Since 1977
NATIONAL UNIVERSITY
ADVAC 1- PARTNERSHIPS
ELLERY DE LEON
1st Semester SY 2016-2017
LECTURE NOTES
FORMATION
The initial investments of the partners are recognized at
FAIR VALUES and credited to the partners capital accounts
in the agreed interest ratio. Since partnership goodwill is
no longer recognized under IFRS, the total contributions of
the partners (as agreed capital) is allocated to individual
partners. For example:
A and B formed a partnership on January 2, 2016 by
contributing the following net assets from their respective
proprietorships:
A
B
Cash
P 30,000
P 20,000
Non cash assets
620,000
730,000
Liabilities
(450,000)
(530,000)
Net assets
P200,000
P220,000
The non-cash assets of A is overstated by P24,500 while
the liabilities of B is understated by P5,500 They agreed on
a capital ratio of 48:52 to A and B, respectively.
The compound journal entry to record the formation of the
partnership is
Cash
P 50,000
Non-cash assets
1,325,500
Liabilities
P 985,500
A, capital
187,200
B, capital
202,800
The above agreement resulted in a bonus of P11,700 from
B to A, which is the excess of B’s contribution of P214,500
against a smaller capital credit of P202,800, or the excess
of A’s capital credit of P187,200 over the amount
contributed of P175,500. This is referred to as BONUS
METHOD. If no bonus is to be recognized, the partners
should have used their contributions ratio, 45:55 as
capital ratio to A and B, respectively. This is referred to as
NET INVETMENT method.
OPERATIONS
During the operations of the partnership, loan by a partner
to the partnership (Loans Payable) or by the partnership to
a partner (Loans Receivable) may be recognized;
temporary drawings in anticipation of profits may occur;
additional investments may also be made by the partners;
and the result of operations during the period is reported.
Partnership income or loss is allocated to partners in many
ways. Generally, agreement items for income or loss
allocation conform with the following remunerations:
a. income allocations on the basis of capital balances
to reward partners in proportion to their respective
investments through interests;
b. income allocations on the basis of service
contributions to reward partners for their
respective service to the partnership through
salaries;
c. income allocations on the basis of effective
management of the partnership through bonuses;
and
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d. Any numerical ratio, e.g. 3:2:5 will apply to the
residual profit or loss after allocations made for (a)
(b), and (c) above.
For example:
In continuation of the same Illustrative Case
Partner A invested additional capital on May 1, 2016 for
P30,000 cash; contributed merchandise with a fair value of
P24,000 on September 1, 2016; and withdrew
permanently cash of P12,000 on December 1, 2016.
Partner B had no additional investments nor permanent
withdrawals during 2016.
They agreed to divide profits and losses as follows:
a. Interest of 6% on average capital for each partner
b. Salaries of P4,000 each month to both partners
c. Bonus to A of 10% of net income after interests
and salaries; and
d. The balance is agreed to be divided equally.
e. Both partners withdrew temporarily 60% of their
respective salaries.
The reported profit of P150,000 for 2016 will be divided as
follows:
A
B
TOTAL
Interests P 12,852 P 12,168 P 25,020
Salaries
48,000
48,000
96,000
Bonus
2,898
2,898
Balance
13,041
13,041
26,082
Total
P 76,791 P 73,209 P150,000
The journal entry to transfer the net income for 2016 to
capital is
Income Summary
150,000
A, capital
76,791
B, capital
73,209
Average capital for Partner A is computed as follows:
1/01/16
5/01/16
9/01/16
12/01/16
187,200 x 12/12
30,000 x
8/12
24,000 x
4/12
(12,000) x
1/12
Average capital
Multiply by
Interest
Ave. capital of B : P202,800 x 6%
P187,200
20,000
8,000
(1,000)
P214,200
6%
P 12,852
P 12,168
The financial statements prepared for partnerships are
similar to those prepared for corporations, except for the
following basic differences:
a. In the balance sheet, ownership equity for a
partnership will be partners’ capital balances; in a
corporation, capital stock, additional paid-in
capital, and retained earnings. In lieu of a
statement
of
retained
earnings
done
for
corporations, partnerships present a statement of
partners’ capital in support of its ownership equity
on the balance sheet.
b. A statement of partners’ capital balances will show
initial
or
beginning
balances,
additional
investments, withdrawal of capital, temporary
ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.
drawings, share of net income or net loss, and
partners’ compensation treated as operating
expenses.
For example:
Continuing with the same Illustrative Case, the
statement of Partners’ capital balances during 2016
follows:
A
BB
P187,200
AI
54,000
Wdrwl of C ( 12,000)
Drawings
( 28,800)
SONI
76,791
EB
P277,191
B
P 202,800
C
P390,000
54,000
(12,000)
(57,600)
150,000
P524,400
( 28,800)
73,209
P247,209
c. As illustrated, per GAAP, partners’ compensation
items such as interests, salaries, and bonuses are
simply items selected by the partners to make the
profit distribution fair. Nevertheless, in some
cases, partners’ remuneration items are treated as
operating expenses and accordingly included in the
income statement. This latter case requires
additional accounting procedures and the profit
agreement will then apply to the decreased net
income as a consequence of the increased
operating expenses.
For example:
Continuing with the same Illustrative Case
The following journal entry will be recorded to validate
the compensation items as operating expenses:
Interest expense
Salary expense
Bonus expenses
A, capital
B, capital
25,020
96,000
2,898
63,750
60,168
The balance of net income of P26,082 will be recorded
as follows
Income Summary
26,082
A, capital
13,041
B, capital
13,041
Although the revised schedule of capital balances will
have new details, ( 2 items instead of just one over
the net income) , the ending capital balances will be
identical since
the profit and loss agreement
remained effectively the same.
ADMISSION OF A NEW PARTNER
Any major change in ownership, such as admission of a
new partner, or withdrawal of a partner from an existing
partnership dissolves the entity. Dissolution of a
partnership entity does not however imply liquidation, for
oftentimes the business entity continues its operations
undisturbed.
There are two ways a new partner can get admitted into
the partnerships:
a. Admission by investment is one in which the new
partner transfers net assets into the partnership.
