Finance Consulting to Partnering in a Business Venture

Short business case analyses

presented to the

Accountancy Department

In partial fulfillment

of the course requirements

in ACCTBA2

Montallana, Kengy Angelo O.

ACCTBA2 K33

Class Number 15

October 23, 2018

Summary

Anthony De Padua and John Capistrano are planning to create a partnership. They

plan to have their own financial consultation service to individuals interested in leasing

their equipment. They plan to contribute an equal amount of cash of P500,000 in cash.

Anthony plans will further invest his used MAC computer which values at P70,000 at fair

value on the time of investment. Even with their financial expertise they are still unaware

of how a partnership operates.

Statement of the Problem

Anthony and John are unaware on how a partnership operates. They need to know

the following details: The disadvantages of a partnership, documents needed for a

partnership and what it contains, their distribution of net loss or income, and the

classification of the invested computer equipment.

Analysis

Anthony and John plans to create a partnership. With this they need to know the

disadvantages to be sure on the risks they are entering into the partnership. First, there

is a lack of business continuity because it can be easily dissolved. With the decision of

one partner to withdraw from the partnership, a new partner may be absorbed, the share

will be transferred to another partner. With any of these situations, the current partnership

will be dissolved and a new one has to be made. Second, there is a limited amount of

capital that can be raised compared to a corporation type of business as they are merely

two individuals. Third, there is an unlimited liability in the partnership. Fourth, A general

partner may be subjected to personal liability for erroneous management decisions made

by his associates. Fifth, there is a likelihood of dissension and disagreement when each
of the partners has the same authority in the management of the firm. Lastly, there is

difficulty in transferring ownership interest because the transferring of it needs to be within

the consent of all partners in the partnership.

After they have considered the disadvantages and still want to enter the

partnership, they need to have a written agreement as their invested capital is more that

P3,000. They are to be supported by the Articles of Co-Partnership, which governs the

nature and the terms of the partnership contract. This agreement must contain the

following information. The name of the partnership; The names, addresses of the

partners, classes of partners stating whether the partner is a general or a limited partner;

The effective date of the contract; The purpose and principal place of business of the

business; The capital of the partnership stating the contributions of each of the partners;

The rights and duties of each of the partners; The manner of dividing profit or loss among

the partners; The conditions under which the partners may withdraw money or other

assets; The manner of keeping the books of accounts; and the causes for dissolution and

the provision for arbitration in settling disputes.

Within the contract needs to be the manner of dividing profit or loss among the

partners, this would be as agreed to be equally divided among the partners. However, to

compensate with the additional investment of the computer by Anthony, there needs to

be the agreed upon interest on capital investment, which would result in a higher interest

for Anthony. Furthermore, to report the computer equipment for tax return, it should be

reported currently as business asset. As it is now in the property of the partnership, rather

than the individual himself.