This work presents the characteristics of the Regular Collective Society, as well as the variations in the accounting procedure of the operations related to its partners, depending on the way they participate.
The Regular Collective Society is an association of two or more people to exploit, for profit as owners, a business that is established through a voluntary contract of the parties, from whose signature the purchase of the assets that will make up the asset and make the opening entries in the company books.
In correspondence with the above, l as characteristics fundamental of Collective Regular Society they are:
- Co-administration: each partner is administrator of the company, therefore, the agreement signed by any of these on behalf of the Company, will make the rest of the partners are bound by the acts of the first. Limited duration: due to its personal nature it is short-lived. If he dies, becomes disabled, sells his stake, retires or decides to admit a new partner, the old partnership is terminated and a new one is started. Unlimited liability: each member is jointly and severally liable for the debts of the company. Co-ownership of the assets of the company: the assets that each member contributes to the company, become the property of all the partners.Participation in the profits of the company: there is joint ownership of the profits.
As for Accounting, this is the same as for any business, except for those operations that occur when the owner is not a single person: training; administration, which includes profit sharing, accounting entries and dissolution of the company.
- Accounting for Operations
II.1 Opening
The opening of a Regular Collective Society can be carried out through the cash contribution of the partners or with the contribution of cash and other assets. The following entries in the Journal Book illustrate how to reflect both situations in accounting.
Case # 1: When partners only contribute cash
| Date | Cash | A 1 + A 2 | |
| Partner # 1, Capital | A 1 | ||
| Partner # 2, Capital | A 2 | ||
| Society Constitution |
Case # 2: When partners contribute cash and other assets
| Date | Cash | X 1 | |
| Accounts receivable | X 2 | ||
| Inventories | X 3 | ||
| Fixed assets | X 4 | ||
| Effects to pay | X 5 | ||
| Accounts payable | X 6 | ||
| Partner # 1, Capital | A 1 | ||
| Contribution of Partner # 1 to the Society | |||
| Date | Cash or Cash | And 1 | |
| Accounts receivable | And 2 | ||
| Inventories | And 3 | ||
| Fixed assets | And 4 | ||
| Effects to pay | And 5 | ||
| Accounts payable | And 6 | ||
| Partner # 2, Capital | A 2 | ||
| Contribution of Partner # 2 to the Society |
A 1: Contributions of Partner # 1 (A 1 = X 1 + X 2 + X 3 + X 4 - X 5 - X 6)
A 2: Contributions of Partner # 2 (A 2 = Y 1 + Y 2 + Y 3 + Y 4 - Y 5 - Y 6)
II.2. Distribution of profits
Like all for-profit entities, the way in which the profits and losses will be distributed at the end of the year is established at the time of its constitution, the variants of which for this type of organization are detailed below.
II.2.1 In fixed proportion
This procedure for the distribution of profits, consists in that each partner receives during the term of the social contract a fixed proportion of the profits or losses obtained in the year, GP, which is divided according to the established percentages, making the corresponding charge to the Profit and Loss account and the credits to the private accounts of the partners as indicated in the next entry in the Journal Book shown below.
Case # 1: When there are gains in the exercise.
| 12/31 | Earnings and loses | GP | |
| Partner # 1, Personal Account | P 1 * GP | ||
| Partner # 2, Personal Account | P 2 * GP | ||
| Distribution of profits for the year among partners | |||
| Partner # 1, Personal Account | P 1 * GP | ||
| Partner # 2, Personal Account | P 2 * GP | ||
| Cash in bank | GP | ||
| Payment of the profits for the year to the partners |
Case # 2: When there are losses in the year.
| 12/31 | Partner # 1, Personal Account | P 1 * GP | |
| Partner # 2, Personal Account | P 2 * GP | ||
| Earnings and loses | GP | ||
| Distribution of losses for the year | |||
| Cash in bank | GP | ||
| Partner # 1, Personal Account | P 1 * GP | ||
| Partner # 2, Personal Account | P 2 * GP | ||
| Payment of losses for the year by the partners |
P 1, P 2: proportions in which the profits for the year are distributed among the partners according to the constitution agreement.
II.2.2 According to the contributions of the partners
This method is based on making the distribution of profits according to the contribution made by each of the partners. In the practical application of this procedure, the four cases explained below can be presented.
