Partnership Formation

On June 1, 2020, Kath and Neil decide to combine the business and form the KathNeil Cosmetics.
0Their respective balance sheets on May 31 before adjustments are as follows:
Kath Neil
Cash 9,000 3,750
Accounts receivable 18,500 23,500
Inventories 30,000 19,500
Furnitures and Fixtures 30,000 9,000
(net)
Office Equipment(net) 11,500 2,750,
Prepaid Expense 6,375 3,000
Total 105.375 61.500

Accounts Payable 45,750 18,000

Capital 59,625 43,500
Total 105,375 61,500

They agreed to adjust the recorded items in the books.

1) Provide 4% allowance for doubtful accounts.
2) Kath's Furnitures and Fixtures should be ₱34,000, while Neil's office equipment is under
depreciated by ₱750
3) Rent expense incurred previously by Kath was not yet recorded amounting to ₱1,200 while
salary expense incurred by Neil was not also recorded amounting to ₱1,150
4) Fair market value of inventory amounted to:
Kath ₱27,500
Neil ₱22,000

Compute for the net (debit) credit adjustment for Kath and Neil.
Adjustments Kath Neil
ADA (740) (940)
F & F. (over) 4,000
Office Equipt. (under) (750)
Accrued Rent Expense (1,200)
Accrued Salary Expense (1,150)
Inventory (2,500) 2,500
Total (440) (340)

Total Liabilities after formation is

Kath Neil Total
Accounts Payable 45,750 18,000
Accrued Rent Expense 1,200
Accrued Salary Expense 1,150
 Total 16,950 19,150 66,100
Total Assets after formation is
Kath Neil
Unadjusted Net 105,375 61,500
Asset
ADA (740) (540)
F & F (over) 4,000
Office Equipt. (750)
(under)
Inventory (2,00) 2,500
Total 106,135 62,310 168,445

The beginning balance of Kath and Neil are 59,185 and 43,160 respectively.
They further agreed that PnL ratio would be 7:3.
Kath Neil
Unadjusted Net Asset 59,625 43,500
Adjustments (440) (340)
PnL 59,185 43,160

Using a Capital Ratio of 4:6, what will be adjusted capital balances of each partner
TCC Bonus TAC
Kath 59,185 (18,247) 40,938 4
Neil 43,160 18,247 61,407 6
Total 102,345 - 102,345 10

Using an interest ratio of 40% for Kath, how much should Neil invest additionally to achieve a 60%
interest in the partnership.
TCC AI TAC
Kath 59,185 - 59,185 40%
(Base)
Neil 43,160 45,618 88,777.50 60%
Total 102,345 45,618 147,962.50 100%
As of July 1,2008, FF and GG decided to form a partnership. Their balance sheets on this date are:
FF GG
Cash 15,000 37,500
Accounts receivable 540,000 225,000
Merchandise Inventory - 202,500
Machinery and Equipment 150,000 270,000
Total 705,000 735,000

Accounts Payable 135,000 240,000

FF, capital 570,000 -
GG, capital - 495,000
Total 705,000 735,000

The partners agreed that the machinery and equipment of FF is under depreciated by P15,000 and
that of GG by P45,000. Allowance for doubtful accounts is to be set up amounting to P120,000 for FF
and P45,000 for GG. The partnership agreement provides for a profit and loss ratio and capital
interest of 60% to FF and 40% to GG. How much cash must FF invest to bring to bring the partner’s
capital balances proportionate to their profit and loss ratio?
FF GG
TCC AI TAC
Unadjusted net 570,000 495,000
Assets FF 435,000 172,500 607,500
Allowance for (120,000) (45,000) (60%)
doubtful accounts GG 405,000 - 405,000
Machinery and (15,000) (45,000) (40%)
Equipment (under) Total 840,000 172,500 1,012,500
ANA/CC 435,000 405,000