Thus, the net assets of the partnership increase by
the amount contributed and also increase total
capital by the same amount. Capital credits to all
partners upon admission of a new partner will
depend upon the agreement.
For example:
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Continuing with the problem, assume C was admitted
as a partner in the AB Partnership by investing
P200,000 for a 40% interest in capital and in profits.
The total contributions by the partners will be
P724,400 (P277,191 + P247,209 + P200,000). The
acquired interest is P289,760 at 40%, which is
P89,760 excess credit over the amount contributed.
The journal entry to be recorded upon C’s admission is
Cash
P200,000
A, capital (P89,760 x ½)
44,880
B, capital
44,880
C, capital
P289,760
The new profit and loss ratio would probably be
Partner A (60% x ½)
30%
Partner B
30%
Partner C
40%
b.
Admission by purchased interest is one in which
the new partner transfers assets directly to one or
more partners (NOT TO THE PARTNERSHIP) in
consideration for the purchased interest. Thus the
net assets of the partnerships remain the same
even after the admission of the new partner.
For example:
Continuing with the same Illustrative Case and
assuming that the old partners sells 40% of their
respective interests for a total consideration of
P200,000, the journal entry to be recorded upon C’s
admission is
A, capital
B, capital
C, capital
P110,876
98,884
P209,760
The total old capital remains at P524,400 after C’s
admission and the consideration of P200,000 is divided
between Partner A and Partner B as follows
To A (P277,191 x 40%) – (P9,760 x ½)
B (P247,209 x 40%) - (P9,760 x ½)
Total
P105,996
94,004
P200,000
WITHDRAWAL or RETIREMENT of a PARTNER
If a partner withdraws from the partnership, the
partnership must liquidate the withdrawing partner’s
ownership equity, as follows:
a. Payment to withdrawing partner will not come from
partnership assetsThe withdrawing partner may just sell his interest
to the remaining partners or to an outsider with
the permission of the remaining partners. In this
case the entry required to be recorded in the books
of the partnership is simply the transfer of interest
from the withdrawing partner to the buying
partner(s) account(s).
For example:
Continuing with the same Illustrative Case and
assuming partner A succumbed to head injuries from a
car accident a day after C’s admission by investment,
the journal entry to be recorded by the partnership if
the heirs of A sold the partnership equity to D (with B
and C’s permission) for P300,000 is
A, capital
D, capital
P232,311
P232,311
The total capital of the partnership remains the same
ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.
at P724,400.
b.
AB divide profits and losses on a 3:4 ratio to A and
B, respectively.
Payment to the withdrawing partner will come from
partnership assets –
Under this arrangement, one of three situations
can occur:
i. Payment is equal to the interest withdrawn,
which is easily recorded by a debit to the
capital account of the withdrawing partner and
a credit for the payment made, since both
amounts are equal.
ii. Payment is less than the interest withdrawn,
which is recorded with bonus to the remaining
partners divided in the remaining profit and
loss ratio.
iii. Payment is more than the interest withdrawn,
the excess is recorded as bonus to the retiring
partner and charged to the remaining partners
in the remaining profit and loss ratio.
For example:
Continuing with the same Illustrative Case but
this time payment to A’s heirs will be P240,109
from partnership assets, the journal entry to
record A’s withdrawal by death is
A, capital
B, capital
C, capital
Cash
P232,311
3,342
4,456
P240,109
The total capital after the withdrawal of Partner A will be
P484,291, i.e. Partner B, P198,987 and Partner C,
P285,304. The bonus to Partner A of P7,798 is divided
between B and C in the remaining profit ratio of 3:4.
LIQUIDATION OF A PARTNERSHIP
A liquidation winds up all operations of the partnerships,
converts all partnerships assets into cash and distributes
to creditors of the partnerships, then to accounts with
partners.
Statement of Liquidation
A statement of liquidation summarizes all liquidation
activities, including payments to partners. There are two
types of distribution in partnerships liquidation, as follows:
a. Liquidations in which all distributions are made in a
single time following the sale of all non-cash
assets. This is called lump-sum, or total,
liquidation. It is a summary of the entire
liquidation process upon its completion. It is one in
which at the time cash is distributed to partners,
noncash assets had been already disposed and the
full loss or gain on realization reflected in partners’
capital balances.
For example:
AB Partnership is to be liquidated on September
30, 2016. On this date, its balance sheet is as
follows:
Cash
Non-cash assets
A, loan
Accounts payable
B, loan
A, capital
B, capital
P
185,000
645,000
20,000
(96,000)
(12,000)
(386,000)
(356,000)
The following are liquidation transactions:
In October, 2016.
10/1-31/16 Realized cash of P285,000 from a sale
of non-cash assets of P300,000
10/10/16
Paid liquidation expenses of P4,000
10/15/16
Paid third-party creditors P50,000
10/31/16
Paid partners cash of P370,000
In November, 2016
11/2-30/16 Realized P312,000 from the sale of
the remaining non-cash assets
11/15/16
Paid liquidation expenses of P6,000
11/25/16
Paid third-party creditors in full.
11/30/16
Paid partners cash of P306,000 in
final settlement.
Lump-Sum Liquidation:
Cash
NCA
A/P
A
B
BBL
185,000 645,000 96,000 366,000 368,000
Sale
597,000 (645,000)
( 20,571) (27,429)
LQ Exp (10,000)
( 4,286) ( 5,714)
AP Pd. (96,000)
(96,000)
Pd to P(676,000)
(341,143)(334,857)
Balances
b.
Liquidations in which there are several distributions
during the course of liquidation, oftentimes at
points when there are unrealized non-cash assets
and unpaid third-party creditors. This is called
installment liquidation
By-Installment Liquidation:
October Liquidation
Cash
NCA
A/P
A
B
BBL
185,000 645,000 96,000 366,000 368,000
NCA sale 285,000(300,000)
(6,429) (8,571)
Exp pd
(4,000)
( 1,714) (2,286)
A/P pd (50,000)
(50,000)
Pd to P (370,000)
(210,000)(160,000)
Bals.
