AFAR Monthly Assessment - (Topic 1) - Part 1
1. A unique feature of partnerships (compared with publicly owned corporations) is that:
a. Limited liability with respect to damages arising from professional services
b. Greater allowable tax deductions for retirement plans
c. Ease of formation
d. Book value
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2. Which of the following statements concerning the formation of partnership business is correct?
a. Philippine Financial Reporting Standards (PFRS) allows recognition of goodwill arising from the
formation of partnership.
b. The juridical personality of the partnership arises from the issuance of certification of
registration.
c. The parties may become partners only upon contribution of money or property but not of
industry or service.
d. The capital to be credited to each partner upon formation may not be the amount actually
contributed by each partner.
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3. On September 30, Bad admits Company for an interest in his business. On this date, Bad’s capital
account shows a balance of ₱158,400. The following were agreed upon before the formation of the
partnership:
● Prepaid expenses of ₱17,500 and accrued expenses of ₱5,000 are to be recognized.
● 5% of the outstanding accounts receivable of Bad amounting to ₱100,000 is to be recognized
as uncollectible.
● Company is to be credited with a one-third interest in the partnership and is to invest cash aside
from the ₱50,000 worth of merchandise. The partners agreed to divide profits and losses in the
ratio of 70:30, respectively.
How much cash is to be invested by Company?
a. ₱32,950
b. ₱82,950
c. ₱55,300
d. ₱281,800
Yu
₱ 262,500
412,500
750,000
-
Zen
₱ 187,500
112,500
C
Cash
Merchandise
Building
Furniture and fixtures
PA
4. ZY Partnership was formed on March 1 with the following asset contributed by partners Zen and Yu:
The partnership agreement provides for the following:
1. The partnership assumed the ₱225,000 mortgage on the building.
2. Zen and Yu shall share profits or losses 1:3, respectively.
3. Zen and Yu shall have initially equal capital. No unidentifiable asset is to be recognized.
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Yu’s capital would be:
a. ₱1,500,000
b. ₱750,000
c. ₱862,500
d. ₱543,750
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5. The fact that salaries paid to partners are not a component of partnership income is indicative of
a. A departure from generally accepted accounting principles
b. Being characteristic of the entity theory
c. Being characteristic of the proprietary theory
d. Why partnerships are characterized by unlimited liability
6. Munda and Rexy are partners sharing profits as follows:
a) ₱100,000 and ₱200,000 salaries to Munda and Rexy, respectively. The salary provision shall be
increased by 50% each when profit exceeds ₱500,000.
b) Residual profit is shared equally.
Munda received ₱150,000 profit sharing. What is the partnership profit?
a. ₱450,000
b. ₱400,000
c. ₱500,000
d. ₱300,000
7. A, B, and C are partners with average capital balances during 20X1 of ₱472,500, ₱238,650, and
₱162,350, respectively. In 20X1, the partnership had a net loss of ₱125,624 before the interest and
salaries to partners.
Partners A, B and C agreed to share profits in the following order of distribution:
a) 10% interest on their average capital balances
b) Salaries of ₱122,325 to A and ₱82,625 to C
c) Residual profits or loss is divided equally.
By what amount should A’s and C’s capital account change – increase (decrease)?
A
C
A
C
a. ₱ 30,267
(₱40,448)
c.(₱ 40,844)
₱31,325
b. ₱ 29,476
₱ 17,536
d. (₱41,875)
(₱41,875)
8. On January 1, 20X1, Harikrishna, Ivanchuk, and Jobava formed HIJ Partnership with original capital
contribution of ₱300,000, ₱500,000 and ₱200,000. Harikrishna is appointed managing partner.
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During 20X1, Harikrishna, Ivanchuk and Jobava made additional investments of ₱500,000, ₱200,000
and ₱300,000, respectively. At the end 20X1, Harikrishna, Ivanchuk and Jobava made drawings of
₱200,000, ₱100,000 and ₱400,000, respectively. At the end of 20X1, the capital balance of Jobava
is reported at ₱320,000. The profit or loss agreement of the partners is as follows:
a) 10% interest on original capital contribution of the partners.
b) Quarterly salary of ₱40,000 and ₱10,000 for Harikrishna and Ivanchuk, respectively.
c) Bonus to Harikrishna equivalent to 20% of Net Income after interest and salary to all partners.
d) Remainder is to be distributed equally among the partners.
