Partnership by Robert Carl Arrojo, CPA
PARTNERSHIP FORMATION
PROBLEM 1
Vida, Vina, and Vita, sharing profits and losses 50%, 30% and 20%, have capital credit balances of
P400,000, P300,000 and P200,000, respectively. They decided to admit a new partner, Vera to a 30%
interest in the partnership upon Vera’s investment of an amount equal to five-sixths of her capital credit with
no asset adjustment recognized. Immediately after the admission of Vera, the capital credit balance of Vina
will be:
A. P300,000
B. P330,000
C. P318,000
D. P282,000
PROBLEM 2
Merry is a single proprietor of a dressmaking business and agrees to make a partnership business with Jessa who
is to contribute cash to give her a 1/3 interest in the business. On November 30, 2015, right before the partnership
formation, Merry has a total business assets of P41,000 and a liability of P8,000. The two agreed that in order to
establish Merry’s interest in her business, an allowance for doubtful accounts of P426 and an increase in the
inventory value of P3,000, be considered.
How much cash should Jessa invest in the partnership business?
A. P 14,787
C. P 17,787
B. P 15,213
D. P 18,213
PROBLEM 3
On January 1, 2024, HOSICO and STEAK agreed to form a partnership. The following are their assets
and liabilities
Accounts
HOSICO
STEAK
Cash
P 150,000
P 90,000
Accounts Receivable
90,000
60,000
Inventories
320,000
330,000
Machinery
550,000
490,000
Accounts Payable
250,000
150,000
Notes Payable
120,000
75,000
HOSICO decided to pay-off his notes payable from his personal assets. It was also agreed that STEAK
should have allowance for doubtful accounts amounting to P 24,000 and HOSICO Inventories are
overstated by 20,000. The partnership agreement provides for a profit or loss ratio and capital interest of
40% to Hosico and rest to STEAK. STEAK is willing to invest or withdraw cash from the partnership to
comply with the agreement. How much cash will be presented in the partnership’s statement of financial
position?
A. 779,000
B. 539,000
C. 850,000
D. 740,000
PROBLEM 4
On March 1, 2025, Jose and Kiko decide to combine their business to form a
partnership. Their balance sheets prior to any formation showed the following figures:
Cash
Accounts Receivable
Inventories
Furniture and Fixtures, net
Office Equipment, net
Prepaid Expenses
Total
₱
Accounts Payable
Capital
Total
They agreed with the following terms and conditions:
•
Two percent uncollectible charges.
Jose
18,000
37,000
60,000
60,000
23,000
12,750
₱ 210,750
Kiko
7,500
27,000
39,000
18,000
5,500
6,000
₱ 103,000
91,500
36,000
119,250
₱ 210,750
67,000
₱ 103,000
₱
Revaluation of furniture and fixtures: Jose, value set at ₱62,000 and Kiko, correction
of
depreciation at ₱500.
•
Acceptance of ₱2,000 as rent expense for Jose and claims voucher for salary
amounting to
₱1,600 for Kiko.
•
Value the inventories at market price for Jose of ₱59,000 and Kiko of ₱42,000.
Total assets after formation
A. ₱315,970
B. ₱313,750
C. ₱321,530
D. ₱305,970
•
Problem 5
In 2023, Norma and Celso agreed to form a new partnership under the following general agreements:
Partners’ contributions will be on a 5:4 ratio; (2) Profit and loss, 5:5, and (3) Capital credits 57:43 ratio,
respectively to Norma and Celso. Their respective contributions will come from old proprietorships they
owned.
Norma contributed the following items and amounts:
Cash
P 748,800
512,000
Equipment (at book value per her proprietorship records)
Celso contributed the following items at their carrying amounts in the proprietorship records:
Accounts receivable
Inventory
Furniture and fixtures
96,000
268,800
514,560
220,800
Intangibles
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.
What is the capital balance of Celso after the formation of the partnership?
A. 1,036,541
C. 1,325,808
B. 1,339,225
D. 1,071,360
PARTNERSHIP FORMATION THEORIES
1. In the absence of partnership agreement to the contrary, what is the obligation of the partners as
regards to capital contribution?
A.
Equally
B.
Based on their profit agreement
C.
Based on their loss agreement
D.
Based on their withdrawal agreement
2. When property other than cash is invested in a partnership, at what amount should the noncash
property be credited to the contributing partner’s capital account?
A.
Fair value at the date of contribution
B.
Contributing partner’s original cost.
C.
Assessed valuation for property tax purposes.
D.
Contributing partner’s tax basis.
3. Four individuals who were previously sole proprietors form a partnership. Each partner contributes
inventory and equipment for use by the partnership. What basis should the partnership use to record the
contributed assets?