46,000 345,000 46,000 147,857 197,143
Computation for safe payments to partners
A
B
TOTAL
Balances, 10/31 357,857
357,143
P 715,000
TPL(345,000)
(147,857) (197,143)
(345,000)
Free interests
210,000
160,000
P370,000
November Liquidation
Cash
NCA
A/P
A
B
Bals,11/1 46,000 345,000 46,000 147,857 197,143
NCA sale 312,000(345,000)
(14,143) (18,857)
Expenses (6,000)
( 2,571) ( 3,429)
A/P paid (46,000)
(46,000)
Cash to P (306,000)
(131,143) (174,857)
Balances
No need for safe payment computations because the
partners’ capital and profit ratios have become identical
by the end of October.
Distribution of partnership cash in liquidation must be
made to creditors first, and then to partners’ accounts
which are always based on free-interest computations.
Loan accounts are prioritized over capital balances only if
they belong to the same partner and only after the
amount payable to that partner has been established by
free interest calculations.
Safe-payment computation is required for every
distribution to partners when non- cash assets remain
unsold (and the profit and loss ratio and the interest
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ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.
ratio at that point are not identical). The purpose of this
calculation is to determine who among the partners have
the free-interests to deserve the payment from the
partnerships.
Cash Distribution Program – Alternate Method
To avoid preparing the calculation for safe-payment
every time there is an installment distribution, a cash
distribution program to partners is prepared. This
statement is prepared just before the start of liquidation,
i.e. before any realization of assets and replaces the
safe-payment calculations by the use of just one
schedule for the numerous distributions to partners
normally occurring in liquidation.
To A: P306,000 x 3/7
B: P306,000 x 4/7
P 131,143
174,857
Please note that payment to partners AFTER the first
P90,000 payment to A will henceforth be in the original
P&L ratio because the capital and profit ratios of the
partners have become identical after the said priority
payment.
For example:
Continuing with the current illustrative case
BBL
/PLR
LAA
P#1
LAA
INTERESTS
A
B
366,000 368,000
3/7
4/7
854,000 644,000
(210,000)
644,000 644,000
PAYMENTS
B
TOTAL
A
90,000
90,000
October payment
10/31/16 Payment, P370,000
A
Priority 1
90,000
Priority 2
120,000
Totals
210,000
-
90,000
90,000
B
160,000
160,000
TOTAL
90,000
280,000
370,000
November payment of P306,000 will be paid in the original
profit and loss ratio of 3:4 to A and B, respectively:
- done –
PARTNERSHIP FORMATION
Claire, Dolly, and Ellery formed the CDE Partnership on
September 1, 2016, with the following assets, measured at
book values in their respective records , contributed by
each partner:
Cash
Accounts
receivable
Plant, Property, &
Equipment (PPE)
CLAIRE
P 486,000
DOLLY
P460,107
ELLERY
P231,903
109,620
-
141,000
2,094,390
450,000
-
A part of Claire’s cash contribution, P324,000, comes from
personal borrowings. Also, the PPE of Claire and Dolly are
mortgaged with the bank for P1,458,000 and P108,000,
respectively. The partnership is to assume responsibility
for these PPE mortgages. The fair value of the accounts
receivable contributed by Ellery is P137,700 while the PPE
contributed by Dolly at this date is P510,300
The
partners have agreed to share profits and losses on a
5:3:2 ratio, to Claire, Dolly, and Ellery, respectively.
1. What is the capital balance for each partner at the
opening of business on September 1, 2016? Claire,
P________;
Dolly,
P________;
and
Ellery,
P________.
2.
What is the capital balance for each partner at
September 1, 2016, instead, if the interest ratio is
agreed at 5:3:2 to Claire, Dolly, and Ellery,
respectively? Claire, P________; Dolly, P________;
and Ellery, P________.
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3.
Explain why Partner Claire was unaffected by the
bonus feature in the ownership agreement among the
partners.
MULTIPLE CHOICE.
Abner and Bimbo have just formed a partnership. Abner
contributed cash of P2,346,000 and office equipment that
cost P1,170,000. The equipment had been used in the sole
proprietorship and had been 80% depreciated. The current
fair value of the equipment is P756,000. An unpaid
mortgage loan on the equipment of P252,000 will be
assumed by the partnership. Abner is to have a 60%
interest in the partnership net assets.
Bimbo is to contribute, only, merchandise with a fair value
of P1,890,000. Both partners agreed on a profit and loss
ratio of 55% to Abner and the balance to Bimbo.
1. To finalize the partnership agreement, Abner should
make additional investment (withdrawal) of cash in the
amount of.
a. P( 36,000)
c. P264,000
b. P(540,000)
d. P(15,000)
In 2016, Nikki and Candy agreed to form a new
partnership under the following general agreements:
(1) Partners’ CONTRIBUTIONS will be on a 5:4 ratio; (2)
PROFIT & LOSS, equally, and (3) CAPITAL CREDITS,
57:43 ratio, respectively to Nikki and Candy. Their
respective
contributions
will
come
from
old
proprietorships they owned.
Nikki contributed the following items and amounts:
ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.
Cash
Equipment (at book value per her
proprietorship records)
P748,800
512,000
Candy contributed the following items at their carrying
amounts in the proprietorship records:
Accounts receivable
P 96,000
Inventory
268,800
Furniture and fixtures
514,560
Intangibles
220,800
All the non-cash contributions are not properly valued. The
two partners have agreed that (a) P7,680 of the accounts
receivable are uncollectible; (b) the inventories are
overstated by P19,200; (c) the furniture and fixtures are
understated by P11,520; and the intangibles include a
patent with a carrying value of P13,440, which must now
be derecognized upon a court order. The rest of the
intangible items are fairly valued.
2. How much is the total depreciable fixed asset recorded
by the partnership?
a. P1,060,800
c. P 944,000
b. P 403,200
d. P 1,116,480
3.
What is the capital balance of Candy after the
formation of the partnership?
a. P1,036,541
c. P1,325,808
b. P1,339,200
d. P1,071,360
PARTNERSHIP OPERATIONS
On January 1, 2016, FRED and GEMMO formed a
partnership by contributing cash of P405,000 and
P270,000, respectively. On February 1, 2016, Partner
FRED contributed an additional P135,000 cash to the
partnership and on August 1, 2016 Partner FRED made a
permanent withdrawal of P67,500. On May 1, 2016,
Partner GEMMO contributed machinery with a fair market
value of P90,000 and a net book value of P75,000 when
contributed. On November 1, 2016 Partner GEMMO
contributed an additional P45,000 cash to the partnership.
