Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

AFAR DE LEON/ DE LEON/ ALENTON

3401-Partnership MAY 2023

LECTURE NOTES
FORMATION For example:
The initial investments of the partners are recognized at In continuation of the same Illustrative Case
FAIR VALUES and credited to the partners capital accounts Partner A invested additional capital on May 1, 2020 for
in the agreed INTEREST RATIO. Partnership goodwill is no P30,000 cash; contributed merchandise with a fair value of
longer recognized under IFRS. Therefore, the total of the P24,000 on September 1, 2020; and withdrew permanently
contributions of the partners is deemed be also the total cash of P12,000 on December 1, 2020. Partner B had no
agreed capital, to be allocated to individual partners’ additional investments nor permanent withdrawals during
CAPITAL ACCOUNTS per their agreement. For example: 2020.

A and B formed a partnership on January 2, 2020 by They agreed to divide profits and losses as follows:
contributing the following net assets from their respective a. Interest of 6% on average capital for each partner
proprietorships: b. Salaries of P4,000 each month to both partners
A B c. Bonus to A of 10% of net income after interests and
Cash P 30,000 P 20,000 salaries; and
Non cash assets 620,000 730,000 d. The balance is agreed to be divided equally.
Liabilities (450,000) (530,000) e. Both partners withdrew temporarily 60% of their
Net assets P200,000 P220,000 respective salaries.

The non-cash assets of A is overstated by P24,500 while the The reported profit of P150,000 for 2020 will be divided as
liabilities of B is understated by P5,500 They agreed on a follows:
interest/capital ratio of 48:52 to A and B, respectively. A B TOTAL
Interests P 12,852 P 12,168 P 25,020
The compound journal entry to record the formation of the Salaries 48,000 48,000 96,000
partnership is Bonus 2,898 2,898
Cash P 50,000 Balance 13,041 13,041 26,082
Non-cash assets 1,325,500 Total P 76,791 P 73,209 P150,000
Liabilities P 985,500
A, capital 187,200 The journal entry to transfer the net income for 2020 to
B, capital 202,800 capital is
Income Summary 150,000
The above agreement resulted in a bonus of P11,700 from A, capital 76,791
B to A, which is the excess of B’s contribution of P214,500 B, capital 73,209
against a smaller capital credit of P202,800, or the excess
of A’s capital credit of P187,200 over the amount Average capital for Partner A is computed as follows:
contributed of P175,500. This is referred to as BONUS
METHOD. If no bonus is to be recognized, the partners 1/01/20 187,200 x 12/12 P187,200
should have used their contributions ratio, 45:55 as capital 5/01/20 30,000 x 8/12 20,000
ratio to A and B, respectively. This is referred to as NET 9/01/20 24,000 x 4/12 8,000
INVETMENT method. 12/01/20 (12,000) x 1/12 (1,000)
Average capital P214,200
OPERATIONS Multiply by 6%
During the operations of the partnership, loan by a partner Interest P 12,852
to the partnership (Loans Payable) or by the partnership to Ave. capital of B : P202,800 x 6% P 12,168
a partner (Loans Receivable) may be recognized; temporary
drawings in anticipation of profits may occur; additional The financial statements prepared for partnerships are
investments may also be made by the partners; and the similar to those prepared for corporations, except for the
result of operations during the period is reported. following basic differences:
a. In the balance sheet, ownership equity for a partnership
Partnership income or loss is allocated to partners in many will be partners’ capital balances; in a corporation,
ways. Generally, agreement items for income or loss capital stock, additional paid-in capital, and retained
allocation conform with the following remunerations: earnings. In lieu of a statement of retained earnings
a. income allocations on the basis of capital balances to done for corporations, partnerships present a statement
reward partners in proportion to their respective of partners’ capital in support of its ownership equity on
investments through interests; the balance sheet.
b. income allocations on the basis of service contributions b. A statement of partners’ capital balances will show initial
to reward partners for their respective service to the or beginning balances, additional investments,
partnership through salaries; withdrawal of capital, temporary drawings, share of net
c. income allocations on the basis of effective income or net loss, and partners’ compensation treated
management of the partnership through bonuses; and as operating expenses.
d. Any numerical ratio, e.g. 3:2:5 will apply to the residual
profit or loss after allocations made for (a) (b), and (c)
above.

