Acctg 2 PARCOR Reviewer

Acctg 2 PARCOR Chapter 2 Partnership – an organization where two or more persons bind themselves to contribute money, property or industry into a common fund with the intention of dividing profits among themselves Features of partnership Voluntary Association – each of them agree to join together and form a partnership Legal entity – it has juridical personality

All present property – all the partners contribute all their properties into a common fund Profits – contribute all what they will receive as the result of their work or service rendered during the lifetime of the partnership As to liability of the partners General partnership – liable to partnership even up to the extent of their personal properties especially when partnership becomes insolvent

Co-ownership of property – partnership assets are jointly owned by the partners

Limited partnership – composed of one general partner and liable only to the extent of their investment

Taxable entity – the income of the partnership is taxable like a corporation at a rate of 30%

As to duration

General professional partnership (exempted from tax) – one which is formed for the sole purpose of exercising their common profession Mutual agency – each partner is a fully authorized agent of the partnership

Partnership at will – one for which no term is specified and which may be terminated any time by mutual agreement of the partners Partnership with a fixed term – one for which ther term or period for which the partnership is to exist is agreed upon As to representation to others

Limited life – it can easily be dissolved or terminated

Ordinary partnership – one which actually exist among the partners

Unlimited liability – each partner is personally and individually liable for all partnership liabilities Kinds of partnership

Partnership by estoppel – one which in reality is not a partnership but is considered as one only in relation to those who precluded to deny or disproved the partnerships existence

As to activity

As to legality of existence

Trading partnership –activity is the manufacture and sale or the purchase and sell of goods

De Jure partnership – complied all the requirements

Non- trading partnership – organized for the purpose of rendering services As to object Universal partnership

De facto partnership – failed to comply all the requirements As to publicity Secret partnership – the existence of a certain persons as partners is not made know to the public

Open partnership – the existence of certain persons as partners is made know to the public

Dormant partner – does not take active part in the management and also not known to the public Proprietary theory – emphasizes the view of the individual partners as owners of the net assets of the business when the partnership creditors extend to their personal properties and others

Classes of partners As to contribution Capitalist partner – contributes money or property Industrial partner – contributed industry, labor, skill or other service Capitalist- industrial partner – contributes cash propert and industry As to liability General partner – liability to third person extends to his personal property Limited partner – liability to third person extends only to his capital contribution As to management

Partner’s equity – the right of the partners over the net assets of the business Goodwill – is an intangible asset representing ability to generate earnings more than what is normal expected Chapter 2 Fixed capital – they agree that any credit balance can be withdrawn anytime then the balance of the drawing account may be left open just like the capital account Fluctuating capital – they agree that any balance in the drawing account be made part of their capital accounts Chapter 4

Managing partner –manages actively the business

Dissolution – article of 1828 states that dissolution as a change in the relation of the partners ceasing to be associated in carrying on the business

Silent partner – not participate in the management

Changes in ownership

Other classification Liquidating partner –takes charge of the winding up of partnership affairs upon dissolution Nominal partner – not really a partner but liable as a partner for the protection of the innocent third person Ostensible partner – takes active part in the management and known to the public Secret partner – takes active part in the management but not known to the public

1.) Admitting a new partner by purchased 2.) Admitting a new partner by investing 3.) Retires of partner 4.) A partner dies 5.) Partnership is incorporated Asset revaluation – requirement to update capital accounts of partners before admitting a new partner An upward adjustment of the asset is undervalued A downward adjustment of the asset if the fair market value is lesser than its book value

Total agreed capital = Total contributed capital no asset revaluation Capital credit of the new partner = actual contribution of the new partner no bonus Chapter 5 Liquidation – the process of winding up the affairs of the business towards its termination Payment to creditors and partners order: Owing to outside creditors Owing to the partners other than their capital balances Owing to partners for their capital Owing to partners for their share in the profits If the partner is insolvent ranked in the claim against his separate properties Owing to personal creditors Owing to the partnership creditors Owing to other partners for contribution made Realization – the process of selling or converting the assets into cash Capital deficiency – when the share of a partner in the partnership losses is higher than his or her capital balance If the partner is insolvent the remaining partner shall bear the loss Right of offset – a legal right to apply a part of all of the amount owing to a partner against his or her capital deficiency Partners interest – the sum of the loans payable and the capital balance of that partner Partner’s restricted interest – represents interest that cannot be paid to the partner’s

due to inadequacy of cash when there are other unpaid partner’s deficiency or unsold properties not available for distribution or the cash is restricted for contingent expenses Solvent partners- Partner is sufficient remaining personal assets after deducting or liquidating their personal liabilities Theoretical loss – represents the possible loss of the partnership arising from the unsold properties, deficiency of partners or future liquidating expenses Simple liquidation (Lump-sum) – the process where the non-cash assets are sold before any cash is disbursed Installment liquidation (piece-meal) – the process where the non-cash assets are sold by instalment Chapter 6 Shareholders – owners of a corporation Corporation – an artificial being created by operation of law having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence Following attributes: Artificial being – the firm is viewed as a separate and distinct personality from the people who own it Legal personality – A corporation is created by the operation of law Right of succession – a corporation shall exist for a period as provided in its articles and shall continue until its term expires or dissolves. It has a capacity to continuous existence Corporate ownership – the interest and right over the corporation is divided into shares of stock Limited liability – The shareholders are not liable for corporate acts and corporate debts

Transferability of interest – The shares of stock owned by a shareholder may be sold or transferred without prior consent of other stockholder Incorporators – the founders of the corporation Board of directors – responsible for the overall supervision of the firm President – responsible for implementing the policies set up and the plans drawn by the board of directors Vice presidents – who are given a specific areas of responsibility Kinds of the corporation Private corporation – one owned and organized for a private purpose or objective Stock corporation – one which is privately owned by individuals and organized for profit Non-stock corporation – a religious sect or a religious school is non-profit for nature Public corporation – government corporation organized for the accomplishment of its public functions Close corporation – family corporation or one which is held by a selected few and not open to any person Open corporation – One where the stock is listed in the stock market available for purchase by any one person or entity. Also called a publicly-held corporation Corporation code of the Philippines – general law by and under whose authority private corporations are created Kinds of stock As to value

Par-value stock – one which a fixed value is stated in the certificate of stock and in the articles of incorporation No par-value stock –one without a designated value stated in the stock certificate but it cannot be sold at less than P5.00 As to right Common stock (ordinary share) – entitles the owner to a pro rata dividend without any priority or preference over any other stockholders Preferred stock (Preference share) – class of stock with preferential rights or claims over the common stock Legal capital – minimum permanent investment Trust fund doctrine – contributed capital of the corporation constitute a “trust fund” to which the corporate creditors have a right for satisfaction of their claims Pre-emptive right – purchase additional shares of stock whenever there is an increase in the authorized capital stock of the corporation Authorized share capital – maximum number of shares or amounts the corporation is allowed to issue as stated in the articles of incorporation Stock subscription – subscription is an agreement to purchase shares of stock and states the number of shares, the price and terms of payment Share capital – represents the amount paid in by the shareholders whether in cash, property, service and for which a certificate of stock is issued Certificate of stock – written acknowledgements by the corporation of the shareholder’s interest in the corporation and its net assets

Underwriter – buys all the shares of stock and then offers these to the prosprective investors at a higher price Shareholder’s equity – the residual interest of the owners in the net assets of the corporation Retained Earnings – represents accumulated profits earned or losses incurred in the operation of business Treasury shares – the corporation may reacquire the shares of stock which were originally issued with the intention of either

reselling or retiring these shares in the near future