "e+ease" partners estate +an #n*'l*esell#n! the e8u#t% t' rea#n#n! partners 'r t' an 'uts#"er/ 'rsell#n! the e8u#t% t' rea#n#n! partners 'r t' an 'uts#"er/ 'r

#t +an #n*'l*e ,#th"ra,al '& assets(#t +an #n*'l*e ,#th"ra,al '& assets(

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)I;UI6ATION OF A PARTNERSHIP

A partnersh#p "#ss'lut#'n re8u#res &'ur steps

N'n+ash assets are s'l" &'r +ash an" a !a#n 'r

l'ss 'n l#8u#"at#'ns #s re+'r"e"(

Ga#n 'r l'ss 'n l#8u#"at#'n #s all'+ate" t' partners

us#n! the#r #n+'e.an".l'ss rat#'(

)#a$#l#t#es are pa#" 'r settle"(

An% rea#n#n! +ash #s "#str#$ute" t' partners $ase"

'n the#r +ap#tal $alan+es(

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PARTNER RETURN ON E;UIT<

Partner return

on e&uity

Partner net income

A%erage partner e&uity+

A4

,./0!123,4,"/,5 + ,1).6


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EN6 OF CHAPTER 12

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