COLLEGE OF ACCOUNTANCY

FINANCIAL ACCOUNTING & REPORTING PART 2

SELECTED PROBLEMS FROM QUIZ 2 QUESTIONNAIRE
WITH SOLUTIONS

ADMISSION OF A PARTNER-PURCHASE OF INTEREST FROM EXISTING

PARTNERS (Payment to old partners is more than the interest purchased)

1. Bee & Cee are partners sharing profits in the ratio of 3:2, respectively. Their capital
balances are: Bee-P48,000 and Cee-P24,000. On January 1, they agreed to admit Dee
into the partnership. Dee purchases ½ interest from Bee and Cee. Dee pays P50,000 to
the partners which they divided between themselves. What is the capital balance of Bee
after the admission of Dee?

ANSWER: Bee P24,000

SOLUTION:
Bee Capital P48,000 – ( P48,000 X 50% interest purchased by Dee=P24,000) =P24,000

ADMISSION OF A PARTNER-PURCHASE OF INTEREST FROM EXISTING

PARTNERS (Payment to old partners is less than the interest purchased)

2. On January 1, Bee & Cee Partnership agreed to admit Dee into the partnership. Dee
purchases 1/4 interest from Bee and ½ of Cee’s interest. Dee pays the partners P25,000
which they divided between themselves. Bee and Cee are sharing profits in the ratio of
60% and 40%, respectively. Their capital balances are: Bee-P72,000 and Cee-P36,000.
What is the capital balance of Cee after the admission of Dee?

ANSWER: Cee P18,000

SOLUTION:
Cee Capital P36,000 – (P36,000x ½) = P18,000 Cee Capital after the admission of Dee

Cee Capital before the admission of Dee P36,000

Less (P36,000x ½)………………………… 18,000
Cee capital after the admission of Dee P18,000
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(Purchase of interest from existing partners, payment is less than the interest purchased. No
recognition of gain or loss in the books of the partnership. Only transfer of capital) Page 3-4 ,
case 2

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ADMISSION OF A PARTNER-INVESTMENT OF ASSETS IN A PARTNERSHIP-
BONUS TO THE NEW PARTNER

3. Bee & Cee has capital balances of P195,000 and P585,000 respectively before admitting
Dee. Bee & Cee has a profit and loss ratio of 30:70. Dee invested P300,000 for a one-third
interest in a Bee & Cee Partnership. After distribution of the bonus, what is the capital
balance of Bee?

ANSWER: P177,000

Solution: P195,000+P585,000+P300,000=P1,080,000x1/3 =P360,000 Capital interest of

Dee. Dee’s investment is P300,000. Bonus to new partner of P60,000.
Bee, Capital P195,000- (P60,000 x 30%=P18,000)=P177,000

Contributed Bonus Agreed

-
Bee 195,000 18,000 177,000
-
Cee 585,000 42,000 543,000
-
Total 780,000 60,000 720,000
Dee 300,000 60,000 360,000
Total 1,080,000 0 1,080,000

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ADMISSION OF A PARTNER-INVESTMENT OF ASSETS IN A PARTNERSHIP-

BONUS TO THE OLD PARTNERS

4. Bee & Cee capital balances are P 300,000 and P100,000 respectively before the admission
of Dee. Dee invested P200,000 for a 1/4 interest in a Bee & Cee Partnership. Bee & Cee’s
profit and loss ratio are 3/4 & 1/4, respectively. What is the capital balance of Cee after
the distribution of bonus?

ANSWER P112,500

P300,000+100,000+200,000=P600,000x1/4=P150,000 capital credit to Dee.

Actual contribution of Dee, P200,000-150,000=P50,000 bonus to old partners.
Cee capital P100,000 + (P50,000x1/4=P12,500)= P112,500
 Contributed Bonus Agreed
Bee 300,000 37,500 337,500
Cee 100,000 12,500 112,500
Total 400,000 50,000 450,000
Dee 200,000 -50,000 150,000
Total 600,000 0 600,000

5. Bee & Cee have capital balances of P 450,000 and P1,350,000 respectively before the
admission of Dee. Dee invested P900,000 for a 1/4 interest in a Bee & Cee Partnership.
Bee & Cee’s profit and loss ratio are 2/5 & 3/5, respectively. What is the capital balance
of Bee after the distribution of bonus?