Both partners withdrew one-fourth of their salary
allowances in 2016.
The partnership reported a net income of P257,400 in
2016 and the profit and loss agreement are as follows:
a. Interest at 6% is allowed on average capital
balances;
b. Salaries of P2,700 per month to each partner;
c. Bonus to FRED of 10% of net income after interest,
salaries, and bonus; and
d. Balance to be divided in the ratio of 6:4 to FRED and
GEMMO, respectively.
Required:
1. Prepare a schedule for the division of net profit for
2016 with supporting computations when appropriate.
2. Prepare a statement of the partners’ capital balances
for 2016 under the following assumptions:
a. Partners’ interests and salaries are treated as
factors to fairly distribute the net income; and
b. Partners’ interests and salaries are to be treated as
operating expenses.
MULTIPLE CHOICE
The partnership agreement of ROBERT, ROY and BOBBY
provides for the division of net income as follows:

ROY, who manages the partnership is to receive a
salary of P35,200 per year.

Each partner is to be allowed interest at 20% on
beginning capital.

Remaining profits are to be divided equally.
withdrawals of P16,000, and P12,800, respectively. ROY
had a temporary drawing of P4,500. No other investments
or withdrawals were made during 2016. On January 1,
2016, the capital balances were ROBERT, P208,000; ROY,
P240,000; and BOBBY, P224,000.Total capital at year-end
was P806,400.
1.
Compute the capital balance of each partner at yearend:
ROBERT
ROY
BOBBY
a.
P257,500
P297,800
P251,100
b.
258,300
297,000
251,100
c.
250,665.6
292,800
244,266.4
d.
258,300
297,000
251,100
The YES Partnership started operations on January 2, 2016
with the following capital balances:
YVES
P 88,000
ERNEST
64,000
SERGE
90,000
Their profit and loss agreement has the following
provisions:

YVES will be given an annual salary of P16,000 and
SERGE P8,000.

All partners will be given 10% interest on beginning
capital balances every year.

The balance of the profit, or the loss, will be divided
on a 5:2:3 to YVES, ERNEST, and SERGE,
respectively.

Each partner is allowed to withdraw up to P8,000
every year
In 2016, partnership operations resulted in a net loss of
P16,000, while in 2017, it was a net profit of P32,000. All
partners withdrew the maximum amount of P8,000 each
year.
2. Calculate the balance of YVES’ capital at the end of
2015
a. P 72,700
c. P49,600
b. P 77,600
d. P64,900
3.
Calculate the balance of Ernest’s capital at the end of
2016.
a. P 82,080
c. P81,760
b. P 44,076
d. P77,600
PARTNERSHIP DISSOLUTION
A. ADMISSION OF A NEW PARTNER
HERBERT and IRENEO are partners sharing profits and
losses in the ratio of 60% and 40%, respectively. The
partnership balance sheet at August 30, 2016 follows:
Cash
Other assets
Ireneo, Loan
Total
P 140,850
Accounts payable
P 13,500
Herbert, Loan
Herbert, capital
Ireneo, capital
Total
5,850
81,000
40,500
P140,850
At this date, JOSHUA was admitted as a partner for a
consideration of P43,875 cash for a 40% interest in capital
and in profits.
1. Assume JOSHUA is admitted by purchase of 40% each
of the original partners’ interest:
A. Prepare the journal entry to record the admission
of JOSHUA.
B. Calculate the amounts received by HERBERT,
P_________ and IRENEO, P________ for their
respective partnership interest transferred to
JOSHUA.
During 2016, ROBERT invested an additional P12,800 in
the partnership. ROY and BOBBY had permanent capital
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P
12,150
119,700
9,000
ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.
2.
Assume JOSHUA is admitted by investing the P43,875
to the partnership:
a. Prepare the entry for the admission of JOSHUA.
MULTIPLE CHOICE
MYRNA and NORMA are partners sharing profits and losses
in the ratio of 60% and 40%, respectively. The partnership
balance sheet at August 30, 2016 follows:
Cash
Other assets
NORMA,
Loan
Total
P
27,000
266,000
20,000
P 313,000
Accounts payable
MYRNA, Loan
MYRNA, capital
P 30,000
13,000
180,000
NORMA, capital
Total
90,000
P313,000
At this date, OLGA was admitted as a partner for a
consideration of P97,500 cash for a 40% interest in capital
and in profits.
1. Assume OLGA is admitted by purchase of 40% each of
the original partners’ interest, determine how the
P97,500 will be apportioned to MYRNA and NORMA
a. MYRNA, P65,700 and NORMA, P31,800
b. MYRNA, P64,800 and NORMA, P32,700
c. MYRNA, P65,500 and NORMA, P32,000
d. MYRNA, P65,900 and NORMA, P31,600
2.
Assume OLGA is admitted by investing the P97,500
into the partnership, determine the effects of any
bonus over the capital balances of the original
partners:
a. MYRNA, P(19,800) and NORMA, P(29,700)
b. MYRNA, P 18,000 and NORMA, p 29,700
c. MYRNA, P(29,700) and NORMA, P(19,800)
d. MYRNA, P(18,675) and NORMA P(12,450)
The equity accounts of the partnership of KARDO and
DIANA at March 31, 2016 are as follows:
KARDO, capital
P512,000
DIANA , capital
256,000
KARDO, loan (credit)
48,000
DIANA, loan (debit)
24,000
The partners share profits and losses in the ratio of 3:2,
respectively. The partnership is in desperate need of cash,
and the partners agree to admit JACK as a partner with a
1/3 interest in the capital and profits and losses upon his
investment of P192,000.