On August 1, AA and BB pooled their assets to form a partnership, with the firm to take over their business assets and
assume the liabilities. Partners capitals are to be based on net assets transferred after the following adjustments. (Profit
and loss are allocated equally) BB’s inventory is to be increased by P4,000; an allowance for doubtful of P1,000 and
P1,500 are to be set up in books of AA and BB, respectively; and accounts payable of P4,000 is to be recognized in AA’s
books. The individual trial balances on August before adjustments, follow:

AA BB
Assets 75,000 113,000
Liabilities 5,000 34,500

AA BB
UNA 70,000 (75k – 5k) 78,500 (113k – 34.5k)
Inv. - 4,000
ADA (1,000) (1,500)
AP (4,000) -
ANA 65,000 81,000
Partners’ Capital is not based on Net Asset transferred after the adjustments.
 KOBE and SHAQ each operate a separate business agreed to join in
partnership as of July 1, 2020. The balance sheet data presented by each as of this
date were as follows:
KOBE SHAQ
Cash 3,200 12,000
Accounts 32,000 24,000
Receivable
Office Equipment 10,000 12,000
Merchandise 40,000 36,000
Total 85,200 84,000

Accounts Payable 10,000 16,000

Notes Payable 2,000 -
Capital 73,200 68,000
Total 85,200 84,000

The assets of the two partners were carefully examined and it was agreed that
certain adjustments be made and the above balance sheets as adjusted be the basis
on the partnership begins operation.
The adjustments agreed upon are as follows:
KOBE’s account receivables are to be taken over at a book value less 15% and
SHAQ’s accounts receivable at book value less 10%. KOBE’s office equipment is new
and is considered adequate for the new business; therefore, it is decided that SHAQ
dispose of his equipment at the highest cash price possible and that KOBE bear one-
fourth of the loss resulting from the sale. SHAQ’s office equipment is disposed of at
book value less 10%. It is further agreed that SHAQ pay sufficient cash to give him
one-half (1/2) interest in the business after charging to KOBE’s capital account his
share of the loss on the sale by SHAQ of office equipment
1. VALUATION
KOBE SHAQ
UNA 73,200 68,000
AR (4,800) (2,400)
PPE - (900)
ANA 68,400 64,700
(300) -
TCC 68,100 64,700 132,800
2. Adjust and Close
KOBE SHAQ
To adjust: To adjust:
K. Capital 4,800 S. Capital 2,400
AR 4,800 AR 2,400
# #
Cash 10,800
S. Capital 900
Receivable. K 300
Office Equipt. 12,000
# #
To close: To close:
AP 10,000 AP 16,000
NP 2,000 S. Capital 64,700
K. Capita 68,400 Cash 22,800
Cash 3,200 AR 21,600
AR 27,200 MI 36,000
MI 40,000 Receivable. K 300
OE 10,000 #
#

3.
Cash 3,200 Cash 22,800
AR 27,200 AR 21,600
MI 40,800 MI 36,000
OE 10,000 Receivable. 300
K
AP 10,000 AP 16,000
NP 2,800 S. Capital 64,700
K. Capital 68,400 #
#
K. Capital 300 300 68,400
Receivable. K 300
# 68,100

4. MV Method  TCC ≠ TAC

TCC AI TAC Interest

Ratio
Base KOBE 68,100 - 68,100 40%
Adjus SHAQ 64,700 37,450 102,150 60%
t
Total 132,800 37,450 170,250 100%
Cash 37,45
0
S. Capital 37,450
64,700
└→ 37,450
102,150
 Claudia, Delia and Elvie formed a partnership on August 4, 2015 with the
following asstes, measured at book values in their respective records, contributed to
the partnership.
Claudia Delia Elvie
Cash 324,000 108,000 129,600
AR 73,080 - 94,000
PPE 1,620,000 300,000 -

