Valuation of partner's contrubution upon formation

1. agreed values - agreed contribution; prevails

2. Fair market value - pag wala carrying amount (minus depreciation)

*disregard accumulated dep. And one-third interest, etc.

Cash - face value
Non cash asset - FMV
Industry - memo entry (labor)

2 or more persons w/o business entered into partnership; use new books to account
contribution

• Pag nag journalize sa books ng isang partner, yung isang partner ay kapareha lang ng new
books ang susundin, which is the agreed value
• Pag mas mababa ang agreed value ng equipment as per books (face value), mababawasan
ang capital (debit) to balance
• sa other partner books I-z-zero out palagi ang accumulated depreciation (lagay sa debit)
• walang accumulated depreciation pag new books
• kapag increase by idadagdag yung amount
• kapag increase to yun nang amount ang ilalagay
• under depreciated means ibabawas pa
• id-divide yung amount na meron ka sa percentage niya para makuha yung kabuoang amount
ng capital ng partnership
• Net receivable value = accs receivable - allowance of uncollectible accs
• hindi mina-minus ang accumulated depreciation directly sa capital
• Fair value of net assets = assets - liabilities
• kapag may loan (mortgage etc) yung isang partner lang magsh-shoulder
• kapag walang agreement ang susundin ay yung proportion ng capital contribution ng partner
• industrial partner is NOT liable for losses
• walang bonus kapag may loss
• net income, interest, bonus is annual basis
• BASED ON AGREEMENT PALAGI
• assumption: the given profit is after tax
• 30% income tax rate
• ORDER OF PROFIT SHARING PROVISION - ibibigay lahat ng nakalagay sa profit sharing
regardless kung sapat yung na-earn na profit
• ORDER OF PRIORITY PROVISION - kung magkano lang yung profit ganon lang din yung extent
ng ibibigay
• Pag may agreement sa proft tas walang agreement sa loss yung agreement sa profit din ang
susundin
• HOWEVER pag walang agreement sa profit pero meron sa loss, ang susundin sa profit ay yung
capital contribution HINDI yung sa loss
• Order of profit sharing ang susundin pag walang binanggit
• Kahit na equal ang AC at CC kapag ang capital credit ay equal din sa investment, WALA pa ring
bonus
• Pag nag invest possible na may either bonus or revaluation

AC - agreed capital, agreed capitalization, total capital, form capital (normally given sa problem)

CC - contributed capital, old partner's capital balance + investment of new partner

Capital Credit - AC × % interest acquired

Bonus - transfer of capital from one partner to another

May bonus kapag ang AC ay = sa CC
WALANG bonus kapag ang capital credit ay equal sa investment

Investment vs. Capital Credit

Investment > Capital Credit = bonus to old partners
Investment < Capital Credit = bonus from old partners

Revaluation
-Positive (increase in other assets, increase in Capital)
-Negative (decrese in other assets, decrease in Capital)

AC > CC = Positive Revaluation

AC < CC = Negative Revaluation

Pag revaluation of assets 2 lagi ang entry

1. Revalutaion (positive/negate) hati sa old partners
2. Transfer/investment
Investment – between investor and partnership; recorded in partnership books
*Kailangan makuha yung adjusted capital ni retiring partner at the time of retirement.
*HINDI laging yung payment ay same ng revaluation

FORMULAS:
Agreed Value = Investment or Payment ÷ interest
Contributed Capital = old partners’ capital balances + investment
Capital Credit = AC × % interest
Revaluation = Payment / interest – contributed capital
A=B-C
Purchase Revaluation:
1st entry (revaluation)
Payment ÷ interest acquired = agreed capital agreed capital – old partners’ capital balances =
revaluation (shared by old partners)
2nd entry (transfer of equity)
(Old capital balance + share from purchase) × interest = new capital balance of old partners
Net income before tax = profit / 70%
Ratio ÷ sum = percentage
Percentage × profit/loss = share

Profit/loss divided according to beginning capital ratio = proftit/loss × capital ÷ capital sum
AC > CC = Positive Revaluation
AC < CC = Negative Revaluation

Bonus = Capital Credit – Investment

Investment > Capital Credit = bonus to old partners
Investment < Capital Credit = bonus from old partners