Case # 1: When it is established that no significant changes occurred in the capital of the members during the period. In this situation, the entry in the Journal Book corresponds to that shown below where:
If Partner # 3 is not satisfied with the recognition of CO of capital having invested A 3, but is satisfied that his contribution to the Company represents a fraction f of the new Total Capital.
New Total Capital: CTS = SA 1 + SA 2 + A 3
Capital recognized for the new partner: CTS * f> A 3
Business Name: RC = CTS * f - A 3
The entry in this case is as follows:
| Date | Cash in cash or bank | Z 1 | |
| Accounts receivable | Z 2 | ||
| Inventories | Z 3 | ||
| Fixed assets | Z 4 | ||
| Commercial Renown | RC | ||
| Effects to pay | Z 5 | ||
| Accounts payable | Z 6 | ||
| Partner # 3, Capital | A 3 | ||
| Partner # 1, Capital | P 1 * RC | ||
| Partner # 2, Capital | P 2 * RC | ||
| Admission of Partner # 3 to the Society with RC |
Case # 4: Admission of a partner with a premium in his favor. When the contribution account of a new member can be credited with an amount greater than the actual investment made.
Variant # 1 : Accounting of the premium by the old partners
The current partners offer the new partner a fraction f of the Total Capital (PO) if he contributes A 3, under the condition PO> A 3.
Total Capital: CT = A 1 + A 2 + A 3
PO = f * CT
PS 1 = (PO - A 3) * P 1
PS 2 = (PO - A 3) * P 2
The entry in this case is as follows:
| Date | Cash in cash or bank | Z 1 | |
| Accounts receivable | Z 2 | ||
| Inventories | Z 3 | ||
| Fixed assets | Z 4 | ||
| Partner # 1, Capital | PS 1 | ||
| Partner # 2, Capital | PS 2 | ||
| Effects to pay | Z 5 | ||
| Accounts payable | Z 6 | ||
| Partner # 3, Capital | A 3 + PS 1 + PS 2 | ||
| Admission of Partner # 3 to the Company |
When the partners do not want to see their contribution to the Company reduced and as the admission of a new partner will favorably result in its interest, they charge the premium to the Business Renown of the business, crediting the contribution account of the new partner with a sum that increase your participation.
The entry in this case is as follows:
| Date | Cash in cash or bank | Z 1 | |
| Accounts receivable | Z 2 | ||
| Inventories | Z 3 | ||
| Fixed assets | Z 4 | ||
| Commercial Renown | RC | ||
| Effects to pay | Z 5 | ||
| Accounts payable | Z 6 | ||
| Partner # 3, Capital | A 3 + RC | ||
| Admission of Partner # 3 to the Society with RC |
II.3.2 Withdrawal of a partner
Case # 1: The other partners are willing to deliver an amount greater than that corresponding to their capital to withdraw. The partners agree to withdraw T as their part in the business T> SA 3
The entry in this case is as follows:
| Date | Partner # 1, Capital | SA 1 - P 1 * T | |
| Partner # 2, Capital | SA 2 - P 2 * T | ||
| Partner # 3, Capital | SA 3 + T | ||
| Box | SA 1 + SA 2 + SA 3 | ||
| Retirement of Partner # 3 of the Company |
Case # 2: The member's withdrawal is made for the amount corresponding to their capital.
The entry in this case is as follows:
| Date | Partner # 3, Capital | SA 3 | |
| Box | SA 3 | ||
| Retirement of Partner # 3 of the Company |
Case # 3: Partner # 3 wants to withdraw from the company, but knows that if he forces a liquidation the asset will not reach the same value that appears in the books, he accepts T in cash T <CA 3.
The entry in this case is as follows:
| Date | Partner # 3, Capital | SA 3 | |
| Box | T | ||
| Partner # 1, Capital | (SA 3 -T) * P 1 | ||
| Partner # 2, Capital | (SA 3 -T) * P 2 | ||
| Retirement of Partner # 3 of the Company |
II.4 Liquidation of the Regular Collective Society
The procedure consists of the following four steps:
- Step # 1: Convert the asset to cash through its sale. Step # 2: Distribute the Net Profit or Loss from the sale of the assets among the partners' accounts to find out the share that corresponds to each partner. Step # 3: With the cash, pay the creditors and return the contributions to the partners. Step # 4: Determine the Net Profit or Loss to date and distribute it among the partners as stipulated.
