LEARNING OBJECTIVES
• STATE THE CAUSES OF PARTNERSHIP
DISSOLUTION
• ACCOUNT FOR THE EFFECTS OF PARTNERSHIP
DISSOLUTION ON THE PARTNER’S EQUITY
DISSOLUTION
• THE CHANGE IN THE RELATION OF THE PARTNERS CAUSED BY ANY PARTNER CEASING TO
BE ASSOCIATED IN THE CARRYING ON AS DISTINGUISHED FROM WINDING UP OF THE
BUSINESS OF THE PARTNERSHIP (CIVIL CODE OF THE PHILIPPINES, ARTICLE 1828)
• THE PARTNERSHIP IS NOT TERMINATED AND CONTINUES UNTIL THE WINDING UP OF
THE PARTNERSHIP AFFAIRS IS COMPLETED
CAUSES OF DISSOLUTION
1. Admission of a partner
2. Withdrawal or retirement of a partner
3. Death of a Partner
4. Incorporation of a partnership
ADMISSION OF A PARTNER
1. Purchase of an interest from one or more of
the existing partners
2. Investment of assets in the partnership by the
new partner
ADMISSION OF A PARTNER
• LIABILITY OF INCOMING PARTNER FOR EXISTING OBLIGATIONS
A PERSON ADMITTED AS A PARTNER INTO AN EXISTING PARTNERSHIP IS LIABLE FOR
ALL THE OBLIGATIONS OF THE PARTNERSHIP INCURRED BEFORE HIS ADMISSION AS
THOUGH HE HAD BEEN A PARTNER WHEN SUCH OBLIGATIONS WERE INCURRED. SUCH
LIABILITY IS LIMITED TO HIS CAPITAL CONTRIBUTION, UNLESS OTHERWISE AGREED.
ADMISSION OF A PARTNER
Purchase of Interest
Investment in the Partnership
The incoming partner’s contribution is not recorded in
the partnership’s books.
The incoming partner’s contribution is recorded in the
partnership’s books.
Journal entry for the transfer of capital.
Affects the partnership assets.
Journal entry for the investment of the new partner and
any liabilities assumed by the partnership; and for
capital credit in case the contributed capital (CC) is not
equal to the agreed capital (AC) of each partner.
Partnership capital remains the same before and after
the admission of the incoming partner
Partnership capital is increased by the incoming
partner’s contribution
No gain or loss is recognized in the partnership’s books.
No gain or loss is recognized in the partnership’s books.
ILLUSTRATION 1:
A AND B ARE PARTNERS WITH CAPITAL BALANCES OF P 400,000 AND P 200,000 RESPECTIVELY. THEY SHARE
PROFIT IN THE RATIO OF 3:1. THEIR BUSINESS HAS BEEN VERY SUCCESSFUL. ALL INDICATIONS SHOW THAT IT
WILL CONTINUE TO BE.
CASE 1: A AND B RECEIVED AN OFFER FROM C TO PURCHASE DIRECTLY ¼ OF EACH INTEREST IN THE
PARTNERSHIP FOR P 150,000. THE PARTNERS AGREED TO ADMIT C INTO THE FIRM.
CASE 2: ASSUME THAT C DIRECTLY PURCHASED 1/3 OF EACH PARTNER’S INTEREST FOR P 160,000.
CASE 3: ASSUME THAT C PURCHASED 30% OF EACH OF THE PARTNER’S INTEREST IN THE PARTNERSHIP FOR P
200,000
REQUIREMENTS:
a.
b.
PROVIDE THE JOURNAL ENTRY TO RECORD THE TRANSACTION.
HOW MUCH ARE THE CAPITAL BALANCES AFTER THE ADMISSION OF C.
CASE 1:
A, CAPITAL
P 100,000
B, CAPITAL
50,000
C, CAPITAL
P 150,000
* TO RECORD THE ADMISSION OF C TO THE PARTNERSHIP
A
B
C
TOTALS
Capital, beg.
P 400,000
P 200,000
-------
P 600,000
Sale of interest to
C
(100,000)
(50,000)
150,000
-------
Capital, end
P 300,000
P 150,000
P 150,000
P 600,000
CASE 1:
A, CAPITAL
P 100,000
B, CAPITAL
50,000
C, CAPITAL
P 150,000
* TO RECORD THE ADMISSION OF C TO THE PARTNERSHIP
A
B
C
TOTALS
Capital, beg.