Pag may investment at revaluation, investment = capital credit

PARTNERSHIP DISSOLUTION
A. ADMISSION OF NEW PARTNER
1.Benito and Borja are partners with capital balances of P300,000 each sharing profits and
losses equally. Basco purchases ½ of Benito’s interest for P150,000 and a new partnership of
Benito, Borja and Basco is formed such that benito and Basco will each have a 25% interest in
capital and profits of the partnership
Benito, Capital 150,000
 Basco, Capital 150,000
300,000 × ½ = 150,000

2.Benito and Borja are partners with capital balances of P400,000 and P200,000, respectively.
They share profits and losses equally. Basco is admitted as a new partner.

a.Basco purchases a ½ interest from Benito for P200,000

Benito, Capital 200,000
Basco, Capital 200,000
400,000 × ½ = 200,000

b.Basco purchases 1/5 interest from the old partners for P120,000
Benito, Capital 80,000
Borja, Capital 40,000
Basco, Capital 120,000

Benito: 400k × 1/5 = 80k

Borja: 200k × 1/5 = 40k

c. Basco purchases 1/5 interest from the old partners for P100,000
Benito, Capital 80,000
Borja, Capital 40,000
Basco, Capital 120,000
Ignore lang yung payment since 1/5 din yung pinurchase niya

d.Basco purchases 1/5 interest from the old partners for P150,000
Benito, Capital 80,000
Borja, Capital 40,000
Basco, Capital 120,000
Ignore lang yung payment since 1/5 din yung pinurchase niya

3.Benito and Borja are partners with capital balances of P400,000 and P200,000, respectively.
They share profits and losses equally. Basco is admitted as a new partner.

a.Positive Asset Revaluation. Basco purchases a 1/5 interest from the old partners for P150,000.
The P150,000 consideration by the incoming partner is to be used to impute fair value of the
partnership net assets prior to the admission.
1st Entry:
Other Assets 150,000
Benito, Capital 75,000
Borja, Capital 75,000
Purchase Revaluation:
Payment ÷ interest acquired = agreed capital agreed capital – old partners’ capital balances =
revaluation
150k ÷ 1/5 = 750,000 – 600k = 150k (shared by old partners)
Since equally ang sharing 150k/2 = 75k

2nd Entry:
Benito, Capital 95,000
Borja, Capital 55,000
Basco, Capital 150,000
Benito: 400k (old cap. Balance) + 75k = 475k × 1/5 (interest) = 95k
Borja: 200k+75 = 275k × 1/5 = 55k
b.Negative Asset Revaluation. Basco purchases a 1/5 interest from the old partners for
P100,000. The P100,000 consideration by the incoming partner is to be used to impute fair
value of the partnership net assets prior to the admission.
Benito, Capital 50,000
Borja, Capital 50,000
Other Asstets 100,000

Benito, Capital 70,000

Borja, Capital 30,000
Basco Capital 100,000

100k ÷ 1/5 = 500k – 600k = (100k)

Benito: 400k – 50k = 350k × 1/5 = 70k
Borja: 200k – 50k = 150 × 1/5 = 30k

4.Calma and Castro are partners with capital balances of P200,000 and P100,000, respectively.
They share profits and losses equally. Conde is admitted as a new partner.
a. Conde invests P100,000 for a ¼ interest in the agreed capital of P400,000.
Cash 100,000
Conde, Capital 100,000

Agreed capital = 400k

Contributed capital = 200k+ 100k+ 100k = 400k
Kahit na equal ang AC at CC kapag ang capital credit ay equal din sa investment, WALA pa ring
bonus
Capital Credit = AC × % interest
Capital Credit = 400k × ¼ = 100,000
b. Conde invests P100,000 for a 1/5 interest in the new firm capital of P400,000
Cash 100,000
Conde, Capital 80,000
Calma, Capital 10,000
Casino, Capital 10,000

Cash = amount of investment

May bonus since AC = CC
Capital Credit: 400k × 1/5 = 80k
Conde capital = capital credit
Calma and Casino capital = balancing figures/bonus
Investment > Capital Credit = bonus to old partners
Bonus = Capital Credit – Investment

c. Conde invests P60,000 for a ¼ interest in the new firm capital of P360,000
Cash 60,000
Calma, Capital 15,000
Castro, Capital 15,000
Conde, Capital 90,000

