بسم الله الرحمن الرحيم

COMPANIES ACCOUNTING

The Course Contents: (1) Accounting for Partnership . The Formation of the Partnership. The Net Income Allocation. The Changes in the contract of the partnership. The Liquidation of the Partnership. (2) Accounting for Corporations.

Accounting for Partnership What is the partnership?? 1- It is a firm which consists of at least two partners( two or more). 2-Each partner has a capital account. 3-The profit and loss allocation will be according to the agreement of the partners.

What are the types of partnerships?? There are 2 types: 1- General partnership. 2- Limited partnership.

1- General partnership: All partners are general partners. What are the difference between the general partnership and limited partnership??? 1- General partnership: All partners are general partners. 2- Limited partnership: It has 2 kinds of partners (general and limited partners) and at least one of the partners must be general partner.

What are the differences between the general and limited partner ??? A) The general partner: 1-He has unlimited responsibility towards the company's liabilities. 2- He manages the company. 3- He can enter his name in the name of the company . B) The limited partner: 1- He has a limited responsibility towards company's liabilities, it means that his share of loss should not exceed his capital in the company. 2- He can't participate in the management of the company. 3-He can't enter his name in the name of the company.

First: The formation of the partnership To form the partnership , each partner has to pay his contribution (capital) according to the contract …How?? The partner can pay his capital using one of the following methods: 1- Cash. 2- Non- cash assets. ( assets or assets &liabilities)

(1) Presenting the contribution in Cash: If the partner pays his share in the capital in cash , we prepare the following entry: Dr Cr x Cash Partner '‘…'‘, Capital

Example (1) On 1/1/2012 (A) &(B )agreed to form a general partnership with total capital $100000 . If you know that: 1- The share of partner A in the capital is $60000 and the partner B is the rest. 2- Each partner will pay his share in cash. Required: prepare the journal entry to record the formation of the partnership. Solution The total capital = 100000 The capital of A = 60000 So, the capital of B = 100000 - 60000 = 40000

So, the entry is: Dr Cr Cash 100000 Partner ''A'‘, Capital 60000 Partner '‘B'‘, Capital 40000

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 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 Dr Cr 100000 Cash Partner '‘A'‘, Capital The total capital = 400000 The capital of A = 400000 * 25% =100000 So, the capital of B = 400000 - 100000 = 300000 or = 400000 * 75% =300000 1) Partner A : He paid cash ,so the entry is : Dr Cr 100000 Cash Partner '‘A'‘, Capital

2) Partner B: He presented assets and the value of them = 50000+70000 + 180000 = 300000 His share in capital = 300000 So, there is no difference and the entry is: Dr Cr Car 50,000 Inventory 70,000 Equipment 180,000 Partner '‘B'‘, Capital 300000