Course Project Specifications Course Project 1: Case Analysis: Partners' Disagreements This project involves an analysis on the case of disagreement among partners which might lead to partnership dissolution or liquidation if not settled. Objective/s: After completing the case analysis, the students are expected to have been able to 1. Apply what they have learned about partnership, specifically the profit and loss sharing agreement. 2. Understand the importance of a well-crafted and well-understood partnership agreement or contract. Statement of the Problem: Belinda Cortez and Carolina David are partners in an advertising agency for almost five years now. Their initial contributions are P200, 000 and P100, 000, respectively. No additional contributions were made since then. Their profit and loss sharing agreement is 2:1. Coincidentally, their profit and loss ratio is the same as their capital contribution ratio. The partners also agreed that Cortez will be the managing partner who will handle their people and the records keeping of the business while David will be the one in charge of marketing. David, who has many connections outside their business, has contributed so much for the huge amount of revenues of the firm. At the end of 2016, the firm realized a net profit for the year of P870, 000 which they shared on the 2:1 ratio. Their capital balances reflected in their balance sheet of December 31, 2016 are P1, 500,000 and P1, 000,000, respectively. Requirements: Analyze carefully the problem and give your bright opinions on the following situations based on accounting concepts and principles for partnership that you have learned and understood. 1. Compute the capital balance ratio based on their capital balances on December 31, 2016. Is there a change in the capital ratio? If there is, what possibly happened that resulted to this change? 2. David, because of her being material to revenue generation of the firm believed that their 2:1 profit sharing ratio is not fair, so she suggested to Cortez that their profit and loss agreement be modified but Cortez stand firm on the 2:1 ratio. Give at least two reasons why David is not contented on their 2:1 profit sharing ratio. 3. Early January of the following year, it was discovered by Cortez, that she made an error by unintentionally omitting a P180,000 gross income in her reported income statement. She disclosed the error to David and told her that the same will be shared by them using the 2:1 ratio and will be added to their capital balances. David insisted that the sharing will be based Course Projecton their capital balances at the end of 2016. Who do you think is correct, Cortez or David? Reason out for your choice. 4. If you are the consultant, give at least two recommendations that the partners should do to further avoid disagreement. Answers: 1. (50%) The December 31, 2016 capital balance ratio is 60:40. 60% for Cortez computed as P1,500,000 / (P1,500,000+ P1,000,000); and 40% for David computed as P1,000,000 / . ((P1,500,000+ P1,000,000). There is a change from 2/3 and 1/3 or 2:1 beginning capital ratio The possible explanation for the difference is a recording error for drawing made by Cortez prior to 2016. The possible entry made by Cortez is debiting his drawing account and crediting David's Capital account by the same amount. As seen in the analysis below: Analysis/Calculation Cortez David Total Capital, beg. P 200,000 p 100,000 P 300,000 Add net income prior to 2016' 886, 667 443, 33:3 1,330,000 net income 2016 580,000 290,000 870,000 total P 1,666,667 P 833,333 2,500,000 less: drawing prior period 166,667) 166,667 Capital, ending P 1,500,000 # 1,000,000 # 2,500,000 *Working upward we will 2,500,000 arrived at the net income (870,000) prior periods, using the (300,000) total column 1,330,000 we divide the P1,330,000 uing the p/I ratio of 2:1 Another way of interpreting this is that Cortez has recorded a net share in prior years of P720, 000 without reflecting the drawing and P610 for David. Adding this also yield a total of P1, 330,000. 2. (20%) David is not happy or not contented with the 2:1 ratio because a) She is envious of Cortez as she is receiving a lesser share in the profit. b) She is generating many revenues to the firm but is not well compensated. 3. (10%) Cortez is correct, because their profit and loss sharing agreement is still 2:1 and not based on the capital balances. 4. (20%) Consultant recommendations: a) The partners should sit down and discuss the issue hoping that they can provide additional ways of dividing profits by including salaries to managing partner, interest on capital balances, and bonus or commission to David. This would mean an amendment in their articles of partnership, if any. b) The partners should make their capital balances of equal amounts so that they can have a possible equal sharing of profits; anyway both of them have their important roles in the business. David can make additional investment to equal Cortez capital balance.In checking the answers, this is the point system: Grading system: points Requirement 1 5 per entry REquirement 2 10 5 per entry Requirement 3 40 20 per plan Requirement 4 45 complete 100 explanation If in requirement 4, the choice is Plan B but the explanation does not match a10 to 15 points can be given . If the given choice Is Plan A, and the student tried to explain with computation, 5 to 10 points can be given. No need for the rubrics. Dr. Aimee and Dr. Jheng, I no longer prepare a rubric for rating the projects. If these will be checked by a CPA, he or she can assign points or percentage within what I have assigned depending on what the students' answers are. Thanks. Rubric for Checking Criteria (%) 4 3 2 the first criteria> score for the first the first criteria> percentage> criteria> the second score for the the second percentage > criteria> second criteria> criteria> the third criteria> score for the third the third criteria> corresponding criteria> percentage > the fourth criteria> score for the the fourth criteria> fourth criteria> percentage > Note: You may refer to http://rubistar.4teachers.org/index.php to assist you in creating the rubrics for your assessments. Note: . Save each file using the format: CourseProject Course Project