As an example, suppose that the General Balance of a Regular Collective Society corresponds to that shown below.
Society
Balance of 30/6 xx
Assets A Liabilities P
Capital:
Partner # 1, your capital SA 1
Partner # 2, your capital SA 2
Partner # 3, your capital SA 3
Total P + CA = P + SA 1 + SA 2 + SA 3
When the assets are sold, the following three cases may arise:
Case # 1: The sale of the asset (VA) produced VA> A
| date | Box | GOES | |
| Active | TO | ||
| Earnings and loses | WILL | ||
| Sale of assets | |||
| date | Earnings and loses | WILL | |
| Partner # 1, your capital | P 1 * (VA - A) | ||
| Partner # 2, your capital | P 2 * (VA - A) | ||
| Partner # 3, your capital | P 3 * (VA - A) | ||
| Distribution of profits of the
sale of assets |
|||
| date | passive | P | |
| Box | P | ||
| Liability settlement | |||
| date | Partner # 1, your capital | SA 1 + P 1 * (VA - A) | |
| Partner # 2, your capital | SA 2 + P 2 * (VA - A) | ||
| Partner # 3, your capital | SA 3 + P 3 * (VA - A) | ||
| Box | VA - P | ||
| Cash distribution in proportion to the balance of the partners' contribution accounts |
Case # 2: Sale of asset VA <A
| date | Box | GOES | |
| Earnings and loses | A - VA | ||
| Active | TO | ||
| Sale of assets | |||
| date | Partner # 1, your capital | P 1 * (A - VA) | |
| Partner # 2, your capital | P 2 * (A - VA) | ||
| Partner # 3, your capital | P 3 * (A - VA) | ||
| Earnings and loses | A - VA | ||
| Distribution of loss on sale of assets | |||
| date | passive | P | |
| Box | P | ||
| Liability settlement | |||
| date | Partner # 1, your capital | SA 1 - P 1 * (A - VA) | |
| Partner # 2, your capital | SA 2 - P 2 * (A - VA) | ||
| Partner # 3, your capital | SA 3 - P 3 * (A - VA) | ||
| Box | VA - P | ||
| Cash distribution in proportion to the balance of the partners' contribution accounts |
Case # 3: If there were losses and one of the partners could not pay it
| date | Box | GOES | |
| Earnings and loses | A - VA | ||
| Active | TO | ||
| Sale of assets | |||
| date | Partner # 1, your capital | P 1 * (A - VA) | |
| Partner # 2, your capital | P 2 * (A - VA) | ||
| Partner # 3, your capital | P 3 * (A - VA) | ||
| Earnings and loses | A - VA | ||
| Distribution of loss on sale of assets | |||
| date | passive | P | |
| Box | P | ||
| Liability settlement | |||
| As SA 3 <P 3 * (A-VA), Partner # 3 cannot pay | |||
| date | Partner # 1, your capital | SA 1 - P 1 * (A - VA) - f 1 * R | |
| Partner # 2, your capital | SA 2 - P 2 * (A - VA) - f 2 * R | ||
| Box | VA - P | ||
| Cash distribution in proportion to the balance of the partners' contribution accounts |
R = P 3 * (A - VA) -SA 3
f 1: fraction of loss of partner # 3 assumed by partner # 1.
f 2: fraction of loss of partner # 3 assumed by partner # 2.
If the debt is subsequently collected, the rest of the accounts are closed in the Company's General Ledger with the following entries.
| date | Box | R | |
| Partner # 3, your capital | R | ||
| Amount to cover your debt | |||
| date | Partner # 1, your capital | f1 * R | |
| Partner # 2, your capital | f2 * R | ||
| Box | R | ||
| Debt distribution |
III. Solved example
III.1. Creation
On January 2, 1998, Fernando Herrera and José Arocha, owners of two small shops nearby, agree to form a Regular Collective Society, for which they unite their assets and liabilities.
