CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING GERMAN/LIM/VALIX/K. DELA CRUZ/MARASIGAN

PARTNERSHIP OPERATIONS

Part I: Theory of Accounts

1. If the partnership agreement does not specify how income is to be allocated, profits and loss should
be allocated
a. Equally
b. In proportion to the weighted average capital invested during the period
c. In proportion to their beginning capital balance during the period
d. In accordance with their original capital contribution

2. Which of the following is not an expense of a partnership?

I. Salary of employees of the partnership
II. Salaries to partners of a partnership
III. Interest on loan from partners to the partnership
IV. Interest on partners’ capital account balances
V. Bonus given to employees
VI. Bonus allocation to partners as indicated in the P/L Sharing Agreement
a. I, IV, and V only
b. II, IV, and VI only
c. I, III, and V only
d. All of the items indicated

3. If the agreement provides for the division of losses only, profits should be divided:
a. Equally
b. According to the beginning capital ratio
c. According to the original capital ratio
d. According to the average capital ratio

4. This allowance for profit allocation is given only if there is a profit:

a. Interest allowance
b. Salary allowance
c. Bonus allowance
d. All of the above

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Part II: Problem Solving

Problem 1
On January 1, 2021, Karlyle and Severus formed a partnership. Karlyle contributed cash of P100,000
and a used car which the partners agreed to be valued at P100,000, although it was originally bought
for P150,000, while Severus contributed P40,000 cash, and a machinery valued at P300,000. The note
payable of P100,000 related to the machinery is to be assumed by the partnership.
The partners agreed to divide share in the profits and losses in the following manner:

 Quarterly salary allowances of P10,000 and P15,000, respectively, to Karlyle and Severus
 Interest on average capital balances during the year of 10%
 Bonus of 10% of net income after salaries, and interest to Karlyle
 Remainer is to be divided in the ratio of 3:2, to Karlyle and Severus, respectively

In addition, the partnership agreement provides that the partners are allowed to withdraw P3,000 per
month as their anticipated share in the profits for the year.
During 2021, Karlyle made additional investment of P80,000 on July 1, while Severus made additional
investment on October 1 amounting to P100,000.

Karlyle also made a permanent withdrawal of its capital in the amount of P24,000 on June 1, while
Severus made permanent withdrawal of P30,000 on May 1.

Both partners withdrew the full amount of their anticipated share in the profits for the year.
Total net income for the year-ended December 31, 2021 is P300,000.

1. What is the share of Karlyle in the net income of the partnership in 2021?
a. 178,456
b. 144,531
c. 160,456
d. 139,544

2. What is the capital balance of Severus on December 31, 2021?

a. 413,544
b. 449,544
c. 395,544
d. 429,569

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Problem 2
Vincenzo and Cassano are partners engaged in a manufacturing business. Transactions affecting the
partners’ capital accounts, excluding their share in the profit in 2021 are as follows:

Vincenzo Cassano
Debit Credit Debit Credit
Beg. Balance P50,000 P70,000
April 1 30,000 P20,000
June 30 25,000 50,000
Sept. 1 45,000 60,000
Oct. 1 70,000 40,000

The income summary has a credit balance of P45,000.

The profit and loss sharing agreement of the partners provide for the following:
 Interest on beginning capital at 8%
 Semi-annual salaries of P12,500 and P17,500 for Vincenzo and Cassano, respectively
 Bonus to Cassano of 25% of net income after deducting interest and salaries but before deducting
bonus
 Balance is to be divided equally

1. What is Cassano’s share in the net income in 2021?

a. 18,750
b. 28,300
c. 16,700
d. 26,250

2. What is the net increase in Vincenzo’s capital account in 2021, assuming that his share in the
profits, if any, is closed directly to the capital account?
a. 48,750
b. 78,300
c. 76,250
d. 46,700

3. Assuming that the partnership incurred a net loss of P45,000 during 2021, What is Vincenzo’s
share in the net loss?
a. (22,500)
b. (28,300)
c. (9,200)
d. (18,750)

4. Assuming that the partners agreed the provisions in the profit and loss agreement will be
allowed only up to the extent of the earnings, and that the provisions are given priority in the
order that they appear in the agreement, what is Vincenzo’s share in the 2021 net income?
a. 16,700
b. 18,750
c. 28,300
d. 26,250

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Problem 3
On January 1, 2021, Ana, Bella, and Cara formed ABC Partnership with original capital contribution of
P300,000, P500,000, and P200,000. Ana is appointed as managing partner. During 2021, Ana, Bella,
and Cara made additional investments of P500,000, P200,000 and P300,000, respectively. At the end of
2021, Ana, Bella, and Cara made drawings of P200,000, P100,000, and 400,000 respectively. At the
end of 2021, the capital balance of Cara is reported at P320,000.

The profit or loss agreement of the partners is provided below:

 10% interest on original capital contribution of the partners
 Semi-annual salary of P80,000 and P20,000 for Ana, and Bella, respectively
 Bonus to Ana equivalent to 20% of Net Income after interest and salary to all partners
 Remainder is to be divided equally among the partners

1. What is Cara’s share in the partnership profit for the year-ended December 31, 2021?
a. 220,000
b. 180,000
c. 320,000
d. 120,000

2. What is the partnership profit for the year-ended December 31, 2021?
a. 960,000
b. 1,020,000
c. 1,050,000
d. 900,000

3. What is the bonus given to Ana as managing partner for the year-ended December 31, 2021?
a. 150,000
b. 120,000
c. 60,000
d. 100,000

4. What is the capital balance of Bella on December 31, 2021?

a. 940,000
b. 890,000
c. 840,000
d. 850,000

END

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