A.
Inventory at the lower of FIFO cost or market.
B.
Inventory at the lower of weighted-average cost or market.
C.
Equipment at each proprietor’s carrying amount.
D.
Equipment at fair value.
4. At the date of partnership formation of a partnership, the amount credited to A’s capital is less than the
fair value of the property contributed. Which is the most valid reason?
A.
B.
The property contributed by A is impaired.
The property contributed by A has been subjected to positive asset revaluation.
C.
D.
Bonus has been given by partner A to the other partners.
Goodwill arising from partnership formation has been recognized
5. The partnership agreement is an express contract among the partners (the owners of the business). Such
an agreement generally does not include
A.
A limitation on a partner’s liability to creditors.
B.
The rights and duties of the partners.
C.
The allocation of income between the partners.
D.
The rights and duties of the partners in the event of partnership dissolution.
PARTNERSHIP OPERATION
PROBLEM 1
Mr. PP and Ms. KK are partners in a construction business located in Tabuk City. The
profit and loss agreement contains the following provisions:
1) Salaries of ₱35,000 and ₱40,000 for PP and KK, respectively.
2) A bonus to PP equal to 10% of net income after the bonus.
3) Interest on weighted average capital at the rate of 8%. Annual drawings in excess of
₱20,000 are considered to be a reduction of capital for purposes of this calculation.
4) Profit and loss percentage of 40% and 60% for PP and KK, respectively.
Capital and drawing activity of the partners for the year 2014 are as follows:
PP Capital
PP Drawing
KK Capital
KK
Drawing
Beginning balance
₱120,000
₱ 0
₱ 60,000
₱ 0
April 1
20,000
June 1
15,000
20,000
September 1
30,000
November 1
15,000
40,000
Ending balance
₱170,000
₱30,000
₱100,000
₱20,000
Assuming net income for 2015 of ₱132,000 before any allocations, how much profit should be
allocated to Mr. PP?
A. ₱69,660
B. ₱69,747
C. ₱72,774
D. ₱69,774
PROBLEM 2
AY and AN are partners who have the agreement to share profit and loss in the following manner:
AY
AN
Annual Salaries
P 52,200 P 51,800
Interest on average balances
5%
10%
Bonus (based on net income after salaries and interest)
10%
Remainder
50%
50%
During the year ended December 31, 2023, the partnership generated a profit of P115,000 before any
deductions. AY’s and AN’s average capital balances for the year are P120,000 and P60,000, respectively.
Income is distributed to the partners only as far as it is available. If AN received 57,300 as his share in the
net income for the year ended 2023, how much is the profit of the partnership?
A. 120,000
B. 115,000
C. 110,000
D. 112,500
PROBLEM 3
CC Partnership began operations on June 1, 2023. On that date, CY and CR have capital credits of P35,000
and P48,000, respectively. The partnership has the following profit-sharing plan:
a. 10% interest on partners’ capital balances at the end of the year
b. P12,000 and P15,000 annual salaries for CY and CR, respectively
c. Remaining profit will be divided to CY and CR on a 3:2 ratio, respectively
During the year, CY invested P30,000 worth of merchandise and withdrew P8,000 cash, while CR invested
P24,000 cash. The partnership earned a profit of P53,275 during the year. How much is CY’s capital
balance at the end of 2023?
A. P82,725
B. P85,325
C. P84,475
D. P88,965
PROBLEM 4
Hans, Lance, Arthur and Sidd own a publishing company that they operate as a partnership. Their
agreement includes the following: Distribution is to the extent of the earnings only.
• Hans will receive a salary of P20,000 and a bonus of 3% of income after all the bonuses
• Lance will receive a salary of P10,000 and a bonus of 2% of income after all the bonuses
•
All the partners are to receive the following: Hans – P5,000; Lance – P4,500; Arthur – P2,000; and
Sidd – P4,700, representing 10% interest on their average capital balances.
• Any remaining profits are to be divided equally among the partners
• Partnership reports a profit of P40,000
How much is Lance’s share in the profit if profit is distributed in the following order of priority: Interest
on invested capital, then bonuses, then salary, and then according to profit and loss percentage?
A. P12,560
B. P13,235.75
C. P12,433
D. P12,830.75
PROBLEM 5
Chandler, Monica, Ross, and Phoebe own a coffee shop business that they operate as a partnership. The
partnership agreement includes the following:
Chandler receives a salary of P 30,000 and a bonus of 3% of income after all bonuses
Monica receives a salary of P 20,000 and a bonus of 2 % of income before all bonuses
All partners are to receive a 10 % interest on their average capital balances
The average capital balances are as follows: Chandler, P 60,000, Monica , P 48,000, Ross, P 35,000,
and Phoebe P 50,000
Any remaining profits and losses are to be divided equally among the partners.