P 400,000
P 200,000
-------
P 600,000
Sale of interest to
C
(100,000)
(50,000)
150,000
-------
Capital, end
P 300,000
P 150,000
P 150,000
P 600,000
CASE 2:
A, CAPITAL
P 133,333
B, CAPITAL
66,667
C, CAPITAL
P 200,000
* TO RECORD THE ADMISSION OF C TO THE PARTNERSHIP
A
B
C
TOTALS
Capital, beg.
P 400,000
P 200,000
-------
P 600,000
Sale of interest to
C
(133,333)
(66,667)
200,000
-------
Capital, end
P 266,667
P 133,333
P 200,000
P 600,000
CASE 3:
A, CAPITAL
P 120,000
B, CAPITAL
60,000
C, CAPITAL
P 180,000
* TO RECORD THE ADMISSION OF C TO THE PARTNERSHIP
A
B
C
TOTALS
Capital, beg.
P 400,000
P 200,000
-------
P 600,000
Sale of interest to
C
(120,000)
(60,000)
180,000
-------
Capital, end
P 280,000
P 140,000
P 180,000
P 600,000
ILLUSTRATION 2:
C PURCHASES 20% OF A’S AND B’S CAPITAL INTEREST FOR P 100,000. THE CARRYING AMOUNTS AND FAIR
VALUES OF THE PARTNERSHIP’S NET IDENTIFIABLE ASSETS IMMEDIATELY BEFORE C’S ADMISSION ARE AS
FOLLOWS:
Carrying Amount
Fair Value
Increased (Decrease)
Cash
P 20,000
20,000
------
Equipment
340,000
390,000
50,000
Accounts Payable
10,000
10,000
-------
A, Capital (40%)
130,000
n/a
B, Capital (60%)
220,000
n/a
REQUIREMENTS:
a.
b.
PROVIDE THE JOURNAL ENTRY TO RECORD THE TRANSACTION.
HOW MUCH ARE THE CAPITAL BALANCES AFTER THE ADMISSION OF C.
EQUIPMENT
B, CAPITAL
C, CAPITAL
P 50,000
20,000
30,000
* TO RECORD THE REVALUATION OF EQUIPMENT
A, CAPITAL (150,000 X 20%)
P 30,000
B, CAPITAL (250,000 X 20%)
P 50,000
C, CAPITAL
80,000
* TO RECORD THE ADMISSION OF C IN THE PARTNERSHIP
A
B
C
TOTALS
Adjusted Capital
before admission
of C
P 150,000
P 250,000
-------
P 400,000
Sale of interest to C
(30,000)
(50,000)
80,000
---------
Capital balances
P 120,000
P 200,000
P 80,000
P 400,000
ILLUSTRATION 3:
A AND B ARE PARTNERS WITH CAPITAL BALANCES OF P 400,000 AND P 200,000 RESPECTIVELY. THEY SHARE PROFIT IN THE
RATIO OF 3:1.
CASE 1: ASSUME THAT C INVESTED P 250,000 FOR A ¼ INTEREST IN THE BUSINESS. THE PARTNERS DECIDED NOT TO
REVALUE THE ASSETS OF THE PARTNERSHIP AND THE TOTAL AGREED CAPITAL IS P 850,000.
CASE 2: ASSUME THAT C INVESTED P 400,000 IN THE BUSINESS. OUT OF THE TOTAL CASH INVESTMENT, P 100,OO0 IS
CONSIDERED AS BONUS TO PARTNERS A AND B.
CASE 3: ASSUME THAT C INVESTED P 240,000 FOR A 1/3 INTEREST IN THE BUSINESS. TOTAL AGREED CAPITAL IS P 840,000.
CASE 4 : ASSUME THAT C INVESTED P 300,000 FOR A 50 % INTEREST IN THE BUSINESS.
a.
b.
PROVIDE THE JOURNAL ENTRY TO RECORD THE TRANSACTION.
HOW MUCH ARE THE CAPITAL BALANCES AFTER THE ADMISSION OF C.