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What is the partnership profit for the year ended December 31, 20X1?
a. ₱900,000
b. ₱1,020,000
c. ₱1,050,000
d. ₱960,000
PA
9. Motivational and Rice are partners in merchandising business. During 20X1, they withdrew their
salary allowances of ₱40,000 and ₱60,000, respectively. Profits and losses are shared in the ratio
of 3:2. The income summary account has a credit balance of ₱120,000 before any income allocation.
Their capital accounts reflect the following:
Beginning balance……………………………………….
Additional investments…………………………………..
Withdrawals other than for salary allowances……...
Ending Capital…………………………………………….
Motivational
₱50,000
₱30,000
(₱10,000)
₱70,000
Rice
₱30,000
₱40,000
(₱15,000)
₱55,000
C
The capital balance of each partner on December 31, 20X1 after closing the income summary and
withdrawals accounts.
a. Motivational, ₱82,000; Rice, ₱63,000
c. Motivational, ₱70,000; Rice, ₱55,000
b. Motivational, ₱122,000; Rice, ₱123,000
d. Motivational, ₱82,000; Rice, ₱123,000
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10. Which of the following will not result to the dissolution of a partnership?
a. Insolvency of the partnership
b. Admission of a new partner in an existing partnership
c. Assignment of an existing partner's interest to a third person
d. Retirement of a partner
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11. MacDo will invest in the partnership of Jabili and Pitsa Hat for a 40% interest. Jabili and Pitsa Hat
have capital of ₱400,000 and ₱300,000 and shares profit 60:40, respectively. MacDo is to invest
₱200,000 into the partnership and to purchase 1/2 of Jabili’s interest for ₱300,000. Compute the
capital interest of MacDo, Jabili and Pitsa Hat, respectively, under the bonus method.
a. ₱500,000, ₱200,000; ₱200,000
b. ₱360,000, ₱224,000; ₱316,000
c. ₱400,000, ₱200,000; ₱200,000
d. ₱200,000, ₱200,000; ₱200,000
12. The capital accounts of the partnership of Newton, Sharman and Jackson on June 1 are presented,
along with their profit and loss ratios:
Newton
₱ 139,200 1/2
Sharman
208,800 1/3
Jackson
96,000 1/6
On that date, Sidney was admitted to the partnership when he purchased for ₱132,000, a
proportionate interest from Newton and Sharman in the net assets and profits of the partnership.
As a result of this transaction, Sidney acquired a one-fifth interest in the net assets and profits of
the firm.
Assuming that implied goodwill is not to be recorded, what is the combined gain realized by Newton
and Sharman upon the sale of a portion of their interest in the partnership to Sidney?
a. ₱0
b. ₱43,200
c. ₱62,400
d. ₱82,000
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13. Assuming the capital ratio of a partner is 25% but his share in the profit or loss is 30%. In a
partnership formation or dissolution and the partner is given the choice between goodwill and bonus
methods, the partner will
a. Prefer bonus method due to a gain
b. Prefer bonus method due to a loss
c. Prefer goodwill method due to a gain
d. Prefer goodwill method due to a loss
14. The statement of financial position as of September 30, 20X1, for the partnership of Darrella,
Estoque and Francine shows the following information:
₱180,000
Total
.
₱180,000
Darrella, loan
Darrella, capital
Estoque, capital
Francine, capital
Total
₱ 10,000
41,500
38,500
90,000
₱180,000
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Assets
PA
It was agreed among the partners that Darrella retires from the partnership, and it was also further
agreed that the assets should be adjusted to their fair value of ₱172,500 as of September 30, 20X1.