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For example: The journal entry to be recorded upon C’s admission is

Continuing with the same Illustrative Case, the
statement of Partners’ capital balances during 2020 Cash P200,000
follows: A, capital (P89,760 x ½) 44,880
B, capital 44,880
A B TOTAL C, capital P289,760
BB P187,200 P 202,800 P390,000
AI 54,000 54,000 The new profit and loss ratio would probably be
Wdrwl of C ( 12,000) (12,000) Partner A (60% x ½) 30%
Drawings ( 28,800) ( 28,800) (57,600) Partner B 30%
SONI 76,791 73,209 150,000 Partner C 40%
EB P277,191 P247,209 P524,400
b. Admission by purchased interest is one in which the
c. As illustrated, per GAAP, partners’ compensation items new partner transfers assets directly to one or more
such as interests, salaries, and bonuses are simply partners (NOT TO THE PARTNERSHIP) in
items selected by the partners to make the profit consideration for the purchased interest. Thus the
distribution fair. Nevertheless, in some cases, partners’ net assets of the partnerships remain the same even
1remuneration items are treated as operating expenses after the admission of the new partner.
and accordingly included in the income statement. This For example:
latter case requires additional accounting procedures Continuing with the same Illustrative Case and
and the profit agreement will then apply to the assuming the old partner sells 40% of their respective
decreased net income as a consequence of the interests for a total consideration of P200,000, the
increased operating expenses. journal entry to be recorded upon C’s admission is

For example: A, capital P110,876

Continuing with the same Illustrative Case, B, capital 98,884
C, capital P209,760
The following journal entry will be recorded to validate
the compensation items as operating expenses: The total old capital remains at P524,400 after C’s
admission and the consideration of P200,000 is divided
Interest expense 25,020 between Partner A and Partner B as follows
Salary expense 96,000
Bonus expenses 2,898 To A (P277,191 x 40%) – (P9,760 x ½) P105,996
A, capital 63,750 B (P247,209 x 40%) - (P9,760 x ½) 94,004
B, capital 60,168 Total P200,000
The P9,760 is total loss to the old partners, (P209,760
The reduced net income of P26,082 (P150,000 – acquired interest less consideration paid of P200,000).
P123,918) will be recorded as follows
Income Summary 26,082 WITHDRAWAL or RETIREMENT of a PARTNER
A, capital 13,041
B, capital 13,041 If a partner withdraws from the partnership, the partnership
must liquidate the withdrawing partner’s ownership equity,
Although the revised schedule of capital balances will as follows:
have new details, ( 2 items instead of just one over the a. Payment to withdrawing partner will not come from
net income) , the ending capital balances will be partnership assets-
identical since the profit and loss agreement remained The withdrawing partner may just sell his/her interest
effectively the same. to the remaining partners or to an outsider with the
permission of the remaining partners. In this case the
ADMISSION OF A NEW PARTNER entry required to be recorded in the books of the
Any major change in ownership, such as admission of a new partnership is simply the transfer of interest from the
partner, or withdrawal of a partner from an existing withdrawing partner to the buying partner(s)
partnership dissolves the entity. Dissolution of a partnership account(s).
entity does not however imply liquidation, for oftentimes the
business entity continues its operations undisturbed. For example:
Continuing with the same Illustrative Case and assuming
There are two ways a new partner can get admitted into the partner A succumbed to head injuries from a car accident a
partnerships: day after C’s admission by investment, the journal entry to
a. Admission by investment is one in which the new be recorded by the partnership if the heirs of A sold the
partner transfers net assets into the partnerships. partnership equity to D (with B and C’s permission) for
Thus, the net assets of the partnerships increase by P300,000 is
the amount contributed and also increase total
capital by the same amount. Capital credits to all A, capital P232,311
partners upon admission of a new partner will D, capital P232,311
depend upon the agreement.
For example: The total capital of the partnership remains the same
Continuing with the problem, assume C was admitted as at P724,400.
a partner in the AB Partnership by investing P200,000
for a 40% interest in capital and in profits. b. Payment to the withdrawing partner will come from
partnership assets –
The total contributions by the partners will be P724,400 Under this arrangement, one of three situations can
(P277,191 + P247,209 + P200,000). The acquired occur:
interest is P289,760 at 40%, resulting in P89,760 i. Payment is equal to the interest withdrawn, which
excess credit over the amount contributed. is easily recorded by a debit to the capital account