Fernando Herrera's assets and liabilities are: cash, $ 2000.00; receivables, $ 6000.00; merchandise inventory, $ 7000.00; store furniture, $ 2500.00; bills to pay, $ 1000.00; accounts payable, $ 3500.00. The assets and liabilities of José Arocha are: numerary, $ 3000.00; accounts receivable, $ 600.00; merchandise inventory, $ 5500.00; office furniture, $ 1500.00; building, $ 4000.00; accounts payable, $ 4600.00; land, $ 1500.00.
III.2. Opening Seats
In this case, the entries in the Daily Book to record the opening of the Company are as follows:
| 1998
January 2 |
Fernando Herrera and José Arocha form a regular partnership to engage in the retail store business, in accordance with deed No. 468 issued on this date. | ||
| two | Box | 2000.00 | |
| Receivables | 6000.00 | ||
| Inventories | 7000.00 | ||
| Store furniture | 2500.00 | ||
| Effects to pay | 1000.00 | ||
| Accounts payable | 3500.00 | ||
| F. Herrera, Capital | 13000.00 | ||
| Contribution of F. Herrera to the Society | |||
| two | Box | 3000.00 | |
| Accounts receivable | 600.00 | ||
| Inventories | 5500.00 | ||
| Office furniture | 1500.00 | ||
| Building | 4000.00 | ||
| Ground | 1500.00 | ||
| Accounts payable | 4600.00 | ||
| J. Arocha, Capital | 11500.00 | ||
| J. Arocha's Contribution to Society |
III.3. Distribution of Profits
At the end of the 1998 accounting year, profits were obtained after taxes amounting to $ 34,000.00.
III.3.1. Case # 1: In fixed proportions
In the constitution of the Company, the partners established that the profits would be distributed in a fixed proportion: 55% for F. Herrera and 45% for J. Arocha.
- Herrera corresponding profit = 0.55 * 34000.00 = 18700.00 Arocha corresponding profit = 0.45 * 34000.00 = 15300.00
| 12/31 | Earnings and loses | 34000.00 | |
| F. Herrera, Personal account | 18700.00 | ||
| J. Arocha, Personal Account | 15300.00 | ||
| Distribution of profits for the year |
II.3.2. Case # 2: Attending to the contribution of each partner
Let's consider that the distribution of profits is made according to the contribution made by each of the partners, in which the following four variants can be given:
III.3.2.1. Variant # 1: No major changes in partners' capital
In this case you have to:
Contribution of F. Herrera: 13000.00
Contribution of J. Arocha: 11500.00
Total contributions T = 13000.00 + 11500.00 = 24500.00
Profit F. Herrera =
J. Arocha profit =
| 12/31 | Earnings and loses | 34000.00 | |
| Partner # 1, Personal Account | 18041.00 | ||
| Partner # 2, Personal Account | 15959.00 | ||
| Distribution of profits for the year among partners |
III.3.2.2. Variant # 2: Important changes occur in the capital of the partners
Changes in capital are considered to have occurred. F. Herrera decreased his capital by 1000 on April 1 and J. Arocha increased his capital by 1500 on September 1.
- Herrera
Effective capital from 1/1 to 3/31 = 3 * 13,000.00 = 39,000.00 months - um
Capital withdrawal on 1/4: 1000.00
Effective capital from 1/4 to 12/31 = 9 * (13000.00 - 1000.00) = 108000.00 months - um
Effective capital during the period of the year = 39000.00 + 108000.00 = 147000.00 months - um
- Arocha
Effective capital from 1/1 to 8/31 = 8 * 11,500.00 = 92,000.00 months - um
Capital contribution on 1/9: 1500.00
Effective capital from 1/9 to 12/31 = 4 * (11500.00 + 1500.00) = 52000.00 months - um
Effective capital during the period of the year = 92000.00 + 52000.00 = 144000.00 months - um
Sum of all effective capital = 147,000.00 + 144,000.00 = 291,000.00 months - um
Distribution of profits:
- Herrera = 147000.00 * 34000.00 / 291000.00 = 17175.00Arocha = 144000.00 * 34000.00 / 291000.00 = 16825.00
| 12/31 | Earnings and loses | 34000.00 | |
| F. Herrera, Personal account | 17175.00 | ||
| J. Arocha, Personal Account | 16825.00 | ||
| Distribution of profits for the year among partners |
III.3.2.3. Variant # 3: The contributions and services rendered by the partners are considered
Consider the contributions and services provided by partners. The association contract stipulates that members will receive a salary ($ 500 a month each) for their work. In this case, salaries had not been counted monthly, so the corresponding entry is made for 12-month salaries on December 31.
