Assignment 4

Partnership dissolution (Retirement)

Instruction: Prepare the answers in written form using a clean paper (e.g. Yellow pad, bond paper,
notebook etc.) and submit a snapshot in CANVAS.

Assume the following data on January 1, 2019 for KLM Partnership had the following condensed balance
sheet:

Assets Liabilities and Capital

Cash P60,000 Liabilities P12,000

Non-cash assets 48,000 K, Capital (30%) 36,000
Loans receivable – K 6,000 L, Capital (50%) 48,000
M, Capital (20%) 18,000
Total P114,000 P114,000

The percentages in parentheses after partner’s capital balances represent their respective interests in
profits and losses. On May 1, 2019, K retires from the partnership. The net income of the partnership to
date of retirement amounted to P24,000. The partnership paid cash to the retiring partner also on
retirement date.

Required:

1. Determine the total interest of K, L and M immediately before the retirement of K.

2. Prepare journal entries to record the retirement of K, assuming:
a. Payment at book value. The partnership paid K, P37,200.
b. Payment at more than book value. The partnership paid K, P42,000. Included in the non-
cash assets is an inventory costing P7,200 with a fair value of P12,000. The remaining
partners continue to use their old profit and loss ratio. (Hint: Record first the adjustment to
capital balances on the fair value measurement of inventory)
b.1 Bonus method
b.2 Asset revaluation method (Total revaluation)
c. Payment at less than book value. The partnership paid K, P31,200.
c.1 Bonus method
c.2 Asset revaluation method (Total revaluation)