A part of Claudia’s cash contribution, P216,000, comes from a personal

borrowing. Also, the PPE of Claudia and Delia are mortgage with a bank for 972,000
and 72,000, respectively. The fair value of the accounts receivable contributed by Elvie
is 91,800 wihle the PPE contributed by Delia at this date is 340,200. The partners have
agreed to share profits and losses 5:3:2 ration to Claudia, Delia and Elvie respectively .
1. Claudia Delia Elvie
UNA 2,017,080 408,000 223,600
Mortgage Payable (972,000) (72,000) -
Accounts - - (2,200)
Receivable
PPE - 40,200 -
ANA/TCC 1,045,080 376,200 221,400

2. Assume the IR/CR is 5:3:2

TCC Bonus TAC IR
Claudia 1,045,080 (223,740) 821,346 5/10
Delia 376,200 116,604 492,804 3/10
Elvie 221,400 107,136 328,536 2/10
Total 1,642,680 - 1,642,680 10/10
TCC = TAC
C. Capital 223,740
D. Capital 116,604
E. Capital 107,136
Question 2

Liz and Quen decided to combine the business and form the LizQuen Delivery on July 1, 2020. Their respective balance
sheets on June 30 before adjustments are as follows:

Liz Quen
Accounts Payable 47,750 19,000
Capital 61,625 52,500
Total 109,375 71,500

Cash 12,000 6,750

Accounts receivable 21,500 22,500
Inventories 28,000 27,500
Transportation Equipment (net) 30,000 9,000
Office Equipment(net) 11,500 2,750
Prepaid Expense 6,375 3,000
Total 109,375 71,500

They agreed to adjust the recorded items in the books.

1) Provide 5% allowance for doubtful accounts.
2) Liz's Transportation equipment should be ₱27,000, while Quen's office equipment is over depreciated by ₱950
3) Supplies expense incurred previously by Liz was not yet recorded amounting to ₱2,350 while rent expense
incurred by Quen was not also recorded amounting to ₱1,800
4) Fair market value of inventory amounted to:
Liz ₱28,500
Quen ₱24,000

Compute for the net (debit) credit adjustment for Liz and Quen.
Adjustments Liz Quen
ADA (1,075) (1,125)
Trans. Equipt. (under) (3,000)
Office Equipt. (over) 950
Supplies Expense (2,350)
Rent Expense (1,800)
Inventory 500 (3,500)
Total (5,925) (5,475)

Question 3

5. They further agreed that PnL ratio would be 7:3.

Liz (7) Quen (3)

Unadjusted Net Asset 61,625 52,500
Adjustments (5,925) (5,475)
PnL 55,700 47,025
Question 4
 Using an interest ratio of 40% for Liz, how much should Quen invest additionally to achieve a 60% interest in the
partnership.

TCC AI TAC
Liz (Base) 55,700 55,700 40%
Quen 47,025 36,525 83,550 60%
Total 102,725 139,250 100%
Question 6

Using a Capital Ratio of 4:6, what will be adjusted capital balances of each partner

TCC TAC
Liz 55,700 41,090 4
Quen 47,025 61,635 6
Total 102,725 102,725 10
Question 7

Total Liabilities after formation is

Liz Quen
Accounts Payable 47,750 19,000
Rent Expense 1,800
Total 47,750 20,800 68,550
Question 9

Total Assets after formation is

Liz Quen
Unadjusted Net Asset 109,375 71,500
ADA (1,075) (1,125)
Trans. Equipt. (under) (3,000)
Office Equipt. (over) 950
Supplies Expense (2,350)
Inventory 500 (3,500)
Total 103,450 67,825 171,275
Question 6
Nikki, EJ and Justin decided to form a partnership contributing the following from each of their
existing businesses:
NIKKI EJ JUSTIN
Cash 50,000 75,000 55,000
Receivables 100,000 50,000 60,000
Allowance for Bad Debts (2,500) (5,000) (3,000)
Inventories 100,000 - 55,000
Property, Plant and - 350,000 -
Equipment
Goodwill 50,000 - -
Liabilities - 200,000 45,000