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of the withdrawing partner and a credit for the 11/25/20 Paid third-party creditors in full.
payment made, since both amounts are equal. 11/30/20 Paid partners cash of P306,000 in
ii. Payment is less than the interest withdrawn, which final settlement.
is recorded with bonus to the remaining partners
divided in the remaining profit and loss ratio.
iii. Payment is more than the interest withdrawn, the Lump-Sum Liquidation:
excess is recorded as bonus to the retiring partner Cash NCA A/P A B
and charged to the remaining partners in the BBL 185,000 645,000 96,000 366,000 368,000
remaining profit and loss ratio. Sale 597,000 (645,000) (14,400) (19,200)
LQ Exp (10,000) ( 4,286) ( 5,714)
For example: AP Pd. (96,000) (96,000)
Continuing with the same Illustrative Case but this time Pd to P(676,000) (347,314)(343,086)
payment to A’s heirs will be P240,109 from partnership Balances 0 0 0 0 0
assets, the journal entry to record A’s withdrawal by
death is b. Liquidations in which there are several distributions
during the course of liquidation, oftentimes at points
A, capital P232,311 when there are unrealized non-cash assets and unpaid
B, capital 3,342 third-party creditors. This is called installment
C, capital 4,456 liquidation
Cash P240,109
By-Installment Liquidation:
The total capital after the withdrawal of Partner A will be October Liquidation
P484,291, i.e. Partner B, P198,987 and Partner C, Cash NCA A/P A B
P285,304. The bonus to Partner A of P7,798 is divided BBL 185,000 645,000 96,000 366,000 368,000
between B and C in the remaining profit ratio of 3:4. NCA sale 285,000(300,000) (6,429) (8,571)
Exp pd (4,000) ( 1,714) (2,286)
LIQUIDATION OF A PARTNERSHIP A/P pd (50,000) (50,000)
A liquidation winds up all operations of the partnerships, Pd to P (370,000) (210,000)(160,000)
converts all partnerships assets into cash and distributes to Bals. 46,000 345,000 46,000 147,857 197,143
creditors of the partnerships, then to accounts with
partners. Computation for safe payments to partners
A B TOTAL
Statement of Liquidation Balances, 10/31 357,857 357,143 P 715,000
A statement of liquidation summarizes all liquidation TPL(345,000) (147,857) (197,143) (345,000)
activities, including payments to partners. There are two Free interests 210,000 160,000 P370,000
types of distribution in partnerships liquidation, as follows:
a. Liquidations in which all distributions are made in a November Liquidation
single time following the sale of all non-cash assets. This Cash NCA A/P A B
is called lump-sum, or total, liquidation. It is a summary Bals,11/1 46,000 345,000 46,000 147,857 197,143
of the entire liquidation process upon its completion. It NCA sale 312,000 (345,000) (14,143) (18,857)
is one in which at the time cash is distributed to partners Expenses (6,000) ( 2,571 ) ( 3,429)
noncash assets had been already disposed and the full A/P paid (46,000) (46,000)
loss or gain on realization reflected in partners’ capital Cash to P (306,000) (131,143)(174,857)
balances. Balances 0 0 0 0 0

For example: No need for safe payment computations because the

AB Partnerships is to be liquidated on September partners’ capital and profit ratios have become identical by
30, 2020. On this date, its balance sheet is as the end of October, 2020.
follows:
Cash P 185,000 Distribution of partnership cash in liquidation must be
Non-cash assets 645,000 made to creditors first, and then to partners’ accounts which
A, loan 20,000 are always based on free-interest computations. Loan
Accounts payable (96,000) accounts are prioritized over capital balances only if they
B, loan (12,000) belong to the same partner and only after the amount
A, capital (386,000) payable to that partner has been established by free interest
B, capital (356,000) calculations.

Safe-payment computations is required for every

AB divide profits and losses on a 3:4 ratio to A and distribution to partners when non- cash assets remain
B, respectively. unsold ( and the profit and loss ratio and the interest ratio
at that point are not identical). The purpose of this
The following are liquidation transactions: calculation is to determine who among the partners have
In October, 2020. the free-interests to deserve the payment from the
partnerships.
10/1-31/20 Realized cash of P285,000 from a sale
of non-cash assets of P300,000 Cash Distribution Program – Alternate Method To avoid
10/10/20 Paid liquidation expenses of P4,000 preparing the calculation for safe-payment every time there
10/15/20 Paid third-party creditors P50,000 is an installment distribution, a cash distribution program to
10/31/20 Paid partners cash of P370,000 partners is prepared. This statement is prepared just before
the start of liquidation, i.e. before any realization of assets
In November, 2020 and replaces the safe-payment calculations by the use of
11/2-30/20 Realized P312,000 from the sale of just one schedule for the numerous distributions to partners
the remaining non-cash assets normally occurring in liquidation.
11/15/20 Paid liquidation expenses of P6,000

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For example: October payment

Continuing with the current illustrative case 10/31/20 Payment, P370,000
A B TOTAL
Priority 1 90,000 - 90,000
INTERESTS PAYMENTS Priority 2 120,000 160,000 280,000
A B A B TOTAL Totals 210,000 160,000 370,000
BBL 366,000 368,000 November payment of P306,000 will be paid in the original
/PLR 3/7 4/7 profit and loss ratio of 3:4 to A and B, respectively:
LAA 854,000 644,000
P#1 (210,000) 90,000 - 90,000 To A: P306,000 x 3/7 P 131,143
LAA 644,000 644,000 90,000 - 90,000 B: P306,000 x 4/7 174,857
P#2 Payments to both partners in the original P&L ratio.