CASE 1:
CASH
P 250,000
A, CAPITAL
P 28,125
B, CAPITAL
9,375
C, CAPITAL
212,500
TO RECORD THE ADMISSION OF C TO THE PARTNERSHIP
Contributed
Agreed
Bonus
A
P 400,000
P 428,125
P 28, 125
B
P 200,000
209,375
9,375
C
P 250,000
212,500
(P 37,500)
Totals
P 850,000
P 850,000
-------
CASE 2:
CASH
P 400,000
A, CAPITAL
B, CAPITAL
C, CAPITAL
P 75,000
25,000
300,000
TO RECORD THE ADMISSION OF C TO THE PARTNERSHIP
Contributed
Agreed
Bonus
A
P 400,000
P 475,000
P 75,000
B
P 200,000
225,000
25,000
C
P 400,000
300,000
(P 100,000)
Totals
P 1,000,000
P 1,000,000
-------
CASE 3:
CASH
P 240,000
A, CAPITAL
30,000
B, CAPITAL
10,000
C, CAPITAL
P 280,000
TO RECORD THE ADMISSION OF C TO THE PARTNERSHIP
Contributed
Agreed
Bonus
A
P 400,000
P 370,000
(P 30,000)
B
P 200,000
190,000
(P 10,000)
C
P 240,000
280,000
P 40,000
Totals
P 840,000
P 840,000
-------
CASE 4:
CASH
P 300,000
A, CAPITAL
112,500
B, CAPITAL
37,500
C, CAPITAL
P 450,000
TO RECORD THE ADMISSION OF C TO THE PARTNERSHIP
Contributed
Agreed
Bonus
A
P 400,000
P 287,500
(P 112,500)
B
P 200,000
162,500
C
P 300,000
450,000
P 150,000
Totals
P 900,000
P 900,000
-------
(37,500)
ILLUSTRATION 4:
A AND B ARE PARTNERS WITH CAPITAL BALANCES OF P 150,000 AND P 250,000 RESPECTIVELY. THEIR P/L RATIO IS 40% AND 60% .
C PURCHASES 20% FROM A AND B FOR P 100,000. THE PARTNERS AGREED TO RECOGNIZE AN IMPLIED GOODWILL FROM C’S
PAYMENT.
REQUIREMENT :
a. PROVIDE THE JOURNAL ENTRY TO RECORD THE TRANSACTION.
GOODWILL
P 100,000
A, CAPITAL
P 40,000
B, CAPITAL
60,000
TO RECORD THE GOODWILL
A, CAPITAL
B, CAPITAL
C, CAPITAL
P 38,000
P 62,000
100,000
TO RECORD THE ADMISSION OF C IN THE PARTNERSHIP
WITHDRAWAL, RETIREMENT OR DEATH OF A PARTNER
• (1)
BY SELLING HIS EQUITY INTEREST TO ONE OR MORE OF THE REMAINING
PARTNERS
• (2) BY SELLING HIS EQUITY INTEREST TO THE PARTNERSHIP
• (3) BY SELLING HIS EQUITY INTEREST TO AN OUTSIDER
ADJUSTMENTS ON THE INTEREST OF WITHDRAWING, RETIRING OR
DECEASED PARTNER
• (1)
HIS SHARE OF ANY PROFIT OR LOSS DURING THE PERIOD UP TO DATE OF
WITHDRAWAL, RETIREMENT OR DEATH
• (2) SHARE OF ANY REVALUATION GAIN OR LOSSES AS AT THE DATE OF WITHDRAWAL,
RETIREMENT OR DEATH
IN CASE OF DEATH, THE DECEASED PARTNER’S ESTATE IS ENTITLED TO THE VALUE OF THE
PARTNER’S INTEREST AT THE DATE OF HIS DEATH
WITHDRAWAL, RETIREMENT OR DEATH OF A PARTNER
Purchase of Interest by remaining partners
Settlement by partnership
The payment to the outgoing partner is not recorded in
the partnership’s books.
The payment to the outgoing partner recorded in the
partnership’s books.
Partnership capital remains the same before and after
the withdrawal, retirement or death of outgoing partner
Partnership capital is decreased by payment for the
outgoing partner’s capital
No gain or loss is recognized in the partnership’s books.
No gain or loss is recognized in the partnership’s books.
ILLUSTRATION 5:
THE CAPITAL BALANCES OF THE PARTNERS IN ABC PARTNERSHIP ON JULY 01, 20X1 BEFORE ANY ADJUSTMENTS
ARE AS FOLLOWS :
A, CAPITAL (20%) P 150,000
B, CAPITAL (30%)
250,000
C, CAPITAL (50%)
100,000
TOTAL
P 500,000
THE PARTNERSHIP REPORTED A PROFIT OF P 900,000 FOR THE SIX MONTHS ENDED JUNE 30, 20X1.