ANSWER P540,000

P450,000+1,350,000+900,000=P2,700,000x1/4=P675,000 capital credit to Dee.

Actual contribution of Dee, P900,000-675,000=P225,000 bonus to old partners.
Bee capital P450,000 + (P225,000x2/5=P90,000) = P540,000

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ADMISSION OF A PARTNER-INVESTMENT OF ASSETS IN A PARTNERSHIP-BONUS

TO THE NEW PARTNER (WITH NO PROFIT & LOSS RATIO AGREEMENT)

6. Bee & Cee have capital balances of P 200,000 and P300,000 respectively before the
admission of Dee. Dee invested P100,000 for a 20% interest in Bee & Cee partnership.
What is the capital balance of Cee after the distribution of bonus?

ANSWER P288,000

P100,000+200,000+300,000=P600,000x20%=P120,000 capital credit to Dee.

Actual contribution of Dee, P100,000-120,000=P20,000 bonus to new partner.
Bee, Capital: P200,000 - (P20,000x2/5=P8,000)=P192,000
Cee, Capital: P300,000 - (20,000x3/5=P12,000)=P288,000
 Contributed Bonus Agreed
Bee 200,000 -8,000 192,000
Cee 300,000 -12,000 288,000
Total 500,000 -20,000 480,000
Dee 100,000 20,000 120,000
Total 600,000 0 600,000

7. Bee & Cee have capital balances of P 500,000 and P300,000 respectively before the
admission of Dee. Dee invested P200,000 for a 25% interest in Bee & Cee partnership.
What is the capital balance of Cee after the distribution of bonus?

ANSWER P381,250

P200,000+500,000+300,000=P1,000,000x25%=P250,000 capital credit to Dee.

Actual contribution of Dee, P200,000-250,000=P50,000 bonus to new partner.
Bee, Capital: P500,000 - (P50,000 x 5/8 = P31,250)=P468,750
Cee, Capital: P300,000 - (P50,000 x 3/8 = P18,750)=P281,250

ADMISSION OF A PARTNER-INVESTMENT OF ASSETS IN A PARTNERSHIP-BONUS

TO THE OLD PARTNERS (WITH NO PROFIT & LOSS RATIO AGREEMENT)

8. Dee invested P400,000 for a 25% interest in Bee & Cee partnership. Before the admission
of Dee, Bee & Cee capital has the following capital balances: P400,000 and P600,000
respectively. What is the capital balance of Cee after the distribution of bonus?

ANSWER P630,000

P400,000+400,000+600,000=P1,400,000x25%=P350,000 capital credit to Dee.

Actual contribution of Dee, P400,000-350,000=P50,000 bonus to OLD partners.
Bee, Capital: P400,000 + (P50,000x 4/10=P20,000)=P420,000
Cee, Capital: P600,000 + (P50,000x 6/10=P30,000)=P630,000

Contributed Bonus Agreed

Bee 400,000 20,000 420,000
Cee 600,000 30,000 630,000
Total 1,000,000 50,000 1,050,000
Dee 400,000 -50,000 350,000
Total 1,400,000 0 1,400,000
9. Dee invested P300,000 for a 15% interest in Bee & Cee partnership. Before the admission
of Dee, Bee & Cee capital has the following capital balances: P800,000 and P400,000
respectively. What is the capital balance of Cee after the distribution of bonus?

ANSWER P425,000

P300,000+800,000+400,000=P1,500,000x15%=P225,000 capital credit to Dee.

Actual contribution of Dee, P225,000-300,000=P75,000 bonus to old partners.
Bee, Capital: P800,000 + (P75,000x 8/12=P50,000)=P850,000
Cee, Capital: P400,000 + (P75,000x 4/12=P25,000)=P425,000

