Partnership Dissolution
PROBLEM A: ACE, BON and CARL are partners sharing profits and losses of 40%, 40% and 20%, respectively. The December 31,
2020 balance sheet of the partnership before any profit allocation was summarized as follows:
ASSETS
LIABILITIES & CAPITAL
Cash 180,000
Accounts Payable
15,000
Inventories 120,000
CARL,Loan
10,000
Equipment 150,000
ACE, Capital 200,000
Trademerk
45,000
BON,Capital 180,000
CARL,Capital
90,000
TOTAL Assets 495,000
TOTAL Liabilities & Capital 495,000
The income summary account has a credit balance of P50,000 for the year 2020. On January 1, 2020, a partner has decided to retire
from the partnership and by mutual agreement among partners; the following have been arrived at:
• Inventories amounting to P20,000 is considered obsolete and must be written off
• Equipment should be adjusted to their current value of P135,000
• Trademarks are to be written-off immediately before the retirement.
It was agreed that the partnership will pay the retiring partner for his interest in the partnership inclusive of loan balance.
1. If CARL retired and received P90,000 as a retirement price, how much will be the adjusted capital of ACE under bonus
method?
a. P168,000
c. P 188,000
b. P 170,000
d. P 190,000
2. If CARL retired and received P100,000, by how much will the adjusted capital of BON under revaluation of asset method
traceable to entire entity (full revaluation)?
a. P168,000
c. P 188,000
b. P 180,000
d. P 200,000
3. If CARL retired and received P95,000, by how much will the adjusted capital of BON be higher or (lower) than ACE
under specific revaluation of asset method (specific revaluation)?
a. P 20,000
c. P 22,000
b. P (20,000)
d. P (22,000)
4. If BON retired and received P171,000, how much is the amount of bonus to or (from) CARL?
a. P 1,000
c. P 2,000
b. P (1,000)
d. P (2,000)
5. If ACE retired and received P 179,000, how much is the capital balance of BON and CARL?
a. P 174,000; 87,000
c. P 168,000; 84,000
b. P 174,000;97,000
d. P 168,000;94,000
PROBLEM B: The total capital of partners before recognition of partnership asset revaluation in preparation for the withdrawal of a
partner whose percentage P/L sharing is 25%, amounted to P385,000. He was paid P 98,000 by the firm in the final settlement for his
interest. The remaining partner’s capital account, excluding their share of asset revaluation totaled P 315,000.
1. How much is the amount of full revaluation of the firm as agreed by the partners?
a. P 28,000
c. P 84,000
b. P 70,000
d. P 112,000
2. How much is the total adjusted capital of the remaining partners?
a. P 385,000
c. P 497,000
b. P 399,000
d. P 500,000
PROBLEM C:
Al and Bert's capital is 600,000 and 480,000 respectively. Profit Share Ratio 7:3. Jett directly purchased a 1/3 interest
by paying Alger 195,000 and Bert 250,000. The land account is increased by 180,000 before Jett is accepted.
1. What is the capital of Alger and Bert after admitting Jett?
a. P 726,000; 534,000
c. P400,000; 320,000
b. P 531,000;284,000
d. P484,000;356,000
2.
How much is the gain or (loss) recognized by the partnership after admitting Jett?
a. P 0
c. P(25,000)
b. P 25,000
d. P(47,000)
PROBLEM D: Miriam and Mar capital is 600,000 and 900,000 respectively. Profit Share Ratio 4:6. Jojo invested 500,000 for a 30%
interest in the partnership.
1. What is the capital of Miriam and Mar after admitting Jojo?
a. P560,000; 840,000
c. P 600,000;900,000
b. P 840,000;560,000
d. P 900,000;600,000
2.
What is the capital of Mar and Miriam after admitting Jojo if the agreed capital amounted to 2,500,000?
a. P560,000; 840,000
c. P 800,000;1,200,000
b. P 700,000;1,050,000
d. P 1,000,000; 1,500,000
PROBLEM E: REX, WENCY and YAN are partners with capital balances of P448,000, P1,560,000 and P680,000 respectively,
sharing profit and losses of 6:4:2. REO is admitted as a new partner bringing with him expertise and is to invest cash for a 25% interest
in the partnership, which includes a credit of P 420,000 bonus upon his admission.
1. How much cash should REO contribute?
a. P 336,000
c. P 896,000
b. P 420,000
d. P 3,024,000
REFERENCE: AFAR QUICKNOTES
BY ATTY. IVAN YANNICK S. BAGAYAO, CPA, MBA
2
LUMP-SUM LIQUIDATION
PROBLEM A: The statement of Financial Position of JJJ Partnership, just before liquidation is as follows:
ASSETS
Cash
Other Assets
Loan – JUDE
Total Assets
50,000
140,000
10,000
200,000
LIABILITIES & CAPITAL
Liabilites
Loan- JOHN
JOHN,Capital (50%)
70,000
20,000
30,000
JOSEPH,Capital (30%)
JUDE,Capital (20%)
50,000
30,000
Total Liabilities & Capital
200,000
Partners JOHN and JOSEPH are personally insolvent. The percentage in parenthesis are their profit and loss ratio.