ON JULY 1, 20X1, C WITHDRAWS FROM THE PARTNERSHIP WHEN HE WAS BOUGHT –OUT BY HIS CO-PARTNERS
FOR P620,000 CASH. THE NET ASSETS OF THE FIRM AS OF THIS DATE APPROXIMATE THEIR FAIR VALUES.
a.
PROVIDE THE JOURNAL ENTRY TO RECORD THE TRANSACTION.
A (20%)
B (30%)
C(50%)
TOTALS
Unadjusted
balances
P 150,000
P 250,000
P 100,000
P 500,000
Distribution of
profit
180,000
270,000
450,000
900,000
P 330,000
P 520,000
P 550,000
P 1,400,000
Adjusted balance
INCOME SUMMARY
P 900,000
A, CAPITAL
180,000
B, CAPITAL
270,000
C, CAPITAL
450,000
* TO RECORD THE ADJUSTING ENTRY FOR PROFIT DISTRIBUTION
C, CAPITAL
P 550,000
A , CAPITAL
P 220,000
C, CAPITAL
330,000
* TO RECORD THE WITHDRAWAL OF C
A
B
C
TOTALS
Balance before
withdrawal
P 330,000
P 520,000
P 550,000
P 1,400,000
Withdrawal of C
220,000
330,000
(550,000)
P 550,000
P 850,000
---------
Bal. after withdrawal
P 1.400,000
ILLUSTRATION 6:
THE CAPITAL BALANCES OF THE PARTNERS IN ABC PARTNERSHIP ON JULY 01, 20X1 BEFORE ANY ADJUSTMENTS
ARE AS FOLLOWS :
A, CAPITAL (20%) P 150,000
B, CAPITAL (30%)
250,000
C, CAPITAL (50%)
100,000
TOTAL
P 500,000
THE PARTNERSHIP REPORTED A PROFIT OF P 900,000 FOR THE SIX MONTHS ENDED JUNE 30, 20X1.
C RETIRES ON JULY 01, 20X1. THE PARTNERSHIP SETTLES C’S INTEREST FOR P 620,000.
a.
PROVIDE THE JOURNAL ENTRY TO RECORD THE TRANSACTION.
C, CAPITAL
P 550,000
A , CAPITAL
P 28,000
B, CAPITAL
42,000
CASH
P 620,000
* TO RECORD THE RETIREMENT OF C
Balance before
retirement
Payment to C
Bonus to C
A
B
C
TOTALS
P 330,000
P 520,000
P 550,000
P 1,400,000
(620,000)
(620,000)
(28,000)
(42,000)
70,000
Bal. after retirement
P 302,000
P 478,000
---------
P 780,000
ILLUSTRATION 7:
THE CAPITAL BALANCES OF THE PARTNERS IN ABC PARTNERSHIP ON JULY 01, 20X1 BEFORE ANY ADJUSTMENTS
ARE AS FOLLOWS :
A, CAPITAL (20%) P 150,000
B, CAPITAL (30%)
250,000
C, CAPITAL (50%)
100,000
TOTAL
P 500,000
THE PARTNERSHIP REPORTED A PROFIT OF P 900,000 FOR THE SIX MONTHS ENDED JUNE 30, 20X1.
C DIES ON JULY 01, 20X1 AND RECEIVES CASH OF P 500,000 AND LAND WITH CARRYING AMOUNT OF
P100,000AND FAIR VALUE OF P300,000 FROM THE PARTNERSHIP AS SETTLEMENT FOR HIS INTEREST.
a.
PROVIDE THE JOURNAL ENTRY TO RECORD THE TRANSACTION.
Unadjusted balance
A (20%)
B (30%)
C(50%)
TOTALS
P 150,000
P 250,000
P 100,000
P 500,000
180,000
270,000
450,000
900,000
40,000
60,000
100,000
200,000
P 370,000
P 580,000
P 650,000
P 1,600,000
Share in profit
Share in revaluation
gain
Adjusted balances
REQUIREMENT :
a.
PROVIDE THE JOURNAL ENTRY TO RECORD THE TRANSACTION.