The partners agree on the following:

a) The receivables of each partner is to have a 95% net realizable value.
b) Inventories of Nikki costing P10,000 are deemed to be worthless.
c) The property, plant and equipment has a current value of P400,000 and is subject to a P200,000
mortgage (the liability of El). The partners agree to shoulder 3/4 of the loan plus accrued interest
(based on the original loan balance) at 10% for one year
d) Liabilities of Justin are understated by P5,000.
e) The only goodwill recognized is the goodwill attributable to Ej which is equivalent to 5% of his
adjusted capital before the recognition of his goodwill.
f) The partners are to share in the ratio of 4-5:1 to Nikki, Ej and Justin respectively.
g) The partners are to invest or withdraw additional cash to make their capital balances equal to their
profit and loss ratios with EJ's capital to be used as the basis.
Determine the amount of additional cash investment or withdrawal of Nikki.
Nikki EJ Justin Total
Unadjusted Assets 297,500 270,000 122,000
Adjustments:
a. - 2,500 2,500 -
b. -
10,000
c. to current value 50,000
c. to liability absorbed (50T-20T) 30,000
d. - 5,000
Adjusted Capital before adj. to Goodwill 285,000 352,500 117,000
e. - 50,000 17,625
Adjusted Capital after adj. to Goodwill 235,000 370,125 117,000 722,125
Agreed Capital 296,100 370,125 74,025 740,250
Additional Investment (Withdrawal) 61,100 - - 42,975 18,125

Adjusted Contributed/Agreed Capital of

EJ 370,125
Divided by: Capital ratio of EJ 1/2
Total Agreed Capital of Partners 740,250
 Total Agreed Capital of Partners 740,250
Multiplied by: Capital Ratio of Nikki 4/10
Agreed Capital of Nikki 296,100

Total Agreed Capital of Partners 740,250

Multiplied by: Capital Ratio of Justin 1/10
Agreed Capital of Justin 74,025

Question 12
AA, BB, and CC are to form a partnership. AA is to contribute cash of P100,000; BB, P10,000, and
CC, an equipment valued at P100,000. AA and CC are not to actively participate in the business but
will refer customers, while BB will manage the firm. BB has to give up her present job which gives
her an annual income of P120,000. The partners decided that profits and losses shall be shared
equally. Upon formation, assuming a chattel mortgage of P10,000 on the equipment is assumed by
the partnership, the net assets of the partnership is equal to:
Upon formation, the net assets of the partnership is equal to the total fair value of the assets
contributed less any amount of liabilities assumed by the partnership, hence the net assets of the
partnership is equal to P, computed as follows:
Assets contributed by:
AA P100,000
BB 10,000
CC 100,000
Total P210,000
Less liabilities assumed 10,000
Net assets contributed by the partners P200,000

Question 3
On July 15, 2019, Mara and Clara joined in a partnership to be called The Diaries Co. Mara
contributed cash while Clara contributed merchandise worth P25,000 and a second-hand delivery
truck currently valued at P50,000 but encumbered by a one-year chattel mortgage note for P15,000.
If initial capital balances are to conform to the profit-sharing ratio of 2:3, respectively, the amount of
cash contributed by Mara was:
The amount of cash contributed by Mara, if initial balances are to conform to the profit-sharing ratio of
2:3, respectively was P40,000, computed as follows:
Capital contributed by Clara:
Merchandise at fair value P 25,000
Delivery truck at fair value 50,000
Mortgage note payable assumed (15,000)
Clara’s contribution P 60,000
Divided by profit share of Clara 3/5
Total agreed capital P100,000
Multiplied by Mara’s profit share ratio 2/5
Mara’s cash contribution P 40,000
Partnership Operation
Question 8
By what amount should Mimi's and Oyeh's capital change?
Mimi Yuuh Oyeh Total
(125,624)
Interest (10%) 47,250 23,865 16,235 (87,350)
Salaries 122,325 82,625 (204,950)
Residual (139,308) (139,308) (139,308) (417,924)
Income/loss 30,267 (115,443) (40,448) (125,624)