If Phoebe received P 40,000 for her share of profits, how much is the total partnership income?
a.
219,979.33
b.
220,000.00
c.
218,593.46
d.
217,591.33
PARTNERSHIP OPERATION THEORIES
1. Which of the following is not considered a legitimate expense of a partnership?
A.
Interest paid to partners based on the amount of invested capital.
B.
Depreciation on assets contributed to the partnership by partners.
C.
Salaries for management hired to run the partnership.
D.
Supplies used in the partners’ offices.
2. If the partnership agreement provides a formula for the computation of a bonus to the partners, the
bonus would be computed
A.
Next to last, because the final allocation is the distribution of the profit residual.
B.
before income tax allocations are made.
C.
after the salary and interest allocations are made.
D.
in any manner agreed to by the partners.
3. Which of the following transactions will decrease the capital balance of a partner?
A.
Additional investment by said partner
B.
Share in partnership’s profit
C.
Drawings by said partner
D.
Receipt of bonus from other partners
4. In the absence of partnership profit agreement to the contrary, how shall industrial partner share in
partnership’s profit?
A.
Equal to the share of the least capitalist partner
B.
Equal to the share of the highest capitalist partner
C.
Just and equitable share
D.
Equal to the average share capitalist partners
5. In the absence of partnership loss agreement to the contrary, how shall industrial partner share in
partnership’s loss?
A.
Equal to the share of the least capitalist partner
B.
Based on profit agreement ratio
C.
Just and equitable share
D.
None
PARTNERSHIP DISSOLUTION
PROBLEM 1
Naruto, Sasuke, and Sakura are partners sharing profits in the ratio of 4:5:1, respectively. As of
December 31, 2021, their capital balances were P150,000 for Naruto, P120,000 for Sasuke, and P90,000
for Sakura. On January 1, 2022, the partners admitted Kakashi as a new partner and according to their
agreement, Kakashi will contribute P80,000 in cash to the partnership and also pay P10,000 for 10% of
Naruto’s share. Kakashi will be given a 20% share in profits, while the original partner’s share will be
proportionately the same as before. After the admission of Kakashi the total capital will be P500,000 and
Kakashi’s capital will be P120,000.
What is the balance of Naruto’s capital after the admission of Kakashi?
A. P149,000
C. P169,000
B. P159,000
D. P160,000
PROBLEM 2
Alex, Sam and Clover are partners who share profits and losses in the ratio of 6:2:2, respectively. They
agree to sell D 25% of their respective capital and profits and losses ratio for a total payment directly to
the partners in the amount of P140,000. They agree that positive asset revaluation of P70,000 is to be
recorded prior to admission of D. The condensed balance sheet of the Totally Not Spies Partnership is as
follows:
Cash
P100,000
Liabilities
P270,000
Alex, loan
30,000
Non-cash assets
700,000
Alex, Capital
270,000
Sam, Capital
105,000
Clover, Capital
125,000
Total
P800,000
Total
P800,000
What is the capital of Alex, Sam, and Clover respectively after the payment and admission of D?
A. P312,000 – P119,000 – P139,000
C. P234,000 – P89,250 – P104,250
B. P256,500 – P89,250 – P104,250
D. P202,500 – P78,750 – P93,750
PROBLEM 3
Eric, Lydia and Ann established a partnership which is in operation for two years. Presented below are
excerpt from their statement of financial position for two years.
2023
P 312,000
278,000
35,000
536,000
(76,000)
2012
P 254,000
239,000
21,000
409,000
(53,000)
Accounts payable
Accrued expenses
212,000
98,000
198,000
76,000
Eric, Capital (40)
Lydia, Capital (30)
Ann, Capital (30)
?
?
277,600
208,200
208,200
Accounts receivable
Inventory
Prepaid expenses
Property, plant, and equipment
Accumulated depreciation
-
Cash received from customers – P3,503,000; cash paid to suppliers – P2,814,000; payment for expenses
– P490,000. After receiving her share from partnership income, Ann decided to retire from the partnership.
Ann is to be paid an amount equal to 90 percent of her adjusted equity as of the date of her retirement.
Assuming there are no investments/withdrawals during the year, compute for (1) net income for 2023 and
(2) capital balance of Eric after retirement of Ann.