C, CAPITAL
A, CAPITAL
B, CAPITAL
P650,000
P 60,000
90,000
LIABILITY TO THE ESTATE OF C
P 800,000
TO RECORD THE PENDING SETTLEMENT TO C
LIABILITY TO THE ESTATE OF C
CASH
P 800,000
P 500,000
LAND
TO RECORD THE SETTLEMENT TO PARTNER C
300,000
INCORPORATION OF A PARTNERSHIP
* REASONS FOR INCORPORATING A PARTNERSHIP
• EASE OF RAISING ADDITIONAL FUNDS
• PRIVACY AND CONFIDENTIALITY
• DISPERSION OF RISK
• UNLIMITED LIFE
• TRANSFERABILITY OF OWNERSHIP
• BETTER PUBLIC RELATIONS
• LIMITED LIABILITY OF SHAREHOLDERS
INCORPORATION OF PARTNERSHIP
• (1)
PARTNER’S CAPITAL BALANCES ARE ADJUSTED FOR THEIR RESPECTIVE SHARES
IN PROFIT/LOSS AND REVALUATION GAINS/LOSS AS AT DATE OF INCORPORATION
• (2) THE BOOKS OF PARTNERSHIP ARE CLOSED AND NEW BOOKS ARE OPENED FOR
CORPORATION
ILLUSTRATION 8:
ABC PARTNERSHIP IS CONVERTED INTO A CORPORATION ON JAN, 1, 20X1. RELEVANT INFORMATION ARE AS
FOLLOWS:
Carrying Amounts
Cash
Fair Values
Increase (Decrease)
P 20,000
P 20,000
-
Receivables
60,000
40,000
(20,000)
Inventory
80,000
70,000
(10,000)
Equipment
540,000
670,000
130,000
Payables
50,000
50,000
-
A, Capital (20%)
150,000
-
-
B, Capital (30%)
200,000
-
-
C, Capital (50%)
300,000
-
P 100,000
• THE CORPORATION’S AUTHORIZED CAPITALIZATION IS P 2,000,000 DIVIDED INTO 200,000 ORDINARY
SHARES WITH PAR VALUES OF P10/SHARE. ASSUME THAT THE SHARES TO BE ISSUED TO THE PARTNERS ARE
BASED ON THEIR RESPECTIVE ADJUSTED CAPITAL BALANCES.
REQUIRMENT:
a.
b.
COMPUTE FOR THE NUMBERS OF SHARES TO BE ISSUEF TO EACH OF THE PARTNERS
PROVIDE THE JOURNAL ENTRIES
A
Unadjusted
Capital
B
C
TOTALS
P 150,000
P 200,000
P 300,000
P 650,000
Share in
revaluation gain
20,000
30,000
50,000
100,000
Adjusted Capital
P 170,000
P 230,000
P 350,000
P 750,000
Par value per
share
10
10
10
10
No. of shares
issued
17,000
23,000
35,000
75,000
EQUIPMENT
P 130,000
RECEIVABLES
P 20,000
INVENTORY
1 0,000
A, CAPITAL
20,000
B, CAPITAL
30,000
C, CAPITAL
50,000
* TO ADJUST THE NET ASSETS TO FAIR VALUES
A, CAPITAL P 170,000
B, CAPITAL
230,000
C, CAPITAL
350,000
PAYABLES
50,000
CASH
P 20,000
RECEIVABLES
40,000
INVENTORY
70,000
EQUIPMENT
670,000
* TO CLOSE THE BOOKS OF THE PARTNERSHIP
CASH
P 20,000
RECEIVABLES
40,000
INVENTORY
70,000
EQUIPMENT
670,000
PAYABLES
P 50,000
SHARE CAPITAL
750,000
* TO RECORD INITIAL INVESTMENTS
• ASSUME THAT A, B AND C A GREED TO BE ISSUED 14,000 , 21,000 AND 35,000 SHARES RESPECTIVELY
REQUIRMENT:
a.
b.
HOW MUCH IS CREDITED TO SHARE PREMIUM?
PROVIDE THE JOURNAL ENTRIES
SOLUTION
ADJUSTED NET ASSETS/CAPITAL
LESS :TOTAL PAR VALUE OF SHARES ISSUED
SHARE PREMIUM
P 750,000
700,000
50,000
CASH
P 20,000
RECEIVABLES
40,000
INVENTORY
70,000
EQUIPMENT
670,000
PAYABLES
P 50,000
SHARE CAPITAL
700,000
SHARE PREMIUM
50,000
* TO RECORD INITIAL INVESTMENTS
Millan, Z. V. (2021). Accounting for Special
Transactions (Advanced Accounting 1).
Bandolin Enterprise.
BOOK
REFERENCES
R.D. Ballocating, C. M. (2015). Advanced
Accounting Volume 1. C & E Publishing, Inc
and R.D Ballocating.
Win Ballada, C. C. (2020). Partnership and
Corporation Accounting. Win Ballada and
Susan Ballada.