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DISSOLUTION DUE TO DEATH OF A PARTNER / RETIREMENT OF THE

PARTNER

REMINDERS / NOTES TO REMEMBER

A. Compute the profit or loss up to the time of death of the partner. If the problem is silent,
accounting period starts from January and ends in December.
B. Revalue the assets and liabilities of the partnership.
C. Overvaluation of assets = Fair value < cost/value per book of the assets (the overvalued
amount is a deduction from the capital balance of the partners)
D. Undervaluation of assets = ( the reverse of # 3
E. Compute the share of the retiring partner/ deceased partner from the no. 1 (profit or loss
based on the result of the operations)
F. Compute the share of the retiring / deceased partner from the overvaluation or
undervaluation of the assets.
G. Share of the retiring / deceased partner is based on profit and loss ratio. If no agreement,
based on capital contribution. Review Chapter 2.
H. Compute if there is bonus to the retiring/ deceased or remaining partmes.
WITHDRAWAL OR RETIREMENT OF A PARTNER (BONUS TO THE RETIRING
PARTNER (WITH PROFIT & LOSS RATIO AGREEMENT)

10. On Sept. 30, 2019, the statement of financial position for the partnership of Bee, Cee &
Dee, together with their respective profit and loss ratio, were as follows:

Assets at cost, P216,000; Bee, Capital (20%) P56,400; Cee, Capital (20%) P46,800 and
Dee, Capital (60%) P108,000.

Bee had decided to retire from the partnership. By mutual agreement, the assets are to be
adjusted to their fair value of P259,200 at Sept. 30, 3019.

It was agreed that the partnership will pay Bee P73,440 cash. No goodwill is to be
recorded.

After Bee’s retirement, what is the balance of Dee’s capital account?

ANSWER: P127,620

Assets: P216,000-259,200=P43,200
Bee (P43,200x20%= P8,640) + cap. P56,400= P65,040
Cee (P43,200x20%= P8,640) + cap. P46,800=P55,440
Dee (P43,200x60%= P25,920) + cap P108,000=P133,920
P254,400
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Payment to Bee P73,440-Bee’s cap. P65,040=P8,400 bonus to old partners

Cee Capital : P55,440 + (P8,400x20/80=P2,100) = P53,340

Dee Capital: P133,920 + (P8,400x60/80= P6,300)= P127,620
P180,960
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DEATH OF A PARTNER ( with profit & loss agreement)

11. The condensed statement of financial position of the partnership of Bee, Cee and Dee as of
December 31, 2019 showed the following:

Total assets P400,000; Bee, Capital- P120,000; Cee, Capital-P180,000 and Dee, Capital-
P100,000. The partnership has average monthly sales of P150,000 and monthly expenses
of P100,000. And the partners profit & loss ratio is 50:25:25.

On March. 31, Dee died because of heart attack. Before the payment to the heirs of Dee,
the remaining partners agreed that the assets are undervalued by P100,000. The
partnership paid the heirs of Dee on Dec. 31. What is the amount paid to the heirs of Dee?

Sales P150,000- ExpensesP100,000= P50,000 x 3=P150,000 profit

Share of Dee: P150,000 x 25% = P37,500
Undervaluation of assets; P100,000 x 25% = P25,000
Dee capital balance P100,000 + P37,500 +P25,000=P162,500
Amount to be paid to the heirs of Dee = P162,500

DEATH OF A PARTNER ( NO profit & loss agreement)

12. The condensed statement of financial position of the partnership of Bee, Cee and Dee as of
December 31, 2019 showed the following:

Total assets P430,000; Total Liabilities P90,000; Bee, Capital- P120,000; Cee, Capital-
P140,000 and Dee, Capital-P80,000. There is no profit and loss agreement. The partnership
has average monthly sales of P150,000 and monthly expenses of P100,000.

On July 1, Dee died because of heart attack. The partnership paid the heirs of Dee. What
is the amount paid to the heirs of Dee?

ANSWER P150,588

Sales P150,000- ExpensesP100,000= P50,000 x 6=P300,000 profit

Share of Dee: P300,000 x 80/340 = P70,588
Dee capital balance P80,000 + P70,588 = P150,588
Amount to be paid to the heirs of Dee = P150,588
Presentation / table used by Shannen Arrabis (BSA1-A) that I used to present the solution below:

13. The condensed statement of financial position of the partnership of Bee, Cee and Dee as of
December 31, 2019 showed the following:

Total assets P440,000; Total Liabilities P100,000; Bee, Capital- P120,000; Cee, Capital-
P140,000 and Dee, Capital-P80,000. The partnership has average monthly sales of
P150,000 and monthly expenses of P100,000. And the partners profit & loss ratio is
30:30:40.

