PARTNERSHIP DISSOLUTION
As a result, Tony acquired a 1/5
ADMISSION
The admission of new partner may occur in either of
two ways namely:
a. Purchase of all or part of the interest of one or
more of the existing partners
b. Investment of assets in the partnership by the
incoming partner
PARTNERSHIP DISSOLUTION
- Change in numbers of partners.
1. Admission by Purchase without Revaluation
 Silent
 Personal transactions
 Total asset and capital will remain
unchanged
 Purchase price is ignored
2. Admission by Purchase with Revaluation
Two Steps to be followed:
 Determine the asset revaluation
 Distribute the interest to the buying
partner
Problem 1: (Purchase of Interest)
RB and MP are partners with profit and loss ratio of
75:25 and capital balances of P35, 000 and P17, 500
respectively. GB is to be admitted into the partnership
by purchasing a 20% interest in the capital, profits and
losses for P21, 000.
a. Assuming that no asset revaluation is to be
made, the capital balances of RB and MP,
respectively, after admission of GB are?
b. Assuming that equipment of the partnership is
undervalued, the capital balances of RB, MP
and GB, respectively, after admission are?
Problem 2:
The capital of Ed, Nick, and Vic are presented below
with their respective profit and loss ratio:
Ed P139, 000 (1/2)
Nick 209,000 (1/3)
Vic 96,000 (1/6)
Tony was admitted to the partnership when he
purchased directly, for P132, 000 a proportionate
interest from Ed and Nick in the net assets and profits of
the partnership.
interest in the net assets and profits of the firm.
Assuming no revaluation of assets is recorded,
What us the combined gain realized by Ed and Nick
upon the sale of a portion of their interests in the
partnership to Tony?
New Partner invests in Partnership
Rules
Contributed Capital = Agreed Capital, No revaluation, goodwill or
bonus
Contributed Capital > Agreed Capital, Revalue Assets up to fair
value and allocate to old partners or Record Unrecognized Goodwill
allocate to old partners, or allocate bonus to old partners
Contributed Capital < Agreed Capital, Revalue assets down to fair
value and allocate to old partners, Recognize goodwill brought in by
new partner, assign bonus to new partner
Note: Use new partner’s investment to estimate goodwill to old
partners, use old partners total capital to estimate goodwill to new
partner
Problem 3
PJ, SR and MT are partners, sharing profits and losses of
5:3:2, respectively. As of December 31, 2012, their
capital balances were P99, 750; P84, 000; and P63, 000
respectively. On January 1, 2013, the partners admitted
AV as a new partner and according to their agreement
AV will contribute P84, 000 in cash to the partnership
and also pay P10, 500 for 15% of SR’s share. AV will be
given 20% share in profits, while the original partners’
share will be proportionately the same as before. After
admission of AV, the total capital will be P346, 500 and
AV’s capital will be P73, 500.
a. The amount of asset revaluation is?
b. The amount of bonus in the admission of AV
would be?
Problem 4
TM and SJ, having capital balances of P980,000 and
P525,000 respectively, decided to admit GD into their
partnership. GD is to invest sufficient amount in order
to have a 25% interest in the partnership. If TM and SJ
share profit in a proportion of 3:1, respectively, and SJ’s
capital balance after GD’s investment is P589, 750,
How much was invested by GD?
RETIREMENT/DEATH OF A PARTNER
When a partner retires or withdraws from the
partnership, the partnership is dissolved. The interest of
the retiring partner is usually measure by his capital
balance, increased or decreased by his share in the
profit or loss from the partnership from the partnership
operations from the last closing date to the date of
his/her investment, and changes in the valuation of all
assets and liabilities.
RETIREMENT
1. Compute the capital balance before retirement
a. Capital balance
b. Share in net income/net loss
c. Drawings
d. Additional investment
e. Revaluation of UVA
f. Revaluation of OVA
g. Condonation of the partnership
liability/receivable of your debtor
2. Settlement is more than Capital Interest = Bonus to
the retiring partner
If the Settlement is less than Capital Interest = Bonus to
the remaining partner
PROBLEM 5
On December 30, 2013, the statement of Financial Position of
DTS Co. has the following balances: Total Assets P225, 000;
VM loan P12, 500, VM capital P51, 875; MR capital P48, 125
and LP capital P112, 500. The partners share profits and
losses in the ratio of 25% to VM, 25% to MR, and 50% to LP. It
was agreed among partners that VM retires from the
partnership and the partnership assets to be adjusted to their
fair value of P255, 000 as of December 31, 2013. The
partnership also suffered net loss of P75, 000. The
partnership would pay VM P54, 250 cash for his total interest
in the partnership.
What is the total capital of MR after retirement of VM?
interest in the partnership. What is the capital balance
of B after the retirement of A assuming the use of:
a. Partial Goodwill method
b. Total Goodwill method
c. Bonus Method
Incorporation of the partnership
Problem 7
Jay and Kay partnership’s statement of financial
position at December 31, 2010 reported the following:
Total assets P200,000
Total Liabilities 40,000
Jay, Capital 80,000
Kay, Capital 80,000
On January 2, 2011, the partnership was dissolved and
the partners transferred all assets and liabilities to a
newly formed corporation. At the date of incorporation,
the fair value of the net assets was P24,000 more than
the carrying amount on the partnership’s books, of
which P14,000 was assigned to tangible assets and
P10,000 was assigned to goodwill. Jay and Kay were
issued P5,000 shares of the corporation’s P1 par value
common stock.
Immediately following incorporation, additional paid-
in capital in excess of par should be credited for?

