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Partnership formation, operation, admission and retirement May 2019


George and Primo decided to form a partnership on October 1, 2018. Their Statement of Financial
Position on this date were:

George Primo
Cash 65,625.00 164,062.50
Accounts Receivable 1,487,500.00 896,875.00
Merchandise Inventory 875,000.00 885,937.50
Equipment 656,250.00 1,268,750.00
Total 3,084,375.00 3,215,625.00

Accounts Payable 459,375.00 1,159,375.00

George, Capital 2,625,000.00
Primo, Capital 2,056,250.00
Total 3,084,375.00 3,215,625.00

They agreed the following adjustments shall be made:

 Equipment of George is under depreciated by P87,500 and that Primo is over depreciated by
 Allowance for doubtful accounts is to be set up amounting to P297,500 for George and P196,875 for
 Inventories of P21,875 and P15,312.50 are worthless in the books of George and Primo respectively.
 The partnership agreement provides for a profit and loss ratio of 70% to George and 30% to Primo.

Assuming the use of transfer of capital method, how much is the agreed capital of George to bring the
capital balances proportionate to their profit and loss ratio.


On January 1, 2018, AB and QR agreed to form a partnership. The following are their assets and

Accounts AB QR
Cash 136,000 76,000
Accounts Receivable 88,000 48,000
Inventories 304,000 364,000
Machinery 480,000 440,000
Accounts Payable 216,000 144,000
Notes Payable 140,000 60,000

AB decided to pay off his notes payable from his personal assets. It was also agreed that QR inventories
were overstated by P24,000 and AB machinery was over depreciated by P20,000. QR is to
invest/withdraw cash in order to receive a capital credit that is 20% more than AB’s total net investment
in the partnership.

How much cash will be presented in the partnership’s statement of financial position?



On December 1, 2018, Jackie and Kiko agreed to invest equal amounts and share profits equally to form
a partnership. Jackie invested P3,120,000 cash and a piece of equipment. Kiko invested some assets
which are shown on the next page:

Book value
Accounts Receivable 400,000
Inventory 1,120,000
Machineries, net 2,240,000
Intangibles, net 920,000

The assets invested by Kiko are not properly valued, P32,000 of the accounts receivable are proven
uncollectible. Inventories are to be written down to P1,040,000. Included in the machineries is an
obsolete apparatus acquired for P384,000 with an accumulated depreciation balance of P336,000. Part
of the intangibles is a patent with a carrying value of P56,000 which was sued upon by a competitor.
Kiko unsuccessfully defended the case and the final decision of the court was released on November 29,

What is the fair value of the equipment invested by Jackie?


On December 1, 2018, MG and AN are combining their separate businesses to form a partnership. Cash
and noncash assets are to be contributed. The noncash assets to be contributed and the liabilities to be
assumed are as follows:
Book value Fair value Book value Fair value
Accounts Receivable 250,000 262,500 200,000 195,000
Inventory 400,000 450,000 200,000 207,500
PPE 1,000,000 912,500 862,500 822,500
Accounts Payable 150,000 150,000 112,500 112,500

MG and AN are to invest equal amount of cash such that the contribution of MG would be 10% more
than the investment of AN.
What is the amount of cash presented on the partnership’s statement of Financial Position on December
1, 2014?


CC Partnership began operations on June 1, 2018. On that date, Cathy and Carl have capital credits of
P175,000 and P240,000, respectively. The partnership has the following profit-sharing plan:

a.) 10% interest on partners’ capital balances at the end of the year
b.) P60,000 and P75,000 annual salaries for Cathy and Carl, respectively.
c.) Remaining profit will be divided to Cathy and Carl on a 3:2 ratio, respectively.

During the year, Cathy invested P150,000 worth of merchandise and withdrew P40,000 cash, while Carl
invested P120,000 cash. The partnership earned a profit of P266,375 during the year.

How much is Cathy’s capital balance at the end of 2014?



AY and AN are partners who have the agreement to share profit and loss in the following manner:

Annual salaries 261,000 259,000
Interest on average balances 5% 10%
Bonus (based on net income after salaries and interest) 10%
Remainder 50% 50%

During the year ended December 31, 2014, the partnership generated a profit of P575,000 before any
deductions. AY’s and AN’s average capital balances for the year are P600,000 and P300,000,
respectively. Income is distributed to the partners only as far as it is available.

How much is the total share of AN in the net income for the year ended 2014?


Hans, Lance, Arthur and Sidd own a publishing company that they operate as a partnership. Their
agreement includes the following:

 Hans will receive a salary of P20,000 and a bonus of 3% of income after all the bonuses.
 Lance will receive a salary of P10,000 and a bonus of 2% of income after all the bonuses.
 All the partners are to receive the following: Hans – P5,000; Lance – P4,500; Arthur – P2,000; and
Sidd – P4,700, representing 10% interest on their average capital balances.
 Any remaining profits are to be divided equally among the partners
 Partnership reports a profit of P40,000

How much is Lance’s share in the profit if profit is distributed in the following order of priority: interest
on invested capital, then bonuses, then salary and then according to profit and loss percentage?


Sarah, Amy and Tricia are partners with capital balances of P784,000, P2,730,000 and P1,190,000
respectively, sharing profits and losses in the ratio of 3:2:1. Daniel 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
P735,000 for bonus upon his admission.

How much cash should Daniel contribute?


Paula, Billy and Tiffany were partners with capital balances on January 2, 2018 of P350,000, P525,000
and P700,000, respectively. Their profit ratio is 5:3:2 while their capital interest ratio is 4:4:2. On July 1,
2018, Jade was admitted by the partnership for 20% interest in capital and 25% in profits by contributing
P87,500 cash, and the old partners agree to bring their interest to their old capital and profit interest
sharing ratio. The partnership had net income of P210,000 before admission of Jane and the partners
agree to revalue its overvalued equipment by P35,000.

The capital balance of Paula after admission of Jade is:



Ogie, Olie and Orly are partners sharing profits and losses 3:3:4, respectively. Orly gets permission to
withdraw from the partnership and they agree that settlement shall be made by payments from
personal funds of the remaining partners. Their capital balances are P30,000, P25,000 and P45,000,
respectively, when Orly withdraws. If Orly is paid P48,000 and the asset revaluation method is used, the
assets undervaluation is ?


MM, NN and OO are partners with capital balances in December 31, 2018 of P300,000, P300,000 and
P200,000, respectively. Profits are shared equally. OO wishes to withdraw and it is agreed that OO is to
take certain equipment with second-hand value of P50,000 and a note for balance of OO’s interest. The
equipment are carried on the books of P65,000. Brand new equipment may cost P80,000

Determined capital balances of MM and NN after the retirement?

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