Salary corresponding to 12 months = 12 * 500 = 6000
| 12/31 | Earnings and loses | 12000.00 | |
| F. Herrera, Personal account | 6000.00 | ||
| J. Arocha, Personal account | 6000.00 | ||
| Members' salary payment |
So the resulting profit to be distributed according to case 1 or 2 will be:
= 34000.00 - 12000.00 = 22000.00
If the variations in the capital of the partners, related in the previous case, are assumed, then the distribution of profits corresponds to:
- Herrera = 147000.00 * 22000.00 / 291000.00 = 11113.40 Arocha = 144000.00 * 22000.00 / 291000.00 = 10886.60
| 12/31 | Earnings and loses | 22000.00 | |
| F. Herrera, Personal account | 11113.40 | ||
| J. Arocha, Personal account | 10886.60 | ||
| Members' salary payment |
III.3.2.4. Variant # 4: An interest rate is obtained on the initial contribution of the partners
It has also been agreed that their initial contributions earn interest at a rate of 5% per year.
The first step is to register the transfer of interest to the personal accounts of the partners through the following entry.
| 12/31 | Earnings and loses | 1225.00 | |
| F. Herrera, Personal account | 650.00 | ||
| J. Arocha, Personal Account | 575.00 | ||
| Amount of the interest corresponding to the initial contributions of the partners |
Compensation of the capital invested by F. Herrera = 13000.00 * 5% = 650.00
Remuneration of the capital invested by J. Arocha = 11500.00 * 5% = 575.00
Profits or losses pending to distribute: 22000.00 - 1225.00 = 20775.00
The distribution of profits or losses after discounting the services rendered by the partners and the remuneration of the capital is recorded as follows:
| 12/31 | Earnings and loses | 20775.00 | |
| F. Herrera, Personal account | 10494.59 | ||
| J. Arocha, Personal Account | 10280.41 | ||
| Distribution of profits for the year among partners |
III.3.2.5. Variant # 5: All the above alternatives are included
In this case, the distribution of liquid profit among partners considering the variations in their capital corresponds to that shown below.
| F. Herrera: | ||
| Salary at the rate of 500.00 monthly | 6000.00 | |
| Interest (5%) on your initial contribution | 650.00 | |
| Profit in the year | 10494.59 | |
| Partner # 1 Profit | 17144.59 | |
| J. Arocha: | ||
| Salary at the rate of 500.00 monthly | 6000.00 | |
| Interest (5%) on your initial contribution | 575.00 | |
| Profit in the year | 10280.41 | |
| Profit of J. Arocha | 16855.41 | |
| Net income for the year | 34000 |
III.3.2.6. Statement of Capital Accounts at closing
Under the conditions in the section given in III.3.2.2 that F. Herrera made cash withdrawals to his personal account for $ 1,000 and J. Arocha increased his capital by $ 1,500, the Statement of Capital Accounts in the year that ends on 12/31/1998, corresponds to the one shown below:
Members' Capital Accounts Statement
| F. Herrera: | ||
| Capital as of January 2 | 13000.00 | |
| F. Herrera's retreats | 1000.00 | ________ |
| Capital as of December 31 | 12000.00 | |
| J. Arocha: | ||
| Capital as of January 2 | 11500.00 | |
| J. Arocha's Contributions | 1500.00 | |
| Capital as of December 31 | 13000.00 |
Capital Accounts in the Balance Sheet
| Capital: | ||
| F. Herrera, its capital | 12000.00 | |
| J. Arocha, its capital | 13000.00 | |
| Total capital | 25000.00 |
III.4. Acceptance of a new Partner
1 ro June 1999, M. Lima is admitted into society as a partner. In the period from 01.01.1999 and 05.31.1999, utilities Society reached the amount of 15000.00, as occurred the following capital changes: J. F. Herrera Arocha and increased capital 1 ro of March and 1 ro April at 800.00 and 1200.00 respectively.