3. Immediately after JACK’s admission, what should be
the capital balances of KARDO, DIANA, and JACK,
respectively:
a. P598,000; P222,000; P410,000
b. P480,000; P480,000; P480,000
c. P544,000; P256,000; P400,000
d. P435,200; P204,800; P320,000
The following are the capital balances of ABC Partnerships
at August 1, 2016:
Albert
(40% P&L)
P220,000
Bernard (40% P&L)
160,000
Conrad (20% P&L)
110,000
Dennis invests P270,000 in cash for a 30% ownership
interest. The payment goes to the original partners.
Revaluation/adjustment in asset is to be recognized upon
Dennis’ admission.
4. How much adjustment in asset should be recorded and
what is Dennis’ beginning capital balance.
1.
P410,000 and P270,000
2.
P140,000 and P270,000
3.
P140,000 and P189,000
4.
P410,000 and P189,000
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The following are the condensed balance sheets of G&N
Partnership at August 30, 2016, at which date Ellery is to
be admitted with a 30% interest in capital for an
investment of P55,000.
Book Value
Fair Value
Cash
P 20,000
P 20,000
Other assets
503,000
417,000
Total assets
P523,000
437,000
Current liabilities
P 54,000
P 54,000
Non current liabilities
269,000
275,000
Gemmo, capital
120,000
Norma, capital
80,000
Total equities
P523,000
Gemmo and Norma share profits at 60% and 40%,
respectively.
5. What will be the respective capital balances of Gemmo,
Norma, and Ellery after the new partner’s admission.
a. P68,460, P45,640, and P48,900
b. P48,900, P45,640, and P68,460
c. P45,640, P68,460, and P48,900
d. P64,860, P49,240, and P48,900
B. RETIREMENT OF A PARTNER
IV
The following balances as at October 31, 2016 for the
Partnership of KATHY, LILIA, and MINDA were as follows:
Cash
P 50,000 Liabilities
P
15,000
Lilia, Loan
15,000 Kathy, loan
22,500
Non-cash
400,000 Kathy,
105,000
assets
capital
Lilia, capital
97,500
Minda,
225,000
capital
Totals
P465,000 Totals
P465,000
KATHY has decided to retire from the partnership on
October 31. Partners agreed to adjust the non-cash assets
to their fair market value of P490,000. The estimated
profit to October 31 is P100,000. KATHY will be paid
P173,000 for her partnership interest inclusive of her loan
which is repaid in full. Their profit and loss ratio is 3:3:4 to
KATHY, LILIA, and MINDA, respectively.
1. Prepare entries for the retirement of Kathy from the
partnership.
2. What will be the balance of LILIA’s capital account
after the retirement of KATHY? P__________.
MULTIPLE CHOICE
The following balances as at October 31, 2016 for the
Partnership of WILMA, XELYN
Cash
P 80,000
XELYN,
24,000
Loan
Non-cash
640,000
assets
Totals
P744,000
, and YSKA were as
Liabilities
P
WILMA, loan
WILMA,
capital
XELYN,
capital
YSKA, capital
Totals
follows:
24,000
36,000
168,000
156,000
360,000
P744,000
WILMA has decided to retire from the partnership on October
31. Partners agreed to adjust the non-cash assets to their fair
market value of P784,000. The estimated profit to October 31
is P160,000. WILMA will be paid P276,800 for her partnership
interest inclusive of her loan which is to be paid in full. Their
profit and loss ratio is 3:4:3 to WILMA, XELYN, and YSKA,
respectively.
1. What will be the balance of XELYN’s capital account after
the retirement of WILMA.
a. P 258,888
c. P 264,114
b.
ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.
Partnership of COCO, PIOLO, and DANIEL and their profit and
loss ratios were as follows:
Assets
P
1,200,000
Coco, loan
P
60,000
Coco, capital (30%)
280,000
Piolo, capital (30%)
260,000
Daniel, capital (40%)
600,000
Total equities
P 1,200,000
COCO decided to retire from the partnership and by mutual
agreement, the assets were adjusted to their current fair
value of P1,440,000. The partnership paid P408,000 cash for
COCO’s equity in the partnership, exclusive of the loan which
was repaid in full.
2. The capital balances of PIOLO and DANIEL, respectively,
after COCO’s retirement from the partnership was:
a.
P360,000; P855,000 c. P300,000; P675,000
b. P288,000; P684,000
d. P308,000; P664,000
The MORICATA Partnership has the following capital balances
and P&L ratio at August 4, 2016.
Mora, capital (30%)
P129,750
Rico, capital
(30%)
108,750
Cara, capital
(20%)
80,000
Tano, capital (20%)
71,500
P390,000
Cara has decided to withdraw from the partnership and by
agreement of all the partners, will be paid P90,000 from
partnership cash.
3. Immediately after Cara’s retirement, the capital ratio of
Mora, Rico, and Tano, respectively will be
a. 33-1/3%, 33-1/3%, and 33-1/3%
b. 40
%, 34
%, and 26
%
c. 37-1/2%, 37-1/2%, and 25
%
d. 42
%, 35
%, and 23
%.
A, B, and C formed a partnership on January 2, 2015 with the
following contributions:
A
P100,000
B
200,000
C
300,000
The partners agreed on a capital ratio of 1:2:3 upon formation
and P&L ratio of 3:3:4, respectively. The partnership reported
a net loss of P20,000 for 2015. Also, at the end of 2015, C has
decided to withdraw from the firm and was paid P250,000
from partnership cash.
On April 1, 2016, D was admitted as a partner with an
investment of P160,000. He is given a share in capital of
40%and in profits, 30% the old partners have agreed to retain
their old ratio over the remaining profit and loss share of
70%. The partnership reported a net profit of P21,000 for
2016, one-third of which is deemed earned as of the end of
the year’s first quarter’s operation.
4. Determine the capital balances of A and B, respectively,
as of December 31, 2015.
a. P 94,000 & P194,000 c. P 194,000 & P115,000
b. P 115,000 & P215,000 d. P 165,000 & P215,000
5.
Determine the capital balances of
respectively on December 31, 2016.
a. P98,540, P75,720 & P113,840
b. P93,640, P70,820 & P109,640
c. P100,990, P78,170 & P120,140
d. P104,000, P204,000 & P203,000
C. INCORPORATION
A,
B,
and
C,
adjustment of understated inventory by P10,000, and
recognition of additional depreciation of P2,000.
