Financial Accounting: IFRS, 3rd Edition

Appendix F Accounting for Partnerships

LEARNING OBJECTIVES

After studying this appendix, you should be able to:

1. Identify the characteristics of the partnership form of business organization.
2. Explain the accounting entries for the formation of a partnership.
3. Identify the bases for dividing net income or net loss.
4. Describe the form and content of partnership financial statements.
5. Explain the effects of the entries to record the liquidation of a partnership.

APPENDIX PREVIEW

In this appendix, we discuss reasons why businesses select the partnership form of organization. We also explain the major issues in accounting for partnerships.

 Partnership Form of Organization

Learning Objective 1

Identify the characteristics of the partnership form of business organization.

A Partnership is an association of two or more persons to carry on as co‐owners of a business for profit. Partnerships are common in retail establishments and in small manufacturing companies. Also, accountants, lawyers, and doctors find it desirable to form partnerships with other professionals in their field. Professional partnerships vary in size from a medical partnership of 3 to 5 doctors, to 150 to 200 partners in a large law firm, to more than 2,000 partners in an international accounting firm.

Characteristics of Partnerships

Partnerships are fairly easy to form. They can be formed simply by a verbal agreement or, more formally, by putting in writing the rights and obligations of the partners. Partners who have ...