Please note that payment to partners (AFTER the first

P90,000 payment to A) will henceforth be in the original P&L
ratio because the capital and profit ratios of the partners
have become identical after the said priority payment.

- done –

DISCUSSION PROBLEMS
PARTNERSHIP FORMATION 6. Explain why Partner Yves was unaffected by the
Xerox, Yves, and Zeus formed the XYZ Partnership on June bonus feature in the ownership agreement among
1, 2020, with the following assets and liabilities, measured the partners.
at book values in their respective records, contributed by
each partner: PARTNERSHIP OPERATIONS
On January 1, 2020, Chris and Nikki formed a partnership
Xerox Yves Zeus by initially contributing cash of P 280,000 and P176,000,
respectively. The changes in their capital balances during
Cash P160,000 P120,000 P120,000 2020 are summarized as follows:
Accounts
receivable 28,180 30,800 55,120
Inventory 108,000 95,400 53,600
CHRIS NIKKI
Plant, Property, & Balances, January 1 P280,000 P 176,000
Equipment (PPE) 360,000 288,000 304,000 Investment, April 1 25,600
Accounts payable (32,000) (40,000) 48,000 Withdrawal July, 1 (40,000)
Long-term debt ( 80,000) (96,000) 104,000 Investment, September 1 74,400
Net assets P544,180 P398,200 P380,720 Withdrawal, October 1 (3,200)
Investment, December 31 6,400
Balances, December 31 P 302,400 P 216,800

The partnership reported a net income of P324,960 in 2020

Except for the plant assets and the long term debts, the and the profit and loss agreement are as follows:
partners have agreed that the proprietorship net assets are a. Interest at 5% is allowed on average capital balances;
fairly valued. b. Salaries of P2,000 per month to each partner;
c. Bonus to Chris of 10% of net income after interest,
The agreed fair valuation of net asset items where the book salaries, and bonus; and
value is not the fair value follows: d. Balance to be divided in the ratio of 6:4 to Chris and
Nikki, respectively.
Xerox Yves Zeus
PPE P404,000 P277,920 P260,100 Both partners withdrew one-fourth of their salary
Long-term-debt 92,000 100,000 120.720 allowances in 2020.

1. How much is the contribution of each partner? Required:

Calculate their contribution ratio. 1. Prepare a schedule for the division of net profit for 2020
with supporting computations when appropriate.
2. What is the capital balance for each partner at the 2. Prepare a statement of the partners’ capital balances for
opening of business on June 1 as per above 2020.
information?
3. Prepare the journal entry in the partnership books
for the above assumption.

4. What is the capital balance for each partner at June

1, instead, if the interest ratio is agreed at 4:3:3 to
Xerox, Yves. and Zeus, respectively?

5. Prepare the journal entry for the revised

assumption.

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PARTNERSHIP DISSOLUTION The corporation’s ordinary shares is to have a par value of

A. ADMISSION OF A NEW PARTNER P312.50 each and the partners are to be issued corresponding
Elmo and Lito are partners sharing profits and losses in the shares equivalent to 70% of their adjusted capital balances.
ratio of 60% and 40%, respectively. The partnership The partnership balance sheet at December 31, 2020
balance sheet at April 30, 2020 follows: follows:
Cash P 112,500 Liabilities P 107,500
Cash P 40,000 Accounts Payable P 90,800 Accts rec 62,500 Acc. Dep 5,000
Inventory 87,500 Boba, cap. 106,250
Inventory 60,000 Elmo, Loan 4,400
Equipment 50,000 Tess, cap. 93,750
Land 64,000 Elmo, capital 380,000
Total P 312,500 Total P 312,500
Buildings 404,000 Lito, capital 104,800
1. Determine the total credit to APIC upon incorporation of the
Lito, Loan 12,000 partnership
Total P 580,000 Total P580,000 a. P 61,875 c. P 60,000
b. P 144,375 d. P 140,000
The partners agreed to admit Romy for a one-tenth interest
for a P56,000 consideration. At the time of admission, the 2. The number of ordinary shares issued to Partner Tess is
fair market value of the land is appraised at P144,000 and a. 210 c. 238
the market value of the inventory is P120,000. b. 245 d. 217