The corporation’s ordinary shares is to have a par value of
P200 each and the partners are to be issued corresponding
shares equivalent to 80% of their adjusted capital balances.
The partnership balance sheet at December 31, 2016
follows:
Cash
P 60,000 Liabilities
P 86,000
Accounts
Acc.
receivable
50,000 depreciation
4,000
Inventory
70,000 Jojo, capital
70,000
Equipment
40,000 Mar, capital
60,000
Total
P 220,000 Total
P 220,000
1. Determine the total credit to APIC upon incorporation of
the partnership
a. P 13,500
c. P 12,000
b. P 26,400
d. P 132,000
2.
The number of ordinary shares issued to Partner Mar is
a. 568
c. 244
b. 600
d. 660
On January 2, 2016, VENUS and WILMA dissolved their
partnership and transferred all assets and liabilities to a
newly formed corporation. At the date of incorporation, the
fair value of the net assets was P12,000 more than the
carrying amount on the partnership’s books. Of which
P7,000 was assigned to tangible assets and P5,000 was
assigned to patent. VENUS and WILMA were each issued
5,000 shares of the corporation’s P1 par common stock.
3. Immediately following incorporation, additional paid-in
capital in excess of par should be credited for
a. P68,000
c. P77,000
b. P70,000
d. P82,000
PARTNERSHIP LIQUIDATION.
1. LUMP-SUM
V
PEDRO, ROGER, and TONIO plan to liquidate their
partnership. They have always shared losses and gains in a
2:3:5 ratio, and on the day of the liquidation their balance
sheet appeared as follows:
PEDRO, ROGER, and TONIO
Balance Sheet
December 31, 2016
Assets
Liabilities and Capital
Cash
P68,750 Accounts payable
P130,370
TONIO, loan
5,000
Other assets
451,250 PEDRO, Capital
76,250
ROGER, loan
50,000 ROGER, capital
250,880
_______ TONIO, capital
107,500
Total assets
P570,000 Total equities
P570,000
The other assets are sold for P212,500, and assume the
following information on partners’ net assets, exclusive of
their respective partnership interests at that point.
Assets
Liabilities
PEDRO
P687,500
562,500
ROGER
P375,000
350,000
TONIO
P 167,000
161,875
Required: Prepare general journal entries to record the sale
of the other assets and the distribution of the cash to the
proper parties. Show supporting computations in good form.
Partners JOJO and MAR, who share profits and losses equally,
have decided to incorporate the partnership at December 31,
2014. The partnership net assets after the following
adjustments will be contributed in exchange for shares of
stocks from the corporation.
i. provision of allowance for doubtful accounts, P6,000,
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ii.
iii.
MULTIPLE CHOICE
GYLIN, MARIA, and CARLA decided to liquidate their
partnership on November 30, 2016. Their capital balances
and profit and loss ratio are as follows:
Capitals
P & L Ratio
GYLIN
P 800,000
40%
MARIA
960,000
30%
CARLA
320,000
30%
ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.
The net income from January 1, 2016 to November 30, 2016
is P704,000. On November 30, 2016, the cash balance is
P640,000, and that of liabilities is P1,440,000.
GYLIN is to receive P883,200 in the settlement of her interest.
1. Calculate: (1) The loss on realization, and (2) the amount
to be realized from the sale of non-cash assets?
a. (1) P496,000; (2) P3,088,000
b. (1) 248,000; (2) 5,100,000
c. (1) 620,000; (2) 3,860,000
d. (1) 552,000; (2) 3,860,000
The accounts of the Partnership of R, S, and T at the end of its
fiscal year on November 30, 2016 are as follows:
Cash
P 166,000 Loan from S
P 32,000
Other non-cash
R, capital (30%)
426,000
assets
1,132,000
Loan to R
24,000 S, Capital (50%)
218,000
Liabilities
420,000 T, capital (20%)
226,000
2. If in the first cash distribution, S received P80,000, which
of the following statements is incorrect?
a. Total amount distributed to partners is P538,000.
b. Total amount paid to creditors is P420,000.
c. Total amount realized from the non-cash assets is
P958,000
d. R received an amount equal to P300,000.
The following condensed balance sheet is prepared for SAMMY
and JOKER, who share profits and losses in the ratio of 60:40,
respectively:
Other assets
P 720,000
Accounts
P192,000
payable
Sammy, loan
32,000 Sammy, capital
312,000
Joker, capital
248,000
Total
P 752,000 Total
P 752,000
3. The partners have decided to liquidate the partnership. If
the other assets are sold for P770,000, what amount of
the available cash should be distributed to Sammy?
a. P310,000
c. P342,000
b. P312,000
d. P390,000
2. BY INSTALLMENT
VI
, the balance sheet of CDO
Partnership is as follows:
On December 31, 2016
Cash
Assets
Noncash assets
Loan to Oscar
P 15,360
271,360
10,240
_______
P296,960
Liabilities
Account Payable
SlryPyble, Cherry
Dorie, Loan
Cherry, Capital
Dorie, Capital
Oscar, Capital
P51,200
10,240
20,480
38,912
73,728
102,400
P 296,960
Profit and losses were shared as follows; CHERRY, 30%;
DORIE, 30%; OSCAR, 40%. It was decided to liquidate the
business. The following is a summary of the realization and
liquidation activities.
Book
Value
Cash Paid
of Asset
Cash
Expense
Liabiliti
to
Realized
Collected
s
es
Partners
Paid
Paid
1st
Period
133,120 81,920
4,100
40,000
41,980
2nd
Period
76,800
51,200
4,800
11,200
40,000
3rd
Period
61,440
35,840
3,600
38,640
Total
271,360 168,960
12,500
51,200
120,620
Required:
1. Prepare a statement of liquidation for each period.
2. Prepare a program to show how cash is to be distributed
to partners.
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MULTIPLE CHOICE
The accounts of the partnership of PBA at December 31, 2016
are as follows:
Cash
Non-cash
assets
Loan to P
P 132,000
Total
P1,322,000
1,166,000
24,000
Liabilities
Loan from B
P, capital
B, capital
A, capital
Total
P 100,000
32,000
330,000
586,000
274,000
P1,322,000
They divide profits and losses 3:5:2 to P, B, and A
respectively. They have decided to liquidate the partnership at
this date.
