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 = 400000

 The capital of A = 400000 * 25% =100000
 So, the capital of B = 400000 - 100000 = 300000
 or = 400000 * 75% =300000
 1) Partner A : Dr Cr
 He paid cash ,so the entry is :
Cash 100000
Partner '‘A'‘, Capital
100000
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
 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. (Example(3
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.
 The total capital = 500000
 The capital of A = 500000 *
25% =125000
 So, the capital of B = 500000
- 125000 = 375000
 or = 500000 * Solution
75% =375000
 1) Partner A :
 He paid cash ,so the entry is :
Dr Cr
Cash 125000

Partner '‘A'‘, Capital 125000

2) Partner B:
He presented assets and the value of them
= 50000+70000 + 180000 = 300000
His share in capital = 375000
Because of his share in capital is more than the assets , he must pay
the difference in cash 75000 (375000-300000) and the entry is:
Dr Cr
Car 50,000
Inventory 70,000
Equipment 180,000
Cash 75,000
Partner '‘B'‘, Capital 375000
 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 Example(4)
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 = 450000

 The capital of A = 450000 * 40% =180000
 So, the capital of B = 450000 - 180000 = 270000
 or = 450000 * 60% =270000
 1) Partner A :
 He paid cash ,so the entry is : Dr Cr
Cash 180000

Partner '‘A'‘, Capital 180000

2) Partner B:
He presented assets and the value of them
= 50000+70000 + 180000 = 300000
His share in capital = 270000

Because of his share in capital is less than the assets , he must receive the difference in cash
30000 (300000-270000) and the entry is:
Dr Cr
Car 50,000
Inventory 70,000
Equipment 180,000

Partner '‘B'‘, Capital 270,000

Cash 30,000
 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
120000 in cash.
2- Partner B paid his capital by presenting the
following assets :
Land
Inventory
150,000
60,000
Example(5)
 Furniture 40,000
 Required
Prepare the journal entries to record the
formation of the partnership.
 1) Partner A
 The capital of A = 120000
Solution
 He paid cash ,so the entry is :

Dr Cr
Cash 120,000
Partner '‘A'‘, Capital 120000
2) Partner B:
He presented assets and the value of them
= 150000+60000 + 40000 = 250000
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
 If Partner B paid his capital by presenting the following :
Land 150,000 Example(6)
Inventory 60,000
 Furniture 40,000
 Note Payable 30,000
 Required
Prepare the journal entry to record the capital of partner (B).

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
= ( 150000+60000+40000) - 30000
= 250000 – 30000 = 220000 Solution
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
 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. How to divide the
4- Granting the partners interest on the capital
and allocating the rest of net income in a
specific ratio. Profits among the
5- Granting the partners interest on the capital
and salaries and allocating the rest of
net income in a specific ratio.
partners? ?
6- Granting the partners interest on the capital ,
salaries and bonuses and allocating the
rest of net income in a specific ratio.
 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 1- Allocating the
agreed to share profits
and losses equally.
Profits Equally:
 Required:
Prepare the journal
entry to record the
allocation of profit.
 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 = 200000 / 2 = 100000
Solution
And the entry is:
Dr Cr
Income Summary 200000
Partner-A- Capital 100000
Partner-B- Capital 100000
 Q: What is the entry if the result in ex. 1 is loss 200000??
The entry of allocating the loss is:
Dr Cr
Partner '‘A'‘, Capital 100000
Partner '‘B'‘, Capital 100000
Income Summary 200,000