1. Assume Romy is admitted by purchase of each of the

original partners’ interest and paid the partners : PARTNERSHIP LIQUIDATION.
A. Prepare the journal entries on the revaluation of 1. LUMP-SUM
assets and the admission of Romy
B. Calculate the capital balances of the partners after DONNA, JANICE and ELLERY plan to liquidate their partnership.
the admission of Romy. They have always shared losses and gains in a 2:3:5 ratio, and
C. Calculate the amounts received by Elmo and by Lito on the day of the liquidation their balance sheet appeared as
for their respective partnership interest transferred follows:
to Romy
DONNA, JANICE, and ELLERY
D. Explain why no amount of bonus was recognized
Balance Sheet
despite the difference between Romy’s investment
December 31, 2020
and his acquired partnership interest. Assets Liabilities and Capital
Cash P68,750 Accounts payable P130,370
2. Now assume Romy is admitted by investing the P56,000 ELLERY, loan 5,000
to the partnership for a 10% interest Other assets 451,250 DONNA, Capital 76,250
JANICE, loan 50,000 JANICE, capital 250,880
A. Calculate the partners’ capital balances after the _______ ELLERY, capital 107,500
admission of Romy. Total assets P570,000 Total equities P570,000
B. Prepare the journal entry for the admission of Romy.
The other assets are sold for P212,500, and assume the
B. RETIREMENT OF A PARTNER following information on partners’ net assets, exclusive of their
respective partnership interests at that point.
The following balances as at October 31, 2020 for the
Partnership of Tony, Liza, and Cory were as follows: DONNA JANICE ELLERY
Cash P 66,000 Liabilities P 65,000 Assets P687,500 P375,000 P 167,000
Liza, Loan 19,000 Tony, loan 20,500 Liabilities 562,500 350,000 161,875
Other Assets 500,000 Tony, capital 167,000
Required: Prepare general journal entries to record the sale of
Liza, capital 107,500
the other assets and the distribution of the cash to the proper
Cory, capital 225,000
parties. Show supporting computations in good form.
Totals P585,000 Totals P585,000
. BY INSTALLMENT
Tony has decided to retire from the partnership on October
31. Partners agreed to adjust the non-cash assets to their On December 31, 2020, the balance sheet of CDO Partnership
fair market value of P620,000. The estimated profit to is as follows:
October 31 is P120 ,000. Tony will be paid P252,500 for his Assets Liabilities
partnership interest exclusive of his loan which is repaid in Cash P 15,360 Account Payable P51,200
full. Their profit and loss ratio is 4:2:4 to Tony, Liza and Salry Pyble, Celia 10,240
Cory, respectively. Noncash assets 271,360 Dave, Loan 20,480
1. Prepare entries for the retirement of Tony from the Loan to Oleg 10,240 Celia, Capital 38,912
partnership. Dave, Capital 73,728
_______ Oleg, Capital 102,400
2. What will be the balance of Liza’s capital account after P296,960 P 296,960
the retirement of Tony?
Profit and losses were shared as follows; Celia, 30%; Dave,
C. INCORPORATION 30%; Oleg, 40%. It was decided to liquidate the business. The
following is a summary of the realization and liquidation
Partners Boba and Tess, who share profits and losses equally,
activities.
have decided to incorporate the partnership at December 31,
Book
2020. The partnership net assets after the following
Value Cash Paid
adjustments will be contributed in exchange for shares of stocks
of Asset Cash Expense Liabiliti to
from the corporation.
Realized Collected s es Partners
i. provision of allowance for doubtful accounts, P6,250.
Paid Paid
ii. adjustment of overstated equipment by 2,500
iii. adjustment of understated inventory by P20,000 and 1st
iv. recognition of additional depreciation of P5,000. Period 133,120 81,920 4,100 40,000 41,980
2nd
Period 76,800 51,200 4,800 11,200 40,000

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3rd
Period 61,440 35,840 3,600 - 38,640 Required:
Total 271,360 168,960 12,500 51,200 120,620 1. Prepare a statement of liquidation for each period.
2. Prepare a program to show how cash is to be distributed
to partners.

