ACC9

Accounting for Special Transactions

University of Batangas

PARTNERSHIP DISSOLUTION
GUIDED EXERCISES

PROBLEM 1 (Admission of a new partner)

Molave joins the partnership of Narra and Mahogany. The partnership’s statement of financial position
before Molave’s admission is as follows:

Cash 30,000 Accounts payable 80,000

Accounts Receivable 140,000 Narra, Capital (60%) 515,000
Inventory 200,000 Mahogany, Capital (40%) 275,000
Equipment 500,000
Total Assets 870,000 Total liabilities and equity 870,000
The following adjustments are determined:
a. The recoverable amount of the accounts receivable is P120,000
b. The inventory has a net realizable value of P160,000
c. The equipment has a fair value of P450,000
d. Unrecorded liabilities amount to P20,000

Case 1: Purchase of interest from one partner

Molave acquires half of Mahogany’s capital interest for P800,000. Provide the entry and the capital
balance and P/L ratio of the partners after Molave’s admission.

Case 2: Purchase of interest from more than one partner

Molave purchases 20% of Narra and Mahogany’s capital interest for P800,000. Provide the entry
and the capital balance of the partners after Molave’s admission.

Case 3: Amount of investment

Molave wants to invest for a 20% in the net assets and profits of the partnership. If not bonus is
allowed, how much should Molave invest and what would be the new P/L ratio of the partners
after Molave’s admission?

Case 4: Investment in the partnership – bonus to new partner

Molave invests P100,000 for a 20% interest in the net assets and profits of the partnership. No
goodwill is recognized. Provide the entry and compute for the capital balances of the partners
after Molave’s admission.

Case 5: Investment in partnership – bonus to old partners

Molave invests P180,000 for a 20% interest in the net assets and profits of the partnership. No
goodwill is recognized. Provide the entry and compute for the capital balances of the partners
after Molave’s admission.

PROBLEM 2 (Withdrawal, retirement or death of a partner)

Partners A, B and C had the following capital balances on January 1, 20x1: A, Capital (50%) P320,000;
B, Capital (30%) P192,000; and C, Capital (20%) P128,000. Partner A decided to retire on Sept. 1, 20x1.
The partnership earned profit of P800,000 from Jan. 1 to Aug. 31, 20x1 and the partners had the following
capital withdrawals during that period: A, P40,000; B, P60,000; and C, P30,000.

Case 1: Purchase of interest by remaining partner

Partner B purchases Partner A’s interest for P700,000. Provide the entry and compute for the
capital balances and P/L ratio of the partners after A’s retirement.

Case 2: Settlement of interest by partnership

ACC9
Accounting for Special Transactions
University of Batangas

The partnership pays Partner A P700,000 for his interest. Provide the entry and compute for the
capital balances and P/L ratio of the partners after A’s retirement.

Case 3: Settlement of interest by partnership

The partnership pays Partner A P650,000 for his capital. Provide the entry and compute for the
capital balances of the partners after A’s retirement.

PROBLEM 3 - Incorporation of a Partnership

Use the information in Problem 2 above. However, instead of Partner A retiring, the partnership is
converted into a corporation on August 31, 20x1. The corporation issued 1,000 preference shares with
par value of P200 per share to each of the partners and even multiples of ordinary shares with par value
of P50 per share for their remaining interests. Compute for the number of shares issued to each of the
partners.