ACTIVITY 1

1. A and B formed a partnership. The partnership agreement stipulates the following:

• Annual salary allowances of P200,000 for A and P120,000 for B. Salary allowances are to
be withdrawn by the partners throughout the period and are to be debited to their
respective drawings account.
• The partners share profits equally and losses on a 60:40 ratio.
During the period the partnership earned profit of P400,000 before salary allowances.
How much is the share of B in the partnership profit?
Solution:
A B Total
Salary Allowances 200,000 120,000 320,000
Profit after SA (80,000) 40,000 40,000 80,000
Total 240,000 160,000 400,000

2. Rosa and Linda agreed to form a partnership on June 15, 2012 for the purpose of
manufacturing and selling custom silver jewelry. Both are master crafters and have their
own tools and equipment, which they will invest in the business. Rosa and Linda
determined that their tools and equipment have fair market values of P90,000 and
P120,000, respectively. They further resolved to invest sufficient cash such that each
partner will have a beginning capital balance equal to P250,000. How much will be the
total cash of the newly formed partnership?
Solution:
Rosa Linda Total

Equipment 90,000 120,000 210,000

Cash (250,000 - Equipment) 160,000 130,000 290,000

3. On January 1, 2012 partners Aiko and Mina have capital balances of P500,000 and
P280,000, respectively. They share profit and losses equally. On this date, they decided
to admit Ruffa for a 40% interest in capital and profits. Ruffa paid P450,000 directly to
Aiko and Mina. How much should be the new capital balances of Aiko and Mina,
respectively?

Solution:
 Partner Capital Balance
Aiko 500,000
Mina 280,000
Ruffa 450,000
Total Capital 1,230,000
Ruffa's Interest Rate 40%
Ruffa, Capital 492,000
Less: Cash payment (450,000)
Loss 42,000

Share on loss on
Capital admission Adjusted Balance
(42,000/2)
Aiko 500,000 (21,000) 479,000
Mina 280,000 (21,000) 259,000

4. The NPC Partnership has suffered financially due to poor results of operations for the
past three years. N, P and C share profits and losses in the ratio of 1:3:6 respectively.
The following is the condensed balance sheet as of March 31, 2012:

Cash P 270,000 Liabilities P1,310,000

Non-cash assets 2,020,000 N, Capital 210,000
P, Capital 390,000
C, Capital 380,000
Total assets P2,290,000 Total Liabilities and Capital P2,290,000

All the non-cash assets were sold for P1,820,000. How much should each partner
receive upon liquidation?

Solution:
Cash Non cash Liabilities N, Capital P, Capital C, Capital
 assets (1/10) (3/10) (6/10)
Balance 270,000 2,020,000 (1,310,000) 210,000 390,000 380,000

Sale of non cash 1,820,000 (1,820,000)

Loss on realization (200,000) (20,000) (60,000) (120,000)

Balance 2,090,000- (1,310,000) 190,000 330,000 260,000
Liabilities (1,310,000) 1,310,000
Balance 780,000- - 190,000 330,000 260,000
Payment to partners (780,000) (190,000) (330,000) (260,000)
Balance - - - - - -

Payment to N = Php 190,000

Payment to P = Php 330,000
Payment to C = Php 260,000