MULTIPLE CHOICE QUESTIONS

FORMATION OPERATIONS
Amer and Balgan have just formed a partnership. Amer
contributed cash of P736,000 and office equipment that CARA and JEREMY created a partnership to own and
costs P337,600. The equipment had been used in his sole operate a health-food store. The partnership agreement
proprietorship and had been 70% depreciated. The current provided that CARA receives an annual salary of P8,000 and
value of the equipment is P236,000. Amer also contributed JEREMY a salary of P4,000 to recognize their relative time
a note payable of P69,600 to be assumed by the spent in operating the store. Remaining profits and losses
partnership. The partners agreed on a profit and loss ratio were divided 60:40 to CARA and JEREMY, respectively.
of 50% each. Amer is to have a 70% interest in the Income of P10,400 for 2019, the first year of operations,
partnership. Balgan contributed only the merchandise was allocated P7,040 to CARA and P3,360 to JEREMY. On
inventory from her sole proprietorship carried at P440,000 January 1, 2020, the partnership agreement was changed
on a first-in- first-out basis. The current fair value of the to reflect the fact that JEREMY could no longer devote any
merchandise is P420,000. time to the store’s operations. The new agreement allows
1. To consummate the formation of the partnership Amer CARA a salary of P14,400, and the remaining profits and
should make additional cash investment or (withdrawal) losses are divided equally. In 2020 an error was discovered
of: such that the 2019 reported income was understated by
a. P179,200 P3.200. The partnership income of P20,000 for 2020
b. P(24,000) included this P3,200 related to 2019.
c. P 77,600 1. In the reported net income of P20,000 for the year 2020,
d. P(64,000) CARA would have
a. P17,520
In 2020, Sonia and Carla agreed to form a new partnership b. P0
under the following general agreements: c. P13,680
(1) Partners’ CONTRIBUTIONS will be on a 5:4 ratio; (2) d. P10,000
PROFIT & LOSS, 5:5, and (3) CAPITAL CREDITS, 6:4
ratio, respectively to Sonia and Carla. Their respective ERROL FLOR, and GAB invest P32,000, P24,000 and
contributions will come from old proprietorships they P20,000 respectively, in a partnership on June 30, 2020.
owned. They agree to divide net income or loss as follows:
a. Interest at 10% on beginning capital account balances
Sonia contributed the following items and amounts: b. Salaries of P8,000, P6,400 and P4,800, respectively to
Cash P599,040 ERROL, FLOR, and GAB, respectively.
Equipment (at book value per her c. Remaining net income or loss is divided equally
proprietorship records) 409,600 d. A minimum of P14,400 of income is guaranteed to GAB
regardless of the results of operation.
Carla contributed the following items at their carrying
amounts in the proprietorship records: 2. If the net income for the year ended June 30,2020 before
Accounts receivable 76,800 interest and salary allowances to partners was P35,200,
Inventory 215,040 the amount of the net income credited to ERROL is:
Furniture and fixtures 411,648 a. P17,500
Intangibles 176,640 b. P16,000
c. P14,667.20
All the non-cash contributions are not properly valued. The d. P11,600
two partners have agreed that (a) P6,144 of the accounts
receivable are uncollectible; (b) the inventories are
overstated by P15,360; (c) the furniture and fixtures are Partners JOYCE and MARIE share profits 3:1 after annual
understated by P9,216; and the intangibles include a patent salary allowances of P3,200 and P4,800 respectively;
with a carrying value of P10,752, which must now be however, if profits are not adequate to meet the salary
derecognized upon a court order. The rest of the intangible allowances, the entire profit is to be divided in the salary
items are fairly valued. ratio. Profits of P7,200 were reported for the year 2019. In
2. How much is the total depreciable fixed asset recorded 2020, it is ascertained that in calculating net income for the
by the partnership? year ended December 31, 2019, depreciation was
a. P 848,640 c. P 893,184 overstated by P2,880 and the ending inventory was
b. P 322,560 d. P 833,184 understated by P640.
3. The amount of the net adjustments in the books of JOYCE
3. What is the capital balance of Carla after the formation and MARIE are:
of the partnership? JOYCE MARIE
a. P 717,937 c. P 737,179 a. P(2,959) P(14,505)
b. P 797,173 d. P 771,379 b. P 2,360 P 1,160
c. P 6,550 P 6,850
d. P 1,840 P 2,780