Situation 1: If non cash assets are sold for P 150,000 and all liabilities are paid and liquidation expense of P5,000 are also paid,
how much cash should JOHN, JOSEPH and JUDE receive?
a. P 50,000; 50,000; 20,000
c. P 51,500; 52,000; 20,000
b. P 52,500; 51,500; 21,000
d. P 51,500; 52,500; 21,000
Situation 2: If non cash assets are sold for P 50,000, liquidation expense of P 5,000 and all liabilities are paid, how much cash
should JOHN, JOSEPH and JUDE receive?
a. P 50,000; 50,000; 20,000
c. P 1,000; 2,500; 21,500
b. P 2,500; 21,500; 1,000
d. P 1,500; 21,500; 2,000
Situation 3: If non cash assets are sold for P 40,000, liquidation expense of P 10,000 and all liabilities are paid, how much cash
should JOSEPH receive?
a. P 0
c. P 10,000
b. P4,000
d. P 14,000
Situation 4: If JUDE received a total of P 8,000:
1. How much cash should JOHN receive?
a. P12,000
c. P 32,000
b. P 20,000
d. P 50,000
2. How much is the amount of gain or loss on realization of other assets?
a. P 60,000
c. P (60,000)
b. P 80,000
d. P 80,000
Situation 5: If JOSEPH received a total of P 35,000 and liquidation expenses of 5,000 were paid:
1. How much cash should JUDE receive?
a. P10,000
c. P 35,000
b. P 25,000
d. P 50,000
2. How much is the amount of gain or loss on realization of other assets?
a. P5,000
c. P 75,000
b. P 45,000
d. P 95,000
3. How much is the total proceeds on sale of other assets?
a. P5,000
c. P 75,000
b. P 45,000
d. P 95,000
REFERENCE: AFAR QUICKNOTES
BY ATTY. IVAN YANNICK S. BAGAYAO, CPA, MBA
3
INSTALLMENT LIQUIDATION
PROBLEM B: On March 30, 2020, KEN, EDD, and MAI partnership had the following fiscal year-end balance sheet:
Cash
P6,000 Accounts payable
P10,500
Accounts receivable
9,000 Loan from MAI
7,500
Inventory
21,000 KEN, capital (40%)
21,000
Plant assets-net
19,500 EDD, capital (20%)
15,000
Loan to KEN
7,500 MAI, capital (40%)
9,000
Total assets
P63,000 Total liab./equity
P 63,000
The percentages shown are the residual profit and loss sharing ratios. The partners dissolved the partnership on January 1,
2020, and began the liquidation process. The partners set the policy of setting aside P 3,000 cash for contingent expenses
every month until prior to the last distribution period. The partnership strictly followed the liquidation process mandated by
law.
During January the following realization of assets and payment of liquidation expenses occurred:
a. Accounts receivable of P6,000 was collected and the balance is deemed as bad debt.
b. All inventory was sold for P15,000.
c. Liquidation expense of P 1,500 was paid
During February the following realization of assets and payment of liquidation expenses occurred:
a. The plants assets was sold for P15,000
b. Liquidation expense of P 2,000 was paid
1. Using Cash Priority Program, How much cash would EDD receive from the cash that is available for
distribution on January 30, 2020?
a. P 300
b. P 3,200
c. P 6,400
d. P 8,400
2. Using Schedule of Safe Payment, How much cash would KEN receive from the cash that is available for
distribution on January 30, 2020?
a. P 300
b. P 3,200
c. P 6,400
d. P 8,400
3. Using Cash Priority Program, How much cash would MAI receive from the cash that is available for
distribution on February 28, 2020?
a. P 2,600
b. P 3,200
c. P 5,200
d. P 6,400
4. Using Schedule of Safe Payment, How much cash would EDD receive from the cash that is available for
distribution on February 28, 2020?
a. P 300
b. P 3,200
c. P 5,200
d. P 6,400
REFERENCE: AFAR QUICKNOTES
BY ATTY. IVAN YANNICK S. BAGAYAO, CPA, MBA
4
PROBLEM C: DRAYMOND, IGGY and BOOGY are partners who share profits and losses in the ratio of 40:30:30, respectively. On
January 1, 2018, they decided to liquidate the partnership and the statement of financial position was prepared as follows:
ASSETS
LIABILITIES & CAPITAL
Cash
40,000
Liabilities
40,000
Non Cash Assets
90,000
IGGY, Loan
10,000
BOOGY ,Loan
15,000
DRAYMOND ,Capital
20,000
IGGY, Capital
20,000
BOOGY, Capital
25,000
Total Assets
130,000
Total Liabilities & Capital
130,000
In January, Non cash asset with book value of P 30,000 was sold for P17,500 to a Mr.Thompson; liquidation expense of P5,000 was paid
and only 40% of the outstanding liabilities were paid in january. The partnership withholds cash of P2,500 for next month’s liquidation
expenses. In February, Non cash asset with book value of P 40,000 was sold to Mr. James but a loss on realization of P10,000 was
recognized. liquidation expense of P5,500 was paid and only P10,000 recorded liabilities were paid during the month. The partnership
withholds cash of P2,000 for next month’s liquidation expenses. In March,the remaining Non cash assets were sold to Ms. Smith for P
25,000. A liquidation expense of P7,000 was paid and the remaining liabilities were paid during the month to end the liquidation process.
1. How much should IGGY receive in the month of January?
a. P 0
c. P 10,000
b. P 3,000
d. P 12,250
2. How much should BOOGY receive in the month of February?
a. P 0
c. P 25,000
b. P 12,500
d. P 40,000
3. How much should BOOGY receive in the month of March?
a. P5,125
c. P 20,000
b. P 4,625
d. P 30,000
REFERENCE: AFAR QUICKNOTES
BY ATTY. IVAN YANNICK S. BAGAYAO, CPA, MBA
5