iII.4.1. Company Closing
Five month wages = 5 * 500.00 = 2500.00
| 5/31 | Earnings and loses | 5000.00 | |
| F. Herrera, Personal account | 2500.00 | ||
| J. Arocha, Personal account | 2500.00 | ||
| Members' salary payment |
So the resulting profit to be distributed will be: 15000.00 - 5000.00 = 10000.00
In accordance with the interest agreement on the capital contributed, the transfer of these to the personal accounts of the partners is carried out through the following entry.
| 5/31 | Earnings and loses | 1250.00 | |
| F. Herrera, Personal account | 600.00 | ||
| J. Arocha, Personal Account | 650.00 | ||
| Amount of the interest corresponding to the initial contributions of the partners |
Compensation of the capital invested by F. Herrera = 12000.00 * 5% = 600.00
Remuneration of the capital invested by J. Arocha = 13000.00 * 5% = 650.00
Profits or losses pending to distribute: 10000.00 -1250.00 = 8750.00
The distribution of the pending profits, taking into account the variations experienced in the capital of the partners during the period, are determined as follows:
- Herrera
Effective capital from 1/1 to 3/31 = 3 * 12,000.00 = 36,000.00 months - um
Capital addition on 1/4: 1200.00
Effective capital from 1/4 to 31/5 = 2 * (1200.00 + 1200.00) = 26400.00 months -um
Effective capital during the period of the year = 36000.00+ 26400.00 = 62400.00 months - um
- Arocha
Effective capital from 1/1 to 2/28 = 2 * 13,000.00 = 26,000.00 months - um
Capital addition of 1/3: 800.00
Effective capital from 1/4 to 31/5 = 2 * (13000.00 + 800.00) = 41400.00 months - um
Effective capital during the period of the year = 26000.00+ 41400.00 = 67400.00 months - um
Sum of all effective capital = 62400.00+ 67400.00 = 129800.00 months - um
Distribution of profits:
- Herrera = 62400.00 * 8750.00 / 129800.00 = 4206.47Arocha = 67400.00 * 8750.00 / 129800.00 = 4543.53
| 5/31 | Earnings and loses | 8750.00 | |
| F. Herrera, Personal account | 4206.47 | ||
| J. Arocha, Personal Account | 4543.53 | ||
| Distribution of profits for the year among partners |
The distribution of Profits in the Statement of Profits and Losses as of 05.31.1999 corresponds to the following:
Distribution of liquid profit among partners considering variations in their capital.
| F. Herrera: | ||
| Salary at the rate of 500.00 monthly | 2500.00 | |
| Interest (55) on your initial contribution | 600.00 | |
| Profit in the year | 4206.47 | |
| Partner # 1 Profit | 7306.47 | |
| J. Arocha: | ||
| Salary at the rate of 500.00 monthly | 2500.00 | |
| Interest (5%) on your initial contribution | 650.00 | |
| Profit in the year | 4543.53 | |
| Profit of J. Arocha | 7693.53 | |
| Net income for the year | 15000.00 |
Under these conditions, the Members' Capital Accounts Statement is as follows:
Members' Capital Accounts Statement
| F. Herrera: | ||
| Capital as of January 2 | 12000.00 | |
| Contributions by F. Herrera | 1200.00 | |
| Capital as of May 31 | 13200.00 | |
| J. Arocha: | ||
| Capital as of January 2 | 13000.00 | |
| J. Arocha's Contributions | 800.00 | |
| Capital as of May 31 | 13800.00 | |
| Total Capital of the Company | 27000.00 |
III.4.2. Registration of the Admission of the new Member
There may be several cases during the admission of a new member.
III.4.2.1. Case # 1: The new partner acquires a capital stake
- Lima acquires a participation equivalent to a fifth of the capital, that is, $ 5400.00. In this case, the accepting partners divide the value of the participation among themselves at the rate of their capital in relation to the total capital.
| F. Herrera, its capital | 2640.00 | |
| J. Arocha, its capital | 2160.00 | |
| M. Lima, its capital | 4800.00 | |
| Assignment to M. Lima of a participation of one fifth of the capital |
III.4.2.2. Case # 2: The new partner makes a capital contribution
Let's consider that M. Lima made a new contribution, increasing the capital of the firm . For this, it contributed the following assets and liabilities: numerary, 2500.00; accounts receivable, 1200.00; merchandise, 3300.00; bills to pay, 400.00.