A. (1) P251,000; (2) P361,800
B. (1) P274,000; (2) P403,794
C. (1) P247,000; (2) P370,606
D. (1) P251,000; (2) P394,200
PROBLEM 4
The balance sheet of the Eddie and Richard Partnership at December 31, 2020, appears below:
Assets:
Liabilities and Capital:
Cash
P 15,000
Accounts Payable
P 35,000
Accounts Receivable (net)
45,000
Notes Payable
25,000
Inventories
75,000
Accrued Liabilities
40,000
Property, Plant, and
Mortgage Payable
110,000
Equipment, (net)
225,000
Eddie, Capital
60,000
Richard, Capital
90,000
P360,000
P360,000
Determine the capital balances of partners immediately after the admission of Jamby under the
following independent situations:
Jamby acquired a 25 percent interest in partnership capital directly from Eddie and Richard for P50,000.
Jamby paid P18,750 directly to Eddie and P31,250 directly to Richard. Total assets of the partnership
after the admission of Jamby were P360,000. How much must be the capital credit to Jamby?
E. P45,000
F. P67,500
G. P37,500
H. P60,000
Jamby acquired a 25 percent interest in capital by investing P50,000 of cash into the partnership. Total
capital of the Eddie-Richard-Jamby Partnership on January 1, 2021, amounted to P240,000. Determine
the capital balance of Jamby immediately after his admission.
A. P60,000
B. P90,000
C. P50,000
D. P37,500
PROBLEM 5
Sea and Bert have capital balances of 90,000 and 120,000 respectively and share in the profit and loss
ratio of 60-40. Hosico comes into the business and invests 150,000 in cash for a 30% ownership. If
assets are to be revalued, what is Bert’s capital after this new investment?
A.
120,000
B.
140,000
C.
176,000
D.
174,000
PARTNERSHIP DISSOLUTION THEORIES
1. In the Adel-Brick partnership, Adel and Brick had a capital ratio of 3:1 and a profit and loss ratio of 2:1,
respectively. The bonus method was used to record Colter’s admittance as a new partner. What ratio
would be used to allocate, to Adel and Brick, the excess of Colter’s contribution over the amount credited
to Colter’s capital account?
A.
Adel and Brick’s new relative capital ratio.
B.
Adel and Brick’s new relative profit and loss ratio.
C.
Adel and Brick’s old capital ratio.
D.
Adel and Brick’s old profit and loss ratio.
2. When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill’s interest
exceeded Mill’s capital balance. Under the bonus method, the excess
A.
Was recorded as goodwill.
B.
Was recorded as an expense.
C.
Reduced the capital balances of Yale and Lear.
D.
Had no effect on the capital balances of Yale and Lear.
3. What is the effect of admission of a new partner to an existing partnership through the purchase of
interest of an existing partner?
A.
It will result to partnership gain or loss.
B.
It will increase the partnership total assets by the cash paid to the existing partner.
C.
It will not change the total capital of the partnership.
D.
It will decrease the capital of the partnership by the capital to be transferred to the new
partner.
4. If the total contributed capital of all the partners is equal to the total agreed capitalization of new
partnership in admission of new partner by investment, which is true?
A.
Asset revaluation is recognized.
B.
Impairment loss is recognized.
C.
Bonus to or from new partner is recognized.
D.
Any of the above.
5. In admission of new partner by investment, the total contributed capital of all the partners is more than
the total agreed capitalization of new partnership but the capital credit of new partner is less than his
capital contribution. Which of the following statements is correct?
A.
There has been asset revaluation with bonus to new partner.
B.
There has been asset impairment with bonus to old partners.
C.
There has been a bonus given to old partners without any revaluation or impairment.
D.
There has been asset revaluation with bonus to old partners.
PARTNERSHIP LIQUIDATION
PROBLEM 1
The following balance sheet is for a local partnership in which the partners have become very unhappy
with each other. To avoid further conflict, they have decided to cease operations and sell all assets.
Cash
P 40,000
Liabilities
P 30,000
Land
130,000
Michael, capital
80,000
Building
120,000
Fernando, capital
30,000
Alvin, capital
JL, capital
60,000
90,000
P290,000
P290,000
Assume that profits and losses are allocated on a 1:3:4:2 basis, respectively. How much money must be
received for
selling the land and building to assure that all partners receives cash?
a. More than P50,000
c. More than P100,000
b. More than P150,000
d. More than P250,000
PROBLEM 2
The partnership of Abed, Kuku, Bobok is winding up its affairs. The trial balance of the partnership at
January 31, 2023
is as follows:
Cash
9,000
Accounts receivable
25,500
Inventory
21,000
PPE
148,500
Prepaid Expenses
7,500
Abed, loan
18,000
Bobok, loan
11,250
Accounts Payable
Abed, capital (50%)
Kuku, capital (30%)
Bobok, capital (20%)
25,500
100,500
67,500
47,250
A summary of transactions follows
February
P24,750 - collected on accounts receivable; balance is uncollectible
P15,000 - received from the entire inventory
P1,500- liquidation expenses paid
P12,000 - cash retained in the business at the end of the month
March
P 2,250 - liquidation expenses paid.