Question 10
By what amount should Yuuh's capital change?
(18,010)

Question 2
Red and White formed a partnership in 2011. The partnership agreement provides for annual salary
allowances of P55,000 for Red and P45,000 for White. The partners share profits equally and losses
in a 60:40 ratio. The partnership had earnings of P80,000 for 2011 before any allowance to partners.
What amount of these earnings should be credited to each partner’s capital account?
Red White Total
Salary allowances P 55,000 P 45,000 P 100,000
Loss after allowances (60:40) (12,000) (8,000) (20,000)
Earnings credited to partners P 43,000 P 37,000 P 80,000

Question 4
The partnership agreement of Donn, Eddy, and Farr provides for annual distribution of profit or loss
in the following sequence:
1. Donn, the managing partner, receives a bonus of 10% of profit.
2. Each partner receives 6% interest on average capital investment.
3. Residual profit or loss is divided equally. Average capital investments for the current year were
Donn/P80,000 Eddy/P50,000 Farr/P30,000
What portion of the P100,000 partnership profit for the year should be allocated to Farr?
 The partnership agreement provides for a bonus to one partner and payment of interest on each
partner's average capital investment.
 The bonus and the interest must be allocated and included in the calculation of the residual profit
or loss.
 Donn's bonus is P10,000 (P100,000 × 10%), and total interest is P9,600 (P160,000 total capital ×
6%).
 Hence, the residual profit following the allocation of bonus and interest is P80,400 (P100,000
partnership profits - P10,000 bonus - P9,600 of interest on capital).
 Sharing the residual profit equally among the partners results in an allocation to Farr of P28,600
[(P30,000 × 6%) interest + (P80,400 ÷ 3) residual profit].
Question 2
Nancy, Jooe, and Yeonwoo formed Momoland Corporation on January 2017 with Jooe being an
industrial partner. They decided the following method from profit distribution.
1. Nancy and Yeonwoo will received 45,000 and 58,000 in interest for capital contribution.
2. Jooe will received 3,000 monthly salary for his industry.
3. In addition, Joey will receive 10% bonus on net income after salaries and bonus.
4. The balance will be divided according to their PnL ratio 2:5:3.
Yeonwoo withdrew P20,000 from the partnership due to personal emergency.
What will be the profit-share of Nancy at the end of the period if they were able to earn P42,600
during the year?
Answer. Nancy Jooe Yeonwoo Total
Interest 45,000 58,000 -103,000
Salaries 36,000 -36,000
Bonus 600 -600
Residual -19400 -48500 -29100 -97,000
Total 25,600 -11,900 28,900 42,600
Absorption of Loss of Industrial Partner -4760 11900 -7140 0
Final Net Profit Distribution. 20,840 0 21,760 42,600

Question 4
The partnership agreement of Marky, Queenie, & Phoebie provides for the year-end allocation of net
income in the following order:
· First, Marky is to receive 10% of net income up to P100,000 and 20% over P100,000.
· Second, Quennie and Phoebie are to receive 5% each of the remaining income over P150,000.
· The balance of income is to be allocated equally among the three partners.
The partnership's net income for the year was P250,000 before any allocations to partners. What
amount should be allocated to Marky?
Ans.
Marky initially receives P40,000 {(P100,000 × 10%) + [(P250,000 - P100,000) × 20%]}.
The remaining income is P210,000 (P250,000 - P40,000).
Of this amount, Quennie and Phoebie receive P3,000 each [(P210,000 - P150,000) × 5%], a total of
P6,000.
The balance is allocated equally [(P250,000 - P40,000 - P6,000) ÷ 3 = P68,000].
Thus, Marky receives a total of P 108,000 (P40,000 + P68,000).
Partnership Dissolution
HUGO and ISKO are partners sharing profits and loses in the ratio of 60% and 40%, respectively.
The partnership balance sheet at August 30, 2015 follows:
Cash 12,150 Accounts payable 13,500
Other assets 119,700 Hugo, Loan 5,850
Isko, Loan 9,000 Hugo, capital 81,000
Isko, capital 40,500
Total 140,850 Total 140,850
At this date, JOSE was admitted as a partner for a consideration of 43,875 cash for a 40% interest in
capital and in profits.
TCC Bonus TAC
x 40% x 60%
HUGO 81,000 (13,365) 67,635
ISKO 40,500 (8,910) 31,590
Cash JOSE 43,875 22,275 66,150
43,875 Total 165,375 165,375 x 40% IR of NP