On Sept. 30, Dee died because of heart attack. Before the payment to the heirs of Dee,
the remaining partners agreed that the assets are overvalued by P75,000. The partnership
paid the heirs of Dee on Dec. 31. What is the amount paid to the heirs of Dee?

ANSWER: P230,000

Sales P150,000- ExpensesP100,000= P50,000 x 9=P450,000 profit

Share of Dee: P450,000 x 40% = P180,000
Share of Dee in overvaluation of assets = P75,000 x 40%=P30,000
Dee capital balance P80,000 + P180,000 - P30,000 = P230,000
Amount to be paid to the heirs of Dee = P230,000
Presentation / table used by Shannen Arrabis (BSA1-A) that I used to present the solution below:

14. The condensed statement of financial position of the partnership of Bee, Cee and Dee as of
December 31, 2019 showed the following:

Total assets P400,000; Bee, Capital- P120,000; Cee, Capital-P140,000 and Dee, Capital-
P140,000. The partnership has average monthly sales of P150,000 and monthly expenses
of P100,000. And the partners profit & loss ratio is 40:30:30.

On Sept. 30, Dee died because of heart attack. Before the payment to the heirs of Dee,
the remaining partners agreed that the assets are undervalued by P100,000. The partnership
paid the heirs of Dee on Dec. 31. What is the amount paid to the heirs of Dee?

ANSWER: P155,000

Sales P150,000- ExpensesP100,000= P50,000 x 3=P150,000 profit

Share of Dee: P150,000 x 30% = P45,000
Share in assets :P100,000 x 30% = P30,000
Dee capital balance P80,000 + P45,000 + P30,000=P155,000
INCORPORATION OF THE PARTNERSHIP

NOTES / THINGS TO REMEMBER

A. If the books of accounts are still open (there are balances in the nominal accounts), you
have to closed the books in order to compute for the profit or loss. In short update the
capital balances of the partners.
B. Update the capital balances to reflect under or overvaluation of the assets and liabilities.
C. The net assets / total partners’ capital is to be converted to ordinary shares (based on the
number of shares and par value and number of partners).
D. Any excess is to be credited to share premium.

15. The condensed statement of financial position of the partnership of Bee, Cee and Dee as of
December 31, 2019 showed the following:

Total assets P300,000; Total Liabilities P120,000; Bee, Capital- P80,000; Cee, Capital-
P60,000 and Dee, Capital-P40,000.

On this date, the partnership was dissolved and its net assets transferred to a newly formed
corporation. The fair value of the assets was P50,000 less than the carrying value of the
firm’s books. Each of the partners was issued 10,000 shares of the corporation’s P2 par
ordinary share.

How much is the ordinary share capital and share premium?

ANSWER: Ordinary share capital P60,000, share premium P70,000

JOURNAL ENTRY APPROACH

Assets (300,000-50,000)………. 250,000
Liabilities…………………………………... 120,000
Ordinary shares (10,000 shares x 3 partners x P2 par value) 60,000
Share Premium – ordinary ………………… 70,000
16. The condensed statement of financial position of the partnership of Bee, Cee and Dee as
of December 31, 2019 showed the following:

Total assets P400,000; Bee, Capital- P120,000; Cee, Capital-P140,000 and Dee, Capital-
P140,000. The partnership has average monthly sales of P125,000 and monthly expenses
of P150,000. And the partners profit & loss ratio is 40:30:30.

On Sept. 30, Dee died because of heart attack. Before the payment to the heirs of Dee,
the remaining partners agreed that the assets are undervalued by P100,000. The partnership
paid the heirs of Dee on Dec. 31. What is the amount paid to the heirs of Dee?

ANSWER : P102,500

Sales P125,000- ExpensesP150,000= (P25,000) x 9 ( Jan. to Sept.)=P225,000 loss

Share in LOSS of Dee: P225,000 x 30% = (P67,500)
Share in undervaluation: P100,000 x 30%=P30,000
Dee capital balance P140,000 - P67,500 + 30,000=P102,500
Amount to be paid to the heirs of Dee = P102,500

DO NOT FORGET TO MASTER THE CONCEPTS.

** God bless**