PARTNERSHIP FORMATION

PROBLEM A:
On January 1, 2021, AA and BB formed a partnership with each contributing the following
assets:
AA BB
Cash P 300,000 P 700,000
Machinery and equipment 250,000 750,000
Building 2,250,000
Furniture and fixtures 100,000

The building is subject to a mortgage loan of P800,000, which is to be assumed by the

partnership. The partnership agreement provides that AA and BB share profits and losses in a
30:70 ratio.

Requirements:
1. How much is the capital balance of AA and BB, respectively?
650,000;2,900,000
2. Assuming that the mortgage loan is not assumed by the partnership, how much is
the capital balance of AA and BB, respectively?
650,000;3,700,000
3. Assuming that the partnership agreement states that the capital credit of AA and
BB shall be in accordance with the profit and loss ratio, how much is the capital
balance of AA and BB, respectively?
1,065,000;2,485,000

4. Assuming that the partnership agreement states that the capital credit of AA and
BB shall be in accordance with the profit and loss ratio and that BB will invest
(withdraw) additional cash, how much is the capital balance of AA and BB, respectively?
650,000;1,516,666.67
PROBLEM B:
AA admits BB as a partner in business. Accounts in the ledger of AA on January 1, 2021, just
before the admission of BB, show the following balances:
Cash P 6,800
Accounts receivable 14,200
Merchandise inventory 20,000
Accounts payable 8,000
AA, capital 33,000

It is agreed that for purposes of establishing AA's interest, the following adjustments shall be
made:
(1) An allowance for doubtful accounts of 3% of accounts receivable is to be established.
(2) The merchandise inventory is to be valued at P23,000.
(3) Prepaid salary expenses of P600 and accrued rent expense of P800 are to be
recognized.

BB is to invest sufficient cash to obtain a 1/3 interest in the partnership.

Requirements:
1. How much is the adjusted capital of AA? 35,374
2. How much is the amount of cash investment by BB? 17,687