| June 1 | Cash or Cash | 2500.00 | |
| Accounts receivable | 1600.00 | ||
| Inventories | 1900.00 | ||
| Effects to pay | 400.00 | ||
| M. Lima, Capital | 5600.00 | ||
| Contribution of M. Lima to the Society |
III.4.2.3. Case # 3: The new member is admitted with the collection of a premium in favor of the old members
- Lima makes a contribution of $ 5600.00 but since its participation is one fifth of the total capital ($ 5400.00), in fact it has paid too much $ 200.00. This amount will be accounted for in favor of the former partners since this method is preferred to considering the premium as commercial reputation. In this case we are going to consider that the total capital of the company does not increase, it remains at the value it had before M. Lima was part of it. ($ 27000.00)
| June 1 | Cash or Cash | 2500.00 | |
| Accounts receivable | 1600.00 | ||
| Inventories | 1900.00 | ||
| Effects to pay | 400.00 | ||
| M. Lima, Capital | 5400.00 | ||
| F. Herrera, Capital or Personal Account | 110.00 | ||
| J. Arocha, Capital or Personal Account | 90.00 | ||
| Contribution of M. Lima to the Society |
5600.00 - 5400.00 = 200.00
- Herrera, 0.55 * 200.00 = 110.00 Arocha, 0.45 * 200.00 = 90.00
III.4.2.4. Case # 4: The new member is admitted with the payment of a premium in his favor by the old members
F. Herrera and J. Arocha are interested in M. Lima being part of the partnership with them, since M. Lima is a marketing specialist and their business is located in a privileged area for this type of business. Therefore, they offer to interest M. Lima with a quarter of the total capital if he contributes $ 5200.00.
Total capital = 27000.00 + 5200.00 = 32200.00
A room offered to M. Lima = 8050.00
Difference borne by former partners = 8050.00– 5200.00 = 2850.00
- Herrera = 0.55 * 2850.00 = 1567.50 Arocha = 0.45 * 2850.00 = 1282.50
The entry in this case is as follows:
| June 1 | Box | 2500.00 | |
| Accounts receivable | 1200.00 | ||
| Inventories | 1900.00 | ||
| F. Herrera, Capital | 1567.50 | ||
| J. Arocha, Capital | 1282.50 | ||
| Effects to pay | 400.00 | ||
| M. Lima, Capital | 8050.00 | ||
| Admission of M. Lima to the Company |
III.5. Withdrawal of a partner
- Lima has health problems so he decides, on October 5, 2001, to withdraw from society. Two situations can occur, one that F. Herrera and J. Arocha agree to deliver an amount greater than that corresponding to their capital, or that M. Lima agrees to receive an amount in cash less than the value corresponding to their capital.
III.5.1. Case # 1: The partners agree to deliver an amount greater than that corresponding to the capital from which they withdraw
- Herrera and J. Arocha agree to deliver an amount greater than that corresponding to their capital, $ 37,000.00. At the moment the Capital Balance is as follows:
| Capital: | ||
| F. Herrera, its capital | 50000.00 | |
| J. Arocha, its capital | 43000.00 | |
| M. Lima, its capital | 35000.00 | |
| Total capital | 128000.00 |
37000.00 - 35000.00 = 2000.00
2000.00 * 0.55 = 1100.00
2000.00 * 0.45 = 900.00
The entry in this case is as follows:
| 2001
October 5 |
F. Herrera, Capital | 48900.00 | |
| J. Arocha, Capital | 42100.00 | ||
| M. Lima, Capital | 37000.00 | ||
| Box | 128000.00 | ||
| Withdrawal of M. Lima from the Society |
III.5.2. Case # 2: The withdrawing partner agrees to receive a cash amount less than their principal
- Lima accepts 33,000 in cash.
The entry in this case is as follows:
| 2001
October 5 |
M. Lima, Capital | 35000.00 | |
| Box | 33000.00 | ||
| F. Herrera, Capital | 1100.00 | ||
| J. Arocha, Capital | 900.00 | ||
| Withdrawal of M. Lima from the Society |
III.6. Liquidation of the Regular Collective Society
Now suppose that M. Lima does not withdraw but that the partners decide to liquidate the Regular Company on November 11, 2001. The company distributes its profits as follows: F. Herrera, 40%, J. Arocha, 30% and M Lima, 30%. The books are closed to prepare the liquidation and the Balance is made.