Problem 6
On December 31, 2011 the condensed statement of
financial position of ABC Partnership is presented
below:

Total Assets P90,000

Payable to A P5,000
A, Capital 20,750
B, Capital 19,250
C, Capital 45,000

Total P90,000

A, B and C share profits and losses in the ration of 25%,

25%, and 50% respectively. It was agreed among the
partners that A retires from the partnership and the
partnership’s assets to be adjusted to their fair market
value of P102,000 as of December 31, 2011. The
partnership would pay A P30,250 cash for his total
 Upon liquidation of the partnership. Rey should have
PARTNERSHIP LIQUIDATION received?

LUMP-SUM AND INSTALLMENT LIQUIDATION INSTALLMENT

LUMP-SUM Problem 1
1. The Statement of Financial Position of the KKK Partnership, On December 31, 2050, the statement of Financial Position
just before the liquidation, is as follows: Partnership shows the following data with profit or loss
sharing of 2:3:5.
Cash P80, 000
Other-Assets 280,000 Cash P 20,000,000
Liabilities 140,000 Other Noncash-Assets 80,000,000
Receivable from N 10,000,000
Kardo, Capital (60%) 100,000
Total P 110,000,000
Karen, Capital (20%) 100,000
Koko, Capital (20%) 20,000 Liabilities to others P 50,000,000
Payable to B 5,000,000
a. If the other assets are sold for P300, 000 and the Payable to A 15,000,000
liabilities are paid, the remaining cash should be N, Capital 30,000,000
distributed to partners as? B, Capital 20,000,000
b. If the other assets are sold for P200, 000 and the A, Capital (10,000,000)
liabilities are paid, the remaining cash should be Total P 110,000,000
distributed to partners as?
c. If the other assets are sold for P140, 000 and the
On January 1, 2051, the partnership decided to wind up its affairs.
liabilities are paid, the remaining cash should be
For the month ended January 31, 2051, the following transactions
distributed to partners as? occurred:

2. Following is the statement of financial position of the CPA  Other non-cash assets with book value of P60,000,000 at a
partnership before realization of assets on July 1, 2017: loss of P10,000,000
 Liquidation expenses amounting to P3, 000,000 were paid.
Cash P10,000  P2,000,000 cash was withheld for future liquidation
Accounts Receivable 50,000 expenses
Inventory 30,000  60% of liabilities to third person were paid.
Equipment 60,000
Liabilities 28,000 For the month ended February 28, 2051, the following transactions
Cakay, Capital 45,000 occurred:
 Remaining other non-cash assets were sold at a gain of
Pedro, Capital 27,000
P5,000,000
Andro, Capital 50,000
 Liquidation expenses amounting to P2,000,000 were paid
 The remaining liabilities to third persons were paid.
The partners share income 40:40:20, respectively. On July
2, the partnership is liquidated. 60% of the receivables are Provide the answers for the following:
collected and that inventory is sold for P20, 000. a. Amount received by N on January 31, 2051
Equipment is sold for P30, 000.
b. Share of A to the maximum possible loss on January 31,
How much is to be distributed to Pedro? 2051

3. The RST Partnership is in the process of liquidation. The c. Total amount of cash withheld on January 31, 2051
account balances prior to liquidation are given below.
Debits Credits d. Amount received by B on February 28, 2051
Cash P72,000 Liabilities P40,000
Problem 3
Dona, Ella and Frey are partners in DEF Partnership with profit or
Rey, Drawing 10,000 Sara, Loan 8,000 loss sharing of 6:1:3. Due to disagreement, the partners decided to
Sara, Drawing 15,000 Tita, Loan 25,000 liquidate their business with pre-liquidation statement of financial
position presented below:
Tita, Drawing 20,000 Rey, Capital 49,000
Operating loss 21,000 Sara, Capital 18,000 Cash P3M
Loss on realization 12,000 Tita, Capital 10,000 Non-cash Assets 17M

The partners share profits in the following ratio, Rey, 1/6,

Sara, 2/6, and Tita, 3/6. Liabilities P10M
Dona, Capital 1M
Ella, Capital 4M
Frey, Capital 5M

The following additional notes are provided:

 All partners are legally declared to be personally insolvent
 All non-cash assets are sold during the liquidation process
 Liquidation expenses amounting to P2M were paid.
 Ella receives a total P2,500,000 at the end of liquidation.

a. What is the amount received by Frey at the end of

liquidation?
b. Using the same data in number 2, what is the net
proceeds from the sale of all non-cash assets?

Problem 4
A statement of financial position for the partnership of D, S and L,
who share profits in the ratio of 2:1:1 shows the following balances
just before liquidation.

Cash P12,000
Other Assets 59,500
Liabilities 20,000
D, Capital 22,000
S, Capital 15,500
L, Capital 14,000

On the first month of the liquidation, certain assets are sold for P32,
000. Liquidation expenses of P1, 000 are paid, and additional
liquidation expenses are anticipated. Liabilities are paid amounting
to P5, 400 and sufficient cash is retained to insure the payment to
creditors before making payments to partners. On the first payment
to partners, D receives P6, 250.

a. The total cash distributed to the partners in the first

installment is?
b. The amount of cash withheld for anticipated liquidation
expenses and on unpaid liability is?
c. How much was received by L in the first installment?