CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
ADVANCED FINANCIAL ACCOUNTING
GERMAN/LIM/VALIX/K. DELA CRUZ/MARASIGAN
PARTNERSHIP FORMATION
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 the partnership assumes a liability of a partner, 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, and in the absence of the agreed value, when
recording that certain asset in the partnership books, it is valued at
a.
b.
c.
d.
Fair market value
Assessed value
Original cost
Promised value
Part II: Problem Solving
1. A and B will form a new partnership and the following are ascertained:
 A will invest cash P300,000 for 60% interest in the capital and profits of the partnership
 B will contribute land with an original cost of P40,000 and fair market value of P70,000
 B will also contribute building which has an assessed value of P50,000 and an appraised value
of P90,000. The building is also subject to a mortgage of P40,000 which the partnership will
assume.
 B will contribute sufficient cash for his interest in the capital of the partnership
1. What is the total capital after formation?
a.
b.
c.
d.
500,000
420,000
460,000
350,000
2. What is the amount of cash to be contributed by B for his interest in the capital of the
partnership?
a. 40,000
b. 80,000
c. 110,000
d. 150,000
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Page 2
2. On January 1, 2022, A and B decided to form a partnership. They have the following statement of
financial positions:
Cash
Accounts receivable
Inventory
Equipment
Total Assets
A
1,500
54,000
15,000
70,500
B
3,750
22,500
20,250
27,000
73,500
Accounts payable
A, Capital
B. Capital
Total Liabilities and Capital
13,500
57,000
70,500
24,000
49,500
73,500
The following were agreed to be adjusted:
 The equipment of both A and B are under-depreciated by P1,500 and P4,500 respectively
 Both A and B needs to setup an allowance for doubtful accounts amounting to P12,000 and
P4,500 respectively
 Upon formation, the partnership will have a 60-40 profit and loss ratio for A and B respectively
 All liabilities will be assumed by the partnership
 A must invest to bring the partners' capital balances in proportion to their profit and loss ratio
1. What is the total capital after formation?
a. 106,500
b. 123,750
c. 101,250
d. 72,500
2. What is the capital credit of A upon formation?
a.
b.
c.
d.
57,000
60,750
43,500
74,250
3. What is the amount of cash to be contributed by A based on their agreement?
a. 14,250
b. 5,250
c. 10,250
d. 17,250
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Page 3
3. A and B partners sharing profits 60:40. The following is the statement of financial position of the
said partnership:
Cash
Accounts receivable
Inventory
Equipment, net
Total Assets
48,000
92,000
165,000
25,000
330,000
Accounts payable
A, Capital
B. Capital
Total Liabilities and Capital
89,000
133,000
108,000
330,000
The existing partners agreed to admit C as partner to form a new partnership ABC. The terms of
their agreement are as follows:
 An allowance for doubtful accounts amounting to P4,500 is to be established
 Inventories are to be restated at the agreed value of P170,000
 Accrued expenses of P4,000 are to be recognized
 The accounts payable will be assumed by the new partnership
A, B and C will divide profits 5:3:2 and the capital balances after formation of the new partnership
will reflect the said ratio. A and B will make personal cash settlements between themselves to
adjust their capital balances. C on the other hand, will invest additional cash for his investment in
the capital interest in the new partnership.
What is the amount of cash to be invested by C for his capital interest in the new
partnership?
a.
b.
c.
d.
50,000
60,250
59,375
47,500
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4. A and B decided to combine their businesses and form a partnership. The following are the
statement of financial position before formation:
Cash
Accounts receivable
Inventory
Equipment, net
Other assets
Total Assets
A
2,048,400
1,031,960
528,160
613,380
8,800
4,230,700
B
1,098,360
2,498,716
1,144,448
852,224
15,840
5,609,588
Accounts payable
Notes payable
Mortgage payable
A, Capital
B. Capital
Total Liabilities and Capital
787,336
1,000,000
2,443,364
4,230,700
1,072,060
1,440,000
3,097,528
5,609,588
The partners agreed that the equipment of A is under-depreciated by P80,000 and B’s equipment is
over-depreciated by P200,000. Accounts receivable of P108,000 in A’s books and P140,000 in B’s
books are deemed uncollectible. The partnership decided to assume all liabilities of A and B. The
partnership agrees to have a 60:40 capital interest and profit and loss ratio. B is willing to invest or
withdraw cash from the partnership to comply with the agreement.
1. What are the capital balances of A and B respectively after formation?
a.
b.
c.
d.
2,255,364 and 1,503,576
2,255,364 and 3,157,528
6,896,292 and 4,597,528
6,896,292 and 3,157,528
2. What is the total asset after formation?
a.
b.
c.
d.
8,058,336
5,618,336
9,712,288
9,840,288
END
9001