AC = 360k CC = 200k + 100k + 60k = 360k

May bonus
Capital Credit: 360k × ¼ = 90k
Investment = 60k
Investment < Capital Credit = bonus from old partners
Bonus = Capital Credit – Investment
Bonus = 90k – 60k = 30k / 2 (agreed equal share)
d. Conde invests P100,000 for a 1/5 interest in the new firm capital of P500,000 (With Positive
asset revaluation)
Other Assets 100,000
Calma, Capital 50,000
Castro Capital 50,000
AC = 500k
Contributed Capital = 200k + 100k + 100k = 400k
AC > CC = Positive Revaluation
Revaluation= Payment / interest – contributed capital
Contributed Capital = old partners’ capital balances + investment
100k ÷ 1/5 = 500k – (300k + 100k) = 100k

Cash 100,000
Conde, Capital 100,000
Pag may investment at revaluation, investment = capital credit

e.Conde invests P60,000 for a 1/5 interest in the total capitalization of P300,000
AC = 300k
CC = 200k+100k+60k = 360
AC < CC = Negative Revaluation
60k ÷ 1/5 = 300k – 360k = (60k)
Calma, Capital 30,000
Castro, Capital 30,000
Other Assets 60,000

Cash 60,000
 Conde, Capital 60,000

RETIREMENT/WITHDRAWAL OR DEATH OF A PARTNER

11. The statement of financial position of the partnership of Diego, Duran and Danao on
December 31, 2018 is presented below.
Cash P440,000
Other Assets 120,000
Total Assets P560,000

Liabilities P80,000
Diego, Capital 80,000
Duran, Capital 160,000
Danao, Capital 240,000
Total Liab and Capital P560,000

The partners share profits and losses in the ration of 2:1:2. On July 1,2019, Danao decided to
retire from the partnership. The partners decided to close the partnership books as of this date
so as to determine the capital interest of Danao. Profit for the six months ended amounted to
P240,000, while drawings of Diego, Duran and Danao amount to P16,000, P24,000 and P8,000
respectively. Profits and losses are to be shared equally after the retirement of Danao.

Danao: 240k (beg. capital) × 2/5 (sharing ratio) = 96,000 (share in profit) - Drawings
Danao adjusted capital on July 1, 2019 = 240,000 + 96,000 – 8,000 = 328,000

a. Danao sold his interest to a new partner, Diaz for P350,000

Danao, Capital 328,000
Diaz, Capital 328,000
Same treatment sa purchase, transfer sa capital regardless kung magkano ang payment since
record siya sa partnership books
b. Danao sold his interest to Diego and Duran for P300,000, the interest being divided
equally by the remaining partners. Profits and losses after the retirement of Danao will be
divided equally.
Danao, Capital 328,000
Diego, Capital 164,000
Duran, Capital 164,000

c. Danao sold his interest to the partnership. The partners agrred to make immediate cash
settlement to the retiring partner. Profits and losses after the retirement of Danao will be
divided equally.
c.1. The partnership paid P328,000
Danao, Capital 328,000
Cash 328,000
Setteled by partnership

c.2 The partnership paid Danao P250,000 which is P78,000 less than the capital interest of
P328,000.
Danao Capital, 328,000
Cash 250,00
Diego, Capital 52,000
Duran, Capital 26,000

Bonus = 328k – 250k = 78k

Bonus share is based sa original profit/loss ratio na 2:1:2 but 2:1 na lang since nag retire na si
Danao
Diego: 78k × 2/3 = 52k
Duran: 78 × 1/3 = 26k
Danao, Capital 328,000
 Cash 250,000
Diego, Capital 52,000
Duran, Capital 26,000

Revaluation
328,000 -> 250,000 (negative since pababa)
Revaluation = 328 – 250 = 78 ÷ 2/5 (ratio ni danao) = 195,000 (to be shared by all partners
including the retiring partner)

Diego: 195 × 2/5 = 78k

Duran: 195 × 1/5 = 39k
Danao 195 × 2/5 = 78k

Diego, Capital 78,000

Duran, Capital 39,000
Danao, Capital 78,000
Other Assets 195,000

Danao, Capital 250,000

Cash 250,000

c.3. The partnership paid Danao P400,000 which is P72,000 more than the capital interest of
P328,000

328,000 -> 400,000 (positive revaluation)

Revaluation: 400 – 328 = 72,000 ÷ 2/5 = 180,000

Diego: 180 × 2/5 = 72

Duran: 180 × 1/5 = 36
Danao: 180 × 2/5 = 72

Other Assets 180,000

Diego, Capital 72,000
Duran, Capital 36,000
Danao, Capital 72,000

Danao, Capital 400,000

Cash 400,000