- Herrera, J. Arocha and M. Lima
Balance of November 11, 2001.
| Active | 155000.00 | passive | 8000.00 | |
| Capital | ||||
| F. Herrera, Capital | 55000.00 | |||
| J. Arocha, Capital | 49000.00 | |||
| M. Lima, Capital | 43000.00 | |||
| _______ | ______ | |||
| Total Assets | 155000.00 | Total Liabilities and Capital | 155000.00 |
III.6.1. Case # 1: The sale of the asset produced VA> A
The asset is sold obtaining $ 160000.00, the profits from the sale of the asset are distributed according to the established proportions, the payment of the Liability is made and the remaining cash is distributed according to the contributions of the partners.
| Nov 11 | Box | 160000.00 | |
| Active | 155000.00 | ||
| Earnings and loses | 5000.00 | ||
| Sale of assets | |||
| Nov 11 | Earnings and loses | 5000.00 | |
| F. Herrera | 2000.00 | ||
| J. Arocha | 1500.00 | ||
| M. Lima | 1500.00 | ||
| Distribution of profits from the sale of assets | |||
| Nov 11 | passive | 8000.00 | |
| Box | 8000.00 | ||
| Liability settlement | |||
| Nov 11 | F. Herrera, its capital | 53200.00 | |
| J. Arocha, its capital | 50160.00 | ||
| M. Lima, its capital | 48640.00 | ||
| Box | 152000.00 | ||
| Cash distribution in proportion to the balance of the partners' contribution accounts |
III.6.2. Case # 2: The sale of the asset produced VA <A
The asset is sold obtaining $ 150,000.00, the profits from the sale of the asset are distributed according to the established proportions, the payment of the Liability is made and the remaining cash is distributed according to the contributions of the partners.
| Nov 11 | Box | 150000.00 | |
| Earnings and loses | 5000.00 | ||
| Active | 155000.00 | ||
| Sale of assets | |||
| Nov 11 | F. Herrera, its capital | 2000.00 | |
| J. Arocha, its capital | 1500.00 | ||
| M. Lima, its capital | 1500.00 | ||
| Earnings and loses | 5000.00 | ||
| Distribution of losses from the sale of assets | |||
| Nov 11 | passive | 8000.00 | |
| Box | 8000.00 | ||
| Liability settlement | |||
| Nov 11 | F. Herrera, its capital | 53000.00 | |
| J. Arocha, its capital | 47500.00 | ||
| M. Lima, its capital | 41500.00 | ||
| Box | 142000.00 | ||
| Cash distribution in proportion to the balance of the partners' contribution accounts |
Conclusions
As a conclusion of this work, it can be pointed out that a theoretical formulation was developed that includes the variants of accounting and distribution of profits in a Regular Collective Society, which are illustrated through a solved example, which serves as a complement.
Bibliography
Maldonado, R: General Accounting Studies, ENPES, Cuba.
Horngren, Charles T.: Accounting, ENPES.
Work sent by:
- Ec. Lic. Jesús Mesa Oramas, Standards and Procedures Specialist, HAVANATUR SA Company, CIMEX Corporation.
e-mail: [email protected]
Ing. Virginia Paz San Pedro, Technical Director of Real Estate Villa Europa SA, Corporación Cubalse SA
e-mail: [email protected]
- The account used is dependent on where the contribution is deposited: cash in cash or in a bank. The assets that are contributed may have a different value in the Company than that existing in the books of the partner that contributes them, since they are estimated a fair value according to market conditions, at the time of being transferred to the Company. um: monetary units. In each of the months that make up the year, a similar entry is made to record the payment of the salary of each of the partners. The tax item can adopt different structures depending on what is established in the country's regulations. Depending on the result: Profit or Loss. This example assumes that there are Profits. Cousin:When the capital that the new partner puts is greater than the capital that corresponds to his participation, because the current partners charge him an excess (premium) to be able to enter the business. In this case, for some reason, the old partners are interested in incorporating the new partner.
