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    Rules For Partnership Operations

    Uploaded by

    Krizzia May
    The document outlines rules for how partners in a partnership agree to divide profits and losses. Partners may divide profits and losses based on factors like time spent managing the business, capital contributions, skills, and influence. Common ways to divide profits and losses include using arbitrary ratios, capital balance ratios, or allowing for interest on capital balances and salaries prior to distributing the remainder. Profits and losses must be divided according to the partnership agreement, and losses are generally divided the same as profits.

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    Rules For Partnership Operations

    Uploaded by

    Krizzia May
    47 views2 pages
    The document outlines rules for how partners in a partnership agree to divide profits and losses. Partners may divide profits and losses based on factors like time spent managing the business, capital contributions, skills, and influence. Common ways to divide profits and losses include using arbitrary ratios, capital balance ratios, or allowing for interest on capital balances and salaries prior to distributing the remainder. Profits and losses must be divided according to the partnership agreement, and losses are generally divided the same as profits.

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    Rules for Partnership Operations

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    The document outlines rules for how partners in a partnership agree to divide profits and losses. Partners may divide profits and losses based on factors like time spent managing the business, capital contributions, skills, and influence. Common ways to divide profits and losses include using arbitrary ratios, capital balance ratios, or allowing for interest on capital balances and salaries prior to distributing the remainder. Profits and losses must be divided according to the partnership agreement, and losses are generally divided the same as profits.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    47 views2 pages

    Rules For Partnership Operations

    Uploaded by

    Krizzia May
    The document outlines rules for how partners in a partnership agree to divide profits and losses. Partners may divide profits and losses based on factors like time spent managing the business, capital contributions, skills, and influence. Common ways to divide profits and losses include using arbitrary ratios, capital balance ratios, or allowing for interest on capital balances and salaries prior to distributing the remainder. Profits and losses must be divided according to the partnership agreement, and losses are generally divided the same as profits.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Rules for Partnership Operations

    Partnership Operations
    Learning Outcomes

     Enumerate the ways by which partners agree to divide partnership


    profits and losses
     Compute the share of each partners in partnership’s profits and
    losses based on agreement
    Partners in a partnership agree to divide profits and losses among
    themselves.  A stipulation in the partnership contract, which excludes one
    or more partners from any share in the partnership losses, is considered
    void. (Civil Code of the Philippines)
    Partnerships, except Professional Partnerships are subject to 3o%
    income tax rate (NIRC) The income tax of partnership is reported as an
    expense but is shown separately in the income statement.  The Profit after
    deducting the income tax is the amount to be divided among the
    partners.
    Division of Profits and Losses
    Partners consider various factors in determining how equitably and fairly
    the profits and loss shall be divided among themselves. This includes:

     The time spent by each partner in overseeing or managing the


    activities
     The capital contributions of each of the partners
     The managerial or technological skills of one or some of the partners
     The level of a partner’s influence in the environment of the
    partnership operations
    Ways to divide the profit and loss
     arbitrary ratio (percentage, fraction or decimal)
     ratio of the partners’ capital balances
    1. beginning balance ratio
    2. ending balance ratio
    3. average balance ratio
     allowance for interest or capital balances and remainder of profit in an
    agreed ratio
     allowance for salary and or bonus and remainder of profit in an
    agreed ratio
     allowance for interest on capital balances, allowance for salary and/or
    bonus, and remainder of profit in an agreed ratio
    Note: the profits and losses shall be divided in conformity with the partners’
    agreement. Any losses shall be divided in the same manner as profit, when
    agreement provides only of dividing profit.
     

    In the absence of any stipulation , profits and losses shall be divided in


    accordance with capital contribution, but the industrial partner shall not be
    liable for the losses (Civil Code of Phils)
     

    As for the profits, the industrial partner shall receive such share as may be
    just and equitable under the circumstance, which shall be the subject of
    agreement among the partners.
     

    When an industrial partner at the same time has a capital contribution, he


    shall also receive a share in the profits in proportion to his capital
    contributions.
     

    The entry to record the distribution of profit to the partnership is:


    Debit Income Summary Account
    Credit Partners Drawing Account
    The partners” drawing account shall be closed to the partners capital
    account.  Alternatively, the profits and losses may be directly transferred to
    their respective capital accounts.

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