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ADMISSION OF A NEW PARTNER Daisy is retiring from the partnership. The partners agree that
partnership assets, excluding Daisy’s loan, should be adjusted
Albert, Berto, Carlo, and Dindo have become partners in the to their fair value of P1,000,000 and that Daisy should receive
ABCD Partnership under the following circumstances: P304,000 for her capital balance net of the P100,000 loan.
1. How much are the capital balances of Beth and Maya
On August 1, 2020 Partners Albert and Berto had the immediately after Daisy’s retirement.
following ownership balances in the AB Partnership: a. P380,000; P116,000
ALBERT BERTO b. P400,000; P120,000
Capital P250,000 P200,000 c. P385,000 P117,000
Loan (30,000) 10,000 d. P308,333 P101,667
Total P220,000 P210,000
In the morning of this date, Carlo was admitted as a partner A, B, and C formed a partnership on January 2, 2019 with the
with an investment of P150,000 for 20% interest in capital following contributions:
and in profits or losses. A P100,000
B 200,000
In the afternoon of the same day, over snacks, Dindo C 300,000
learned about the nature and objectives of the ABC The partners agreed on a capital ratio of 1:2:3 upon formation
Partnership and insisted that he became a partner and was and P&L ratio of 3:3:4, respectively. The partnership reported
willing to contribute P120,000 under acceptable terms a net loss of P20,000 for 2019. Also, at the end of 2019, C has
decided to withdraw from the firm and was paid P250,000 from
determined by the old partners.
partnership cash.
The old partners, in a caucus, have agreed to allocate 15%
On April 1, 2020, D was admitted as a partner with an
of existing total capital, as well as 15% of profits or losses investment of P160,000. He is given a share in capital of
to Dindo. Over dinner, Dindo accepted the admission 40%and in profits, 30% the old partners have agreed to retain
arrangement without any change. On the other hand, the their old ratio over the remaining profit and loss share of 70%.
old partners will each transfer 15% of their respective The partnership reported a net profit of P21,000 for 2020, one-
interest to Dindo. Under the old AB Partnership, profit or third of which is deemed earned as of the end of the year’s first
loss was 60% and 40% to Albert and Berto, respectively. quarter’s operation.
2. Determine the capital balances of A and B, respectively, as
of December 31, 2019.
1. Determine the capital balance of Carlo upon his admission a. P 94,000 & P194,000 c. P 194,000 & P115,000
to the AB Partnership on August 1. b. P 115,000 & P215,000 d. P 165,000 & P215,000
a. P116,000 c. P120,000
3. Determine the capital balances of A, B, and D, respectively
b. P122,000 d. P118,000 on December 31, 2020.
a. P 98,500, P 75,720 & P 113,840
2. Determine the capital balance of Blanche under the ABCD b. P 93,640, P 70,820 & P 109,640
Partnership in the late evening of August 1, 2020. c. P100,990.40 78,170.40 & P 120,140
d. P104,000, P204,000 & P 203,000
a. P 27,800 c. P108,000
b. P180,200 d. P 90,000 INCORPORATION
Lexy and ACE partnership’s balance sheet at December 31, 2019
The following is the condensed balance sheet of G & N reported the following balances.
partnership at August 30, 2020, at which date Ella is to be Total assets P187,500
Total liabilities 37,500
admitted with a 30% interest in capital and in profits for Lexy, capital 75,000
an investment of P44,000. Ace, capital 75,000
Book Value Fair Value
On January 2, 2020, LEXY and ACE dissolved their partnership and
Cash P 16,000 P 16,000
transferred all assets and liabilities to a newly formed corporation.
Other assets 402,400 333,600 At the date of incorporation, the fair value of the net assets was
Current liabilities (43,200) (43,200) P22,500 more than the carrying amount on the partnership’s books.
Non current liabilities (215,200) (220,000) Of which P12,500 was assigned to tangible assets and P10,000 was
assigned to patent. LEXY and ACE were each issued 5,000 shares
Greg, capital ( 96,000) of the corporation’s P12.50 par common stock.
Nick, capital ( 64,000) 3. Immediately following incorporation, additional paid-in capital
Greg and Nick share profits and losses 60% and 40%, in excess of par should be credited
a. P160,000 c. P 25,000
respectively.
b. P 47,500 d. P137,500
3. What will be the capital balances of Greg and Nick after
Ella’s admission? LIQUIDATION
a. P54,768 and P36,512 c. P36,512 and P54,768 Partners EDMAN, SALLY and ZARAH decided to liquidate their
b. P39,120 and P52,512 d. P51,888 and P39,392 partnership on November 30, 2020. Their capital balances and
profit and loss ratio are as follows:
Capitals P & L Ratio
Edman P 480,000 40%
RETIREMENT OF A PARTNER Sally 627,200 40%
Zarah 192,000 20%
The balance sheet at December 31, 2020, for the Beth, Daisy,
and Maya partnership is summarized as follows: The net income from January 1, 2020 to November 30, 2020 is
P524,800. On November 30, 2020, the cash balance is P416,000,
and that of liabilities is P928,000..
Assets P 800,,000 Liabilities P200,000
Loan to Daisy 100,000 Beth capital (50%) 300,000
Daisy capital (40%) 300,000
Maya capital (10% 100,000
P 900,000 P900,000

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TEAM PRTC

Edman is to receive P565,248 in the settlement of his interest. 7. If the firm is dissolved and liquidates and A receives a total
2. Calculate: (1) The loss on realization, and (2) the amount to of P2,400 in full settlement of his interest, then C would
be realized from the sale of non-cash assets? have received a total of
a. (1) P311,680; (2) P2,024,320 a. P56,000 c. P 48,400
b. (1) 248,000; (2) 5,100,000 b. P 31,000 d. P 59,000
c. (1) 620,000; (2) 3,860,000
d. (1) 552,000; (2) 3,860,000