1. Determine the amount payable to Partner A if cash is paid
just before the start of liquidation on December 31, 2016.
a. P 28,286
c. P 35,357
b. P 35,300
d. P 35,120
2.
Determine the amount Partner P and Partner B would
have received by the time Partner A would have received
a cumulative amount of P72,000.
a. R, P3,000 and S, P113,000
b. R, P3,516 and S, P140,530
c. R, P3,750 and S, P141,250
d. R, P3,516 and S, P145,200
On January 1, 2016,
the partners CARLO, DIEGO, and
EDGAR, who share profits and losses in the ratio of
5:3:2, respectively, decided to liquidate their
partnership. On this date the partnership condensed
balance sheet was as follows:
Cash
Other assets
Liabilities
P 96,000
Carlo, capital
128,000
Diego, capital
144,000
Edgar, capital
112,000
Total
P 480,000 Total
P 480,000
On January 15, 2016, the first cash sale of other assets with a
carrying amount of P240,000 realized P192,000. Safe
installment payments were made the same date.
3.
P
How much cash
CARLO
a.
P 30,000
b.
P 80,000
c.
P 24,000
d.
P120,000
80,000
400,000
should be distributed to each partner?
DIEGO
EDGAR
P102,000 P 88,000
P 90,000 P 70,000
P 81,600 P 70,400
P 72,000
P48,000
The partnership ABC is currently liquidating and on February
15, 2016, their balances in capital and their profit and loss
(P&L) ratios are shown below:
Ariston, capital (P&L 50%)
Bernardo, capital (P&L 30%)
Conrado, capital (P&L 20%)
P19,000
18,000
(12,000)
Assume non-cash assets have been all disposed and Conrado
has promised to pay his deficiency in a week’s time,
4.
Calculate the amount to be received by one of the
partners if cash is paid immediately on February 15, 2016.
a. Ariston, P13,000
c. Bernardo, P14,000
b. Bernardo, P12,000
d. Ariston,
P11,500
Claudia, Petra, Mona, and Hilda are partners who share profits
and losses at 40%, 30%, 20%, and 10%, respectively. Since
two of them have given intention to withdraw, they have
decided to liquidate the partnership instead. At this point, the
capital balances of the partners are as follows:
Claudia
P 48,000
Petra
21,600
Mona
34,400
Hilda
16,000
5. Which of the following statement is true?
a. The first available P1,600 will go to Hilda
ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.
b.
c.
d.
Claudia will be the last to receive cash
The first available P2,400 will go to Mona.
Claudia will collect a portion of any available cash
before Hilda receives anything.
The partnership balance sheet shows cash of P8,000, noncash assets of P22,400, and no liabilities.
6.
ASSER, JING, and TONY are in the process of liquidating their
partnership. They have the following capital balances and
profit and loss percentages:
Capital Balance Profit and Loss %
ASSER
8,000 debit
20%
JING
28,800 credit
50%
TONY
9,600 credit
30%
Assuming no liquidation expenses, what safe payments
could be made?
a. P8,000 split between JING and TONY by a ratio of
5:3, Respectively
b. P8,000 to JING only
c. P1,600 to ASSER, P4,000 to JING and P2,400 to TONY
d. P28,800 to JING only.
CLASSROOM DRILL
CLAIRE, DAISY, and ELSIE formed the CDE Partnership on
August 1, 2016, with the following assets, measured at
fair market values, contributed by each partner:
Cash
Accounts
receivable
Plant, Property, &
Equipment (PPE)
CLAIRE
P 324,000
DAISY
P108,000
ELSIE
P129,600
73,080
-
91,800
1,620,000
340,200
-
A part of CLAIRE’s cash contribution, P216,000, comes
from personal borrowings. Also, the PPE of CLAIRE and
DAISY are mortgaged with the bank for P972,000 and
P72,000, respectively. The partnership is to assume
responsibility for these PPE mortgages. The partners have
agreed to share profits and losses on a 5:2:3 ratio, to
CLAIRE, DAISY, and ELSIE, respectively.
4.
5.
What is the capital balance for each partner at the
opening of business on August 1, 2016?
a. CLAIRE, P1,045,080; DAISY, P376,200; &
ELSIE, P221,400
b. CLAIRE, P1,161,200; DAISY, P418,000; & ELSIE,
P246,000
c. CLAIRE, P1,987,500; DAISY, P189,000; & ELSIE,
P217,500
d. CLAIRE, P1,095,120; DAISY, P547,560; & ELSIE,
P182,520
What is the capital balance for each partner at August
1, 2016, instead, if the interest ratio is given at 5:3:2
to CLAIRE, DAISY, and ELSIE, respectively?
a.
b.
c.
d.
CLAIRE, P730,080; DAISY, P730,080; & ELSIE, P365,040
CLAIRE,P985,608; DAISY, P492,804; & ELSIE, P164,268
CLAIRE,P1,987,500;DAISY,P189,000;& ELSIE, P217,500
CLAIRE,P821,340;
DAISY,P492,804;
&
ELSIE,
P328,536
On January 1, 2016, FRIDA and GLACE formed a
partnership by contributing cash of P405,000 and
P270,000, respectively. On February 1 2016, Partner
FRIDA contributed an additional P135,000 cash to the
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partnership and on August 1, 2016 Partner FRIDA made a
permanent withdrawal of P67,500. On May 1, 2016,
Partner GLACE contributed machinery with a fair market
value of P90,000 and a net book value of P75,000 when
contributed. On November 1, 2016 Partner GLACE
contributed an additional P45,000 cash to the partnership.
Both partners withdrew one-fourth of their salary
allowances in 2016.
The partnership reported a net income of P257,400 in
2016 and the profit and loss agreement are as follows:
b. Interest at 6% is allowed on average capital
balances;
b. Salaries of P2,700 per month to each partner;
c. Bonus to FRIDA of 10% of net income after interest,
salaries, and bonus; and
d. Balance to be divided in the ratio of 6:4 to FRIDA
and GLACE, respectively.