Jose, capital 43,875

#
Hugo, capital 13,365
Isko, capital 8,910
Jose, capital 22,275

TCC Goodwill TAC

HUGO 81,000 81,000
ISKO 40,500 40,500
JOSE 43,875 22,275 66,150
Total 165,375 22,275 165,375

Seller Net Asset IR of Trans. Gain

of OP NP Cap to NP (Loss)
HUGO 81,000 x 40% 32,400 + - xx
ISKO 40,500 x 40% 16,200 + - xx
Total 121,500 x 40% 48,600 + - xx
(Payment)
+ - (xx)
The following balances as at October 31, 2015 for the Partnership of KATHY, LILIA and MINDA were
as follows:
Cash 50,000 Liabilities 15,000
Lilia, Loan 15,000 Kathy, loan 22,500
Non-cash assets 400,000 Kathy, capital 105,000
Lilia, capital 97,500
Minda, capital 225,000
Total 465,000 Total 465,000

KATHY has decided to retire from the partnership on October 31. Partners agreed to adjust the non-
cash assets to the fair market value of P490,000. The estimated profit to October 31 is 100,000.
KATHY will be paid 173,000 for her partnership interest inclusive of his loan which is repaid in full.
Their profit and loss ratio is 3:3:4 to KATHY, LILIA, and MINDA, respectively.
What will be the balance of LILIA’s capital account after the retirement of KATHY?
 NIE PnL NT
KATHY (105,000 + 22,500) 127,500 57,000 184,500 (11,500) 173,000
LILIA (97,500 – 15,000) 82,500 57,000 139,500 4,929 144,429
MINDA 225,000 76,000 301,000 6,571 307,571
Total 435,000 190,000 625,000

Non-cash Asset (400T – 490T) 90,000

I/S 100,000
Kathy, capital 30% 57,000
Lilia, capital 30% 57,000
Minda, capital 60% 76,000
#
Kathy, capital 184,500
Cash 173,000
Lilia, capital 4,929
Minda, capital 6,571
Question 1
Partnership Admission. The following condensed balance sheet is presented for the partnership of
Alfie, Betty, and Chiena, who share profits and losses in the ratio of 4:3:3, respectively:
Cash 200,000 Accounts Payable 250,000
Other Assets 780,000 Chiena, Loan 60,000
Alfie, Loan 50,000 Alfie, Capital 290,000
Total 1,030,000 Betty, Capital 240,000
Chiena, Capital 190,000
Total 1,030,000

Assume that assets and liabilities are fairly valued on the balance sheet and that the partnership
decides to admit Delia as new partner, with 25% interest. No goodwill or bonus is to be recorded.
How much should Delia contribute in cash or other assets?
Answer:
If Delia is to have a 20% interest without recording goodwill or bonus, the current sum of the capital
accounts will be equal to 80% of the carrying amount after the admission of Delia.
Alfie, Capital 290,000
Betty, Capital 240,000
Chiena, Capital 190,000
Total 720,000
OP Remaining Cap. Ratio .75
Total agreed partnership capital after 960,000
Admission
NP(Delia) Capital ratio upon admission .25
NP(Delia