The accounts of the partnership of PBA at December 31, 2020 are

The accounts of the Partnership of R, S, and T at the end of as follows:
its fiscal year on November 30, 2020 are as follows: Cash P 105,600 Liabilities P 80,000
Cash P 106,240 Loan from S P 20,480 Non-cash assets 932,800 Loan from B 25,600
Other non-cash R, capital (30%) 272,640 Loan to P 19,200 P, capital 264,000
assets 724,480 B, capital 468,800
Loan to R 15,360 S, Capital (50%) 139,520 A, capital 219,200
Liabilities 268,800 T, capital (20%) 144,640 Total P1,057,600 Total P1,057,600
3. If in the first cash distribution, S received P51,200, which of
the following statements is incorrect? They divide profits and losses 3:5:2 to P, B, and A respectively.
a. Total amount distributed to partners is P344,320. They have decided to liquidate the partnership at this date.
b. Total amount paid to creditors is P268,800.
c. Total amount realized from the non-cash assets is 8. Determine the amount payable to Partner A if cash is paid
P613,120 just before the start of liquidation on December 31, 2020.
d. R received an amount equal to 192,000. a. P 22,628.80 c. P 28,285.60
b. P 28,240 d. P 28,096

The partnership ABC is currently liquidating and on February 15,

2020, their balances in capital and their profit and loss (P&L) ratios
are shown below:
A condensed balance sheet with profit sharing percentages for the
Apple, capital (P&L 40%) P17,600 E, F, and G partnership on January 1, 2020, shows the following:
Bryan, capital (P&L 20%) 11,200
Cecile, capital (P&L 40%) ( 9,600) Cash P 80,000 Liabilities P 64,000
Assume non-cash assets have been all disposed and Cecile has Other assets 400,000 E, capital (40%) 80,000
promised to pay his deficiency in a week’s time, F, capital (40%) 200,000
G, capital (20%) 136,000
4. Calculate the amount to be received by one of the partners if P480,000 P480,000
cash is paid immediately on February 15, 2020.
a. Apple, P22,000 c. Bryan, P 8,000 On January 2, 2020, the partners decide to liquidate the business,
b. Bryan, P12,000 d. Apple, 12,000 and during January they sell assets with a book value of P240,000
for P136,000.

The balance sheet for CHESTER, JOANA and JOHN Partnership, who
share profits and losses in the ratio of 50%, 25%, and 25%, 9. How much cash will the partners receive if all available
respectively, shows the following balances just before liquidation. cash, except for a P8,000 contingency fund, is distributed
Cash P 19,200 immediately after the sale.
Other assets 95,200 a. All partners will receive P60,000
Liabilities 32,000 b. Partners F and G will both receive P72,000
Chester, capital 35,200 c. Partner F will receive P96,667 and partner G will
Joana, capital 24,800 receive P93,333
John, capital 22,400 d. Partner F will receive P190,000
On the first month of liquidation, certain assets are sold for
P51,200. Liquidation expenses of P1,600 are paid, and additional
liquidation expenses are anticipated. Liabilities are paid amounting Claudia, Petra, Mona, and Hilda are partners who share profits and
to P8,640 and sufficient cash is retained to ensure the payment to losses at 40%, 30%, 20%, and 10%, respectively. Since two of
creditors before making payments to partners. On the first them have given intention to withdraw, they have decided to
payment to partners, Chester receives P10,000. liquidate the partnership instead. At this point, the capital balances
5. Determine the amount of cash withheld for anticipated of the partners are as follows:
liquidation expenses. Claudia P40,800
a. P35,200 c. P33,200 Petra 17,280
Mona 27,520
b. P29,200 d. P 4,800
Hilda 13,600

10. Which of the following statement is true?

The following balance sheet for the partnership of A, B, and C was
a. The first available P1,920 will go to Claudia..
taken from the books on December 31, 2020.
b. Hilda will be the last to receive cash
Assets Liabilities and Capital
c. The first available P320 will go to Mona.
Cash P 32,000 Liabilities P 80,000
d. Petra will collect a portion of any available cash before
Other Assets 288,000 A, Capital (40%) 59,200
Hilda receives anything.
B, Capital (40%) 104,000
C, Capital (20%) 76,800
Total Assets P 320,000 Total Liab & Cap P 320,000

6. If the firm is dissolved and liquidates by installment, the first

sale of the other assets having book value of P144,000
realized P64,000 and all cash available are distributed, the
amount to be received by A, B, and C respectively would
be
A B C
a. P 0 P18,000 P40,000
b. P 0 P80,000 P20,000
c. P20,000 P 0 P 0
d. P 0 P 0 P16,000

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