Fundamentals of Accounting II

(Corporation)
28. The following information pertains to ABC partnership of Amor, Bing, and Cora:
Amor,
capital

P200,00
[20%]
0

Bing,
capital

[30%] 200,000

Cora,
capital

[50%] 300,000

On this date, the partners agreed to admit Dolly to the partnership. Assuming Dolly
purchase 50% of the partners capital and pays P500, 000 to old partners, how
would this amount be distributed to them?
P100,00
a. 0

P150,00
0

P250,00
0

P130,0
b. 00

P145,0
00

P225,0
00

P166,66
c. 7

P166,66
7

P166,66
6

P150,00
d. 0

P150,00
0

P200,00
0

ANSWER: #29
PURCHASE OF INTEREST FROM ALL PARTNERS
transferred capital
Amor,
capital
Bing,
capital
Cora,
capital

[20%]

Amounts of

P200,00 X 50% interest of Dolly =

0
X 50% interest of Dolly =

P100,000 *
P100,000

[30%] 200,000 X 50% interest of Dolly =

P150,000
350,000 (given to Dolly)
[50%] 300,000

Amor
Amounts of transferred capital

100,000

Bing
100,000

Cora
150,000

Fundamentals of Accounting II
(Corporation)
Excess payment
75,000
(500,000 350 000 ) x (P/L)
TOTAL Cash distribution
<- Answer (b)

30,000

45,000

_______________________________________
P130,000
145,000
225,000

Since this is a purchase of interest from ALL partners, the 30,000 and 45,000
excess payments of Amor and Bing respectively is their PERSONAL GAIN and
therefore NOT recorded in the partnership books.
Consequently, the
Amor
20%
Bing
30%
Cora
50%
Dolly

new Profit and Loss ratio is computed as follows:

x 50%**
= 10%
x 50%
= 15%
x 50%
= 25%
= 50%

**50% = 100% - %of Dolly

The capital balances are as follows:
Amor
Balance before
admission of Dolly

Bing
200,000

Corra
200,000

Dolly
300,000

Transfer of capital
(100,000)
(100,000)
(150,000)
350,000
__________________________________________________________________________
Balance after admission

100,000

100,000

150,000

350,000

JOURNAL ENTRY:
Amor, Capital
P100,000
Bing, Capital
100,000
Cora, Capital
150,000
Dolly, Capital
P350,000

NOTE: There is NO Gain or Loss realized in the PARTNERSHIP BOOKS when an

incoming partner purchases interest. Purchase of interest is a personal transaction
between the existing partner(s) and incoming partner. The gain or loss is personal
to the partners.
So suppose Dolly paid P250,000 to purchase 50% of the interest of all partners. The
journal entry method is still:

Fundamentals of Accounting II
(Corporation)

Amor, Capital
P100,000
Bing, Capital
100,000
Cora, Capital
150,000
Dolly, Capital
P350,000
The loss is P 100,000 or (250,000 cash paid to partners 350,000 capital
transferred.)
The loss, however, is PERSONAL only to the partners since this is a PURCHASE of
INTEREST.