CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
ADVANCED FINANCIAL ACCOUNTING
PARTNERSHIP FORMATION
GERMAN/VALIX
Part I: Theory of Accounts
1. This is the framework within which the partners are to operate or conduct partnership business.
A.
B.
C.
D.
Partnership agreement
Partnership virtue
PFRS
Mutual Agency
2. The following are true regarding the characteristics of a general partnership except,
A.
B.
C.
D.
Separate legal entity
Ease of formation
Unlimited liability
Unlimited life
3. If a sole-proprietor contributes a certain asset to the partnership, in recording in the new partnership
books, it involves a
A.
B.
C.
D.
Credit to the asset
Credit to the capital account of that partner
Debit to drawing account of that partner
Debit capital account of that partner
4. If a certain asset is contributed to the partnership, when recording that certain asset in the
partnership books, it is valued at
A.
B.
C.
D.
Fair market value
Assessed value
Agreed value
Promised value
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Part II: Problem Solving
1. A and B are combining their separate business to form a partnership. Cash and non-cash assets are
to be contributed for a total capital of P600,000. The contributed liabilities are to be assumed by
the partnership. They further agreed that their capital balances after formation must be equal.
A
B
Book Value
Fair Value
Book Value
Accounts receivable
40,000
40,000
Inventories
60,000
80,000
40,000
Equipment
120,000
90,000
80,000
Accounts payable
30,000
30,000
20,000
The following are the assets and liabilities to be contributed by each entity:
Fair Value
50,000
100,000
20,000
1. What is the amount of the additional cash to be contributed by A in accordance with their
agreement?
A.
B.
C.
D.
300,000
120,000
420,000
170,000
2. What is the amount of the capital credit to B after formation?
A.
B.
C.
D.
130,000
100,000
300,000
150,000
2. E and F form partnership. E is to invest certain business assets and his liabilities will be assumed
by the partnership. E will also contribute sufficient cash to bring his total capital to an agreed
P360,000, which is 60% of the total agreed capital of the partnership. F on the other hand will
invest cash in the amount of P60,000 and a certain merchandise valued at the current market price.
The following are the assets and liabilities of E to be contributed to the partnership:
Accounts receivable
Allowance for doubtful accounts
Inventories
Store equipment
Accumulated depreciation – store equipment
Office equipment
Accumulated depreciation – office equipment
Accounts payable
Book Value
Agreed Value
108,000
7,200
193,200
54,000
36,000
36,000
19,200
96,000
108,000
12,000
210,000
54,000
26,400
36,000
9,600
96,000
1. What is the amount of additional cash to be invested by E in accordance with their
agreement?
A. 96,000
B. 98,400
C. 100,000
D.
0
2. What is the current market value of the merchandise to be contributed by F?
A.
B.
C.
D.
240,000
410,000
210,000
180,000
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3. A and B decided to combine their businesses and form a partnership. The following were their
assets before formation:
Assets
Liabilities
A
B
421,500
183,000
206,000
72,000
The following were the agreements made to adjust their assets and liabilities:





Both parties will provide P10,000 for doubtful accounts.
A and B’s fixed assets were over-depreciated by P2,000 and under-depreciated by P1,000
respectively.
Accrued expenses are to be recognized in the books of A and B in the amount of P2,400 and
P2,000 respectively.
Obsolete inventory to be written off by A amounted to P7,000
A and B also agreed to share profits and losses equally.
What is the total asset of the partnership after formation?
A.
B.
C.
D.
595,100
601,500
607,100
597,100
4. A and B each operates a separate business and agreed to form a partnership. The assets and
liabilities of the two sole proprietors before formation were the following:
Cash
Accounts receivable
Inventory
Equipment
Accounts payable
Notes payable
A
38,400
384,000
480,000
120,000
120,000
24,000
B
144,000
288,000
432,000
144,000
192,000
-
The following were agreed upon formation:

A’s accounts receivable were to be taken over at book value less 15% and B’s accounts
receivable at book value less 10%.

A’s equipment is new and considered adequate for the new business, however B’s equipment
was disposed at 90% of its book value. One-fourth of any gain or loss resulting from the sale of
equipment were borne by A.

Any liabilities were assumed by the new partnership.
Assuming B invest sufficient cash to give him a one-half interest in the partnership after
charging to A’s capital account his share in the loss on the sale by B of the equipment, how
much must B invest?
A.
B.
C.
D.
33,600
40,800
24,800
36,400
END
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