Bobok’s capital was reduced when Bobok accepted a piece of special equipment that had a book value of
6,000. The partners agreed that a value of 15,000 should be the fair value of the equipment for
liquidation.
P 3,750 - cash retained in the business at the end of the month
April
P112,500 - received on sale of remaining plant asset
P1,500 - liquidation expenses paid.
The liquidation has come to an end.
2.1. Who is the most vulnerable partner in the liquidation?
A.
Kuku
B.
Abed
C.
Bobok
D.
All of them equally
2.2 What is the loss absorption capacity of Kuku before any liquidation?
A.
201,000
B.
225,000
C.
292,500
D.
237,000
2.3 What is the cash paid for Kuku in February?
A.
0
B.
22,275
C.
9,750
D.
4,000
2.4 What is the cash paid for Kuku in March?
A.
0
B.
2,000
C.
6,000
D.
5,000
2.5 What is the cash paid for Kuku in April?
A.
0
B.
C.
D.
39,600
12,300
36,900
PROBLEM 3
A, B, C, and D are partners, sharing profits and losses 30%; 30%; 20%; 20%, respectively. After sale of
firm assets and payment of the available cash to the partnership creditors, a partnership trial balance and
the personal status of each partner are as follows:
Personal Status
Trial Balance
Exclusive of Partnership Interest
Debit
Credit
Partner
Asset
Liabilities
Creditors
P 20,000
A, capital
5,000
A P150,000
P100,000
B, capital
75,000
B 80,000
200,000
C, capital
P 60,000
C 150,000
40,000
D, capital
40,000
D
60,000
80,000
P100,000
P100,000
Assuming that A pays the partnership creditors, how much B can still recover from the partnership?
A. P75,000
B. P54,000
C. P60,000
D. P0
PROBLEM 4
The partnership of Rent-A-Pet find it financially infeasible to continue operations and have agreed to
liquidate the partnership. The balance sheet just prior to the start of liquidation appears as follows.
Partners Bryan, Donelle, and Christopher share income and loss in the ratio 5:3:2, respectively.
Assets
Cash
Noncash assets
P 200,000
1,300,000
Liabilities and Capital
Accounts payable
Loan from Bryan
Bryan, capital
Donelle, capital
Christopher, capital
P1,500,000
P 300,000
50,000
350,000
600,000
200,000
P 1,500,000
If each partner properly received some cash in the distribution after the second sale, the cash to be
distributed amounts to P120,000 from the third sale, and unsold assets with an P80,000 book value
remain, the share of Donelle must be:
A. P36,000
B. P60,000
C. P24,000
D. cannot be
determined
PARTNERSHIP LIQUIDATION THEORIES
1. Which of the following circumstances will not result to the automatic dissolution of a general
partner?
A. By death of any partner
B. By civil interdiction of any partner
C. By insolvency of any partner or of the partnership.
D. By assignment of partner’s interest in the partnership to a third person.
2. The final cash distribution to the partners in a partnership in liquidation should be made in accordance
with
A.
B.
C.
D.
Balances of the partners’ capital accounts.
Partners’ profit and loss sharing ratio.
Ratio of capital contributions made by the partners.
Schedule of safe payments
3. Loss absorption potential of a partner computed during the preparation of cash priority program is
equals to
A. {Partner’s capital account plus partner’s loan (receivable)} multiplied by the respective PL ratio
B. {Partner’s capital account minus partner’s loan (receivable)} divided by the respective PL ratio.
C. {Partner’s capital account plus partner’s loan (payable)} multiplied by the respective PL ratio.
D. {Partner’s capital account minus partner’s loan (payable)} divided by the respective PL ratio.
4. At the time of liquidation of general partnership, which of the following claims shall be settled first?
A. Those from capital contribution of partners
B. Those from share in profits of partners
C. Those from advances made by partners to the partners
D. Those from loans made by third persons
5. When is a partnership legally insolvent?
A. When the partnership assets are insufficient to meet partnership liabilities.
B. When the partnership assets are insufficient to meet partnership liabilities and at least one partner is
personally insolvent.
C. When all the partners are personally insolvent.
D. When the assets of the partnership plus the assets of all partners are insufficient to meet partnership
liabilities plus the individual partners’ liabilities.