2) Presenting the contribution as a Group of Assets: In this case all the assets presented should be recorded according to the fair value (market value). In this case we should compare between the partner’s share in the capital and the fair value of the presented assets. Here,there are the following cases: 1- The partner’s share in the capital = the fair value of the assets (no cash paid or received) 2- The partner’s share in the capital does not equal the fair value of the assets ( The partner should pay or receive the difference in cash) 3- If the partner’s share in the capital is not determined, here, the capital of the partner will equal the fair value of the presented assets.

(Example(2 On 1 January 2011, A and B agreed to form a general partnership with a total capital of $ 400,000. If you know that: 1- Partner A paid 25% of the capital in cash. 2- Partner B’ s share in the capital 75% and he presented the following assets : Car 50,000 Inventory 70,000 Equipment 180,000 Required Prepare the journal entries to record the formation of the partnership.

Solution The total capital = The capital of A = * 25% = So, the capital of B = = or = * 75% = ) Partner A : He paid cash,so the entry is : Dr Cr Cash Partner '‘A'‘, Capital

2) Partner B : He presented assets and the value of them = = His share in capital = So, there is no difference and the entry is: Dr Cr Car 50,000 Inventory 70,000 Equipment 180,000 Partner '‘B'‘, Capital

(Example(3 On 1 January 2011, A and B agreed to form a limited partnership with a total capital of $ 500,000. If you know that: 1- Partner A paid 25% of the capital in cash. 2- Partner B’ s share in the capital 75% and he presented the following assets : Car 50,000 Inventory 70,000 Equipment 180,000 If you know that partner B will settle the difference in cash Required Prepare the journal entries to record the formation of the partnership.

Solution The total capital = The capital of A = * 25% = So, the capital of B = = or = * 75% = ) Partner A : He paid cash,so the entry is : Dr Cr Cash Partner '‘A'‘, Capital

2 ) Partner B: He presented assets and the value of them = = His share in capital = Because of his share in capital is more than the assets, he must pay the difference in cash ( ) and the entry is: Dr Cr Car 50,000 Inventory 70,000 Equipment 180,000 Cash 75,000 Partner '‘B'‘, Capital

Example(4) On 1 January 2011, A and B agreed to form a general partnership with a total capital of $ 450,000. If you know that: 1- Partner A paid 40% of the capital in cash. 2- Partner B’ s share in the capital 60% and he presented the following assets : Car 50,000 Inventory 70,000 Equipment 180,000 If you know that partner B will settle the difference in cash Required Prepare the journal entries to record the formation of the partnership.

Solution The total capital = The capital of A = * 40% = So, the capital of B = = or = * 60% = ) Partner A : He paid cash,so the entry is : Dr Cr Cash Partner '‘A'‘, Capital

2 ) Partner B: He presented assets and the value of them = = His share in capital = Because of his share in capital is less than the assets, he must receive the difference in cash ( ) and the entry is: Dr Cr Car 50,000 Inventory 70,000 Equipment 180,000 Partner '‘B'‘, Capital 270,000 Cash 30,000

Example(5) On 1 January 2011, A and B agreed to form a general partnership If you know that: 1- Partner A paid his share in the capital in cash. 2- Partner B paid his capital by presenting the following assets : Land 150,000 Inventory 60,000 Furniture 40,000 Required Prepare the journal entries to record the formation of the partnership.

Solution 1) Partner A The capital of A = He paid cash,so the entry is : Dr Cr Cash 120,000 Partner '‘A'‘, Capital

2) Partner B: He presented assets and the value of them = = We do not know his share in capital, So, his share in capital will equal the value of the assets and the entry is: Dr Cr Land 150,000 Inventory 60,000 Furniture 40,000 Partner '‘B'‘, Capital 250,000

Example(6) If Partner B paid his capital by presenting the following : Land 150,000 Inventory 60,000 Furniture 40,000 Note Payable 30,000 Required Prepare the journal entry to record the capital of partner (B).

Solution Partner B: He presented assets and liabilities and we do not know his share in capital. So, his share in capital will equal the value of the net assets Net assets = Assets - Liabilities = ( ) = – = and the entry is: Dr Cr Land 150,000 Inventory 60,000 Furniture 40,000 Note Payable 30,000 Partner '‘B'‘, Capital 220,000

Second: ( (The allocation of Profits and Losses

How to divide the Profits among the partners? ? The allocation of profits(net income) or losses among partners depends on the agreement of them and there are many methods to allocate such as: 1- Equally. 2 - Using a specific ratio. 3- Using the ratio of capital balances of the partners. 4- Granting the partners interest on the capital and allocating the rest of net income in a specific ratio. 5- Granting the partners interest on the capital and salaries and allocating the rest of net income in a specific ratio. 6- Granting the partners interest on the capital, salaries and bonuses and allocating the rest of net income in a specific ratio.

1- Allocating the Profits Equally: Example(1) On 1 Jan. 2011, A and B formed a general partnership. The partnership realized net income of 200,000 for the year ended 31/12/2011. The partners have agreed to share profits and losses equally. Required: Prepare the journal entry to record the allocation of profit.

Solution If the profit is distributed equally, we calculate the share of each partner as follows: = profit ( or loss) / no. of partners. So, the partner’s share = / 2 = And the entry is: Dr Cr Income Summary Partner-A- Capital Partner-B- Capital

Q: What is the entry if the result in ex. 1 is loss ?? The entry of allocating the loss is: Dr Cr Partner '‘A'‘, Capital Partner '‘B'‘, Capital Income Summary 200,000