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This is the complete lecture note for ACC 301 Financial Reporting I. You can read it online below, open it in the full viewer, or download the PDF for offline study. It pairs with the course's video lectures, so you can read and watch together.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS COURSE CODE:ACC 301 COURSE TITLE: Financial Reporting I COURSE UNIT LOAD(3 units C: LH 30; PH 45) SERIES LIST: Series 1: Advanced Partnership Accounts Series 2: Joint Arrangements under IFRS 11 Series 3: Company Accounts – Formation, Shares, and Debentures Series 4: Preparation and Presentation of Financial Statements under IAS Series 5: Income Taxes, Provisions, and Related Party Transactions Outline for Series 1: Advanced Partnership Accounts Part 1: Admission and Retirement of Partners Sub-Part 1.1: Accounting treatment of admission of a new partner Sub-Part 1.2: Retirement or death of a partner Sub-Part 1.3: Treatment of goodwill on admission and retirement Part 2: Dissolution and Change of Interest Sub-Part 2.1: Accounting for dissolution of partnership Sub-Part 2.2: Change in profit-sharing ratio among partners Sub-Part 2.3: Settlement of accounts on dissolution Part 3: Conversion and Amalgamation of Partnerships Sub-Part 3.1: Conversion of partnership into a limited liability company Sub-Part 3.2: Amalgamation of two or more partnerships Introduction – Series 1: Advanced Partnership Accounts Partnerships are a common form of business organisation, and their accounting requires careful attention to changes in ownership and structure. When partners are admitted, retire, or when the partnership dissolves, the financial implications must be properly recorded to ensure fairness and transparency. This Series introduces you to the advanced aspects of partnership accounting, which are essential for understanding how businesses evolve and how financial reporting adapts to such changes. The aim of this Series is to equip you with the knowledge and skills to prepare and analyse advanced partnership accounts, covering admission, retirement, dissolution, changes in interest, and the conversion or amalgamation of partnerships. We shall commence this Series by examining the admission and retirement of partners, including the treatment of goodwill. Next, we will explore dissolution and changes in profit-sharing ratios, as well as the settlement of accounts. Finally, we will conclude by studying the conversion of partnerships into limited liability companies and the amalgamation of partnerships, thereby rounding off the Series with a comprehensive view of partnership restructuring.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Series Learning Outcomes – Series 1: Advanced Partnership Accounts At the end of this Series, you should be able to: SLO 1.1: **Explain** the accounting treatment for the admission of a new partner, including adjustments to capital and profit-sharing ratios. SLO 1.2: **Analyse** the financial implications of retirement or death of a partner, and **prepare** the necessary accounting entries. SLO 1.3: **Evaluate** the treatment of goodwill during admission and retirement, and **apply** appropriate methods in partnership accounts. SLO 1.4: **Prepare** accounts for the dissolution of partnerships, including settlement of liabilities and distribution of assets. SLO 1.5: **Demonstrate** how changes in profit-sharing ratios are accounted for, and **calculate** the resulting adjustments. SLO 1.6: **Construct** accounts for the conversion of partnerships into limited liability companies, ensuring compliance with reporting requirements. SLO 1.7: **Discuss** the process of amalgamation of partnerships, and **prepare** the necessary accounting records. 1.1 Admission And Retirement Of Partners 1.1.1 Accounting treatment of admission of a new partner When a new partner is admitted into a partnership, the existing partners must decide how the **profit-sharing ratio** will be adjusted. A profit-sharing ratio is the agreed proportion in which partners share profits and losses. The admission process often requires revaluation of assets and liabilities to ensure that the incoming partner joins on fair terms. Another key consideration is the **capital contribution**, which refers to the amount of money or assets the new partner invests in the firm. This contribution may be equal to the new partner’s share of net assets or negotiated differently.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Diagram showing admission of a new partner and adjustments to capital accounts. Caption: Figure 1.1 Admission of a new partner Fill in the blank: When a new partner is admitted, the existing partners must decide how the __________ will be adjusted. --- 1.1.2 Retirement or death of a partner The **retirement of a partner** occurs when a partner voluntarily leaves the firm, while the **death of a partner** requires settlement of the deceased partner’s estate. In both cases, the partner’s share of capital, accumulated profits, and goodwill must be calculated and settled. Settlement may be made in cash, by transferring assets, or by creating a loan account in favour of the retiring or deceased partner’s estate. The remaining partners must also adjust their profit-sharing ratios accordingly.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Caption: Table 1.1 Settlement options for retiring or deceased partners Description: A table showing settlement by cash, asset transfer, or loan account. Fill in the blank: When a partner retires or dies, their share of capital, accumulated profits, and __________ must be calculated and settled. --- 1.1.3 Treatment of goodwill on admission and retirement **Goodwill** is the value of a firm’s reputation, customer loyalty, and other intangible benefits. When a new partner is admitted, goodwill is often raised in the books to compensate existing partners for their past efforts. Conversely, when a partner retires, goodwill ensures that the departing partner receives fair value for their contribution to the firm’s reputation. Goodwill may be treated in several ways: raised in the books and adjusted among partners, written off immediately, or adjusted through capital accounts without creating a separate goodwill account.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Caption: Box 1.1 Methods of treating goodwill Description: A box listing methods such as raising goodwill, writing off goodwill, and adjusting through capital accounts. Fill in the blank: Goodwill represents the value of a firm’s __________ and customer loyalty. --- Pilot questions 1.1 1. Which account is adjusted when a new partner contributes capital? 2. What is the term for the agreed proportion in which partners share profits and losses? 3. Name one settlement option for a retiring partner. 4. What intangible asset compensates existing partners during admission? 5. How can goodwill be treated in partnership accounts?
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS 1.2 Dissolution And Change Of Interest 1.2.1 Accounting for dissolution of partnership Dissolution of partnership occurs when the relationship between partners is terminated and the business is wound up. This may happen due to mutual agreement, expiry of a fixed term, insolvency, or court order. At dissolution, assets are realised, liabilities are settled, and any remaining balance is distributed among partners according to their capital accounts and profit-sharing ratios. The process involves preparing a **realisation account**, which records the sale of assets and settlement of liabilities. Any profit or loss on realisation is transferred to partners’ capital accounts. Diagram showing the process of dissolution with realisation account, settlement of liabilities, and distribution of remaining assets. Caption: Figure 1.2 Dissolution of partnership Fill in the blank: At dissolution, assets are realised, liabilities are settled, and the balance is distributed among partners according to their __________.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS --- 1.2.2 Change in profit-sharing ratio among partners A **change in profit-sharing ratio** occurs when partners agree to alter the proportion in which they share profits and losses. This may happen when a new partner is admitted, an existing partner retires, or partners renegotiate their agreement. To account for this change, adjustments are made through **revaluation accounts** and **capital accounts**. Partners who gain in the new ratio compensate those who lose, ensuring fairness. Caption: Table 1.2 Adjustments for change in profit-sharing ratio Description: A table showing partners who gain, partners who lose, and the corresponding adjustments. Fill in the blank: Partners who gain in the new ratio must compensate those who __________. ---
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