Net loss prior to the retirement of Darrella amounted to ₱35,000. The partnership is to pay Darrella
₱31,000 cash for Darrella’s partnership interest, which would include the payment of her loan. No
goodwill is to be recorded. Darrella, Estoque and Francine share profit 40%, 15% and 45%,
respectively. After Darrella’s retirement, how much would Francine’s capital balance be?
a. ₱33,000
b. ₱73,500
c. ₱68,250
d. ₱92,625
C
15. What is the nature of liability of general partners as to partnership debts or obligations?
a. They are liable equally up to the extent of their separate assets after the partnership assets are
exhausted.
b. They are liable pro-rata up to the extent of their separate assets after the partnership assets
are exhausted.
c. They are liable pro-rata up to the extent of their capital contribution only.
d. They are liable solidarily up to the extent of their separate assets after the partnership assets
are exhausted.
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16. The final cash distribution to the partners in a partnership in liquidation should be made in
accordance with
a. Balances of the partners’ capital accounts.
b. Partners’ profit and loss sharing ratio.
c. Ratio of capital contributions made by the partners.
d. Ratio of capital contributions less withdrawals made by the partners.
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17. Partners PG, PD and CG share profits and losses in the ratio of 5:3:2. At the end of a very
unprofitable year, they decided to liquidate the firm. The partner’s capital account balances at this
time are as follows:
PG
₱330,000
PD
373,500
CG
225,000
The liabilities accumulate to ₱450,000, including a loan of ₱150,000 from PG. The cash balance is
₱90,000. All the partners are personally solvent. The partners plan to sell the assets in installment.
If PD received ₱54,000 from the first distribution of cash, how much did CG receive at that time?
a. Nil
b. ₱12,000
c. ₱18,000
d. ₱33,000
18. D. Alarcon, F. Barredo, G. Coronel, partners, are in textile distribution business sharing profits and
losses equally. On Dec. 31, 20X1, the partnership capital and partners’ drawings are as follows:
Alarcon
₱100,000
60,000
Capital
Drawings
Barredo
₱80,000
40,000
Coronel
₱300,000
20,000
Total
₱480,000
120,000
The partnership was unable to collect on trade receivables and was forced to liquidate. Operating
profit in the year 20X1 amounted to ₱72,000 which was all exhausted including the partnership
assets. Unsettled creditors’ claim at Dec. 31, 20X1 totaled ₱84,000. Barredo and Coronel have
substantial private resources, but Alarcon has no personal assets.
b. ₱480,000
c. ₱432,000
d. ₱516,000
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Loss on liquidation was
a. ₱484,000
19. A partnership is currently holding ₱400,000 in asset and ₱234,000 in liabilities. The partnership is
to be liquidated and ₱20,000 is the best estimation of the expenses that will be incurred during this
process. The four partners share profit and losses as shown, Capital balances at the start of the
liquidation are as follows;
₱ 59,000
39,000
34,000
34,000
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Kevin, capital (40%)
Michael, capital (30%)
Brendo, capital (20%)
John, capital (10%)
The partners realize that John will be the first partner to start receiving cash. How much cash will
John receive before the other partner collect any cash?
a. ₱12,250
b. ₱14,750
c. ₱17,000
d. ₱170,000
20. On December 31, 20X1, the Statement of Financial Position of UFC Partnership shows the following
data with profit or loss sharing of 2:3:5:
₱15,000,000
40,000,000
Liabilities to others
U, Capital
F, Capital
C, Capital
PA
Cash
Other Noncash assets
₱20,000,000
15,000,000
12,500,000
7,500,000
C
On January 1, 20X2, the partners decided to wind up the partnership affairs. During the winding up,
liquidation expenses amounted to ₱2,000,000 were paid. Non-cash assets with book value of
₱30,000,000 were sold during January. 40% of total liabilities were also paid during January.
₱3,000,000 cash was withheld during January for future liquidation expenses. On January 31,20X2,
partner U received ₱10M.
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What is the amount received by partner F on January 31, 20X2?
a. ₱2,500,000
b. ₱7,500,000
c. ₱5,000,000
d. ₱3,000,000