6.
Determine how the net income will be allocated to the
partners:
a. FRIDA, P160,000 and GLACE, P126,000
b. FRIDA, P 180,000 and GLACE, P106,000
c. FRIDA, P170,000 and GLACE, P116,000
d. FRIDA, P153,000 and GLACE, P104,400
7.
Determine the capital balances of the partners at
December 31, 2016:
a. FRIDA, P617,400 and GLACE, P501,300
b. FRIDA, P551,000 and GLACE, P686,000
c. FRIDA, P688,000 and GLACE, P449,000
d. FRIDA, P683,000 and GLACE, P554,000
HAIDEE and ISABEL are partners sharing profits and losses
in the ratio of 60% and 40%, respectively. The partnership
balance sheet at August 30, 2016 follows:
Cash
Other assets
Isabel, Loan
ADVAC1- Partnership
P
12,150
119,700
9,000
Accounts payable
Haidee, Loan
Haidee, capital
Isabel, capital
P 13,500
5,850
81,000
40,500
EXCEL PROFESSIONAL SERVICES, INC.
Total
P 140,850
Total
P140,850
At this date, JOSIE was admitted as a partner for a
consideration of P43,875 cash for a 40% interest in capital
and in profits.
8. Assume JOSIE is admitted by purchase of 40% each
of the original partners’ interest, determine how the
P43,875 will be apportioned to HAIDEE and ISABEL
a. HAIDEE, P32,850 and ISABEL, P15,900
b. HAIDEE, P32,450 and ISABEL, P16,300
c. HAIDEE, P29,565 and ISABEL, P14,310
d. HAIDEE, P32,950 and ISABEL, P15,800
9.
Assume JOSIE is admitted by investing the P43,875
to the partnership, determine the effects of any bonus
over the capital balances of the original partners:
a. HAIDEE, P( 9,900) and ISABEL, P(14,850)
b. HAIDEE, P 9,000 and ISABEL, p 14,850
c. HAIDEE, P (14,850) and ISABEL, P( 9,900)
d. HAIDEE, P (13,365) and ISABEL P ( 8,910)
The following balances as at October 31, 2016 for the
Partnership of KARLO, LORNA, and MYRNA were as
follows:
Cash
Lorna, Loan
Non-cash
assets
P 50,000
15,000
400,000
Liabilities
Karlo, loan
Karlo,
capital
Lorna,
capital
Myrna,
capital
Totals
P 15,000
22,500
105,000
97,500
225,000
12. Determine the amount Partner N and Partner O would
have received by the time Partner P would have
received a cumulative amount of P40,500.
a. N, P1,785 and O, P72,650
b. N, P1,578 and O, P70,265
c. N, P1,875 and O, P70,625
d. N, P1,688 and O, P63,562
The following condensed balance sheet is prepared for
QUIEL and ROGER, who share profits and losses in the
ratio of 60:40, respectively:
Other assets
P 405,000
Quiel, loan
Total
18,000
P 423,000
Accounts
payable
Quiel, capital
Roger, capital
Total
On January 1, 2016, the partners SELYA, TESSA, and
URSULA, who share profits and losses in the ratio of 5:3:2,
respectively, decided to liquidate their partnership. On this
date the partnership condensed balance sheet was as
follows:
P
KARLO has decided to retire from the partnership on
October 31. Partners agreed to adjust the non-cash assets
to their fair market value of P490,000. The estimated
profit to October 31 is P100,000. KARLO will be paid
P173,000 for his partnership interest inclusive of his loan
which is repaid in full. Their profit and loss ratio is 3:3:4 to
KARLO, LORNA, and MYRNA, respectively.
10. What will be the balance of LORNA’s capital account
after the retirement of KARLO.
c. P 129,444
c. P 124,449
d. P 144,429
d. P 149,424
Total
P 270,000
The accounts of the partnership of NOP at December 31,
2016 are as follows:
Cash
P 74,250 Liabilities
P 56,250
Non-cash
Loan from O
18,000
assets
655,875
Loan to N
13,500 N, capital
185,625
O, capital
329,625
P, capital
154,125
Total
P743,625 Total
P743,625
VENUS and WILMA partnership’s balance
December 31, 2015, reported the following:
Total assets
P 100,000
Total liabilities
20,000
Venus, capital
40,000
Wilma, capital
40,000
P465,000
P465,000
They divide profits and losses 3:5:2 to N, O, and P
respectively. They have decided to liquidate the
partnership at this date.
11. Determine the amount payable to Partner P if cash is
paid just before the start of liquidation on December
31, 2016.
b. P 16,750
c. P 17,679
c. P 15,911
d. P 17,560
45,000
225,000
Liabilities
Selya, capital
Tess, capital
Ursula, capital
Total
P
54,000
72,000
81,000
63,000
P270,000
On January 15, 2016, the first cash sale of other assets
with a carrying amount of P135,000 realized P108,000.
Safe installment payments were made on the same date.
14. How much cash should be distributed to each partner?
SELYA
TESSA
URSULA
a.
P15,000
P51,000
P44,000
b.
P40,000
P45,000
P35,000
c.
P55,000
P33,000
P22,000
d.
P13,500
P45,900
P39,600
sheet
at
On January 2, 2016, VENUS and WILMA dissolved their
partnership and transferred all assets and liabilities to a
newly formed corporation. At the date of incorporation, the
fair value of the net assets was P12,000 more than the
carrying amount on the partnership’s books. Of which
P7,000 was assigned to tangible assets and P5,000 was
assigned to patent. VENUS and WILMA were each issued
5,000 shares of the corporation’s P1 par common stock.
15. Immediately following incorporation, additional paid-in
capital in excess of par should be credited for
a. P68,000
c. P77,000
b. P70,000
d. P82,000
 - end of P2.1901 -
Page 10 of 10
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175,500
139,500
P 423,000
13. The partners have decided to liquidate the partnership.
If the other assets are sold for P346,500, what amount
of the available cash should be distributed to QUIEL?
c. P136,000
c. P122,400
d. P156,000
d. P195,000
Cash
Other assets
Totals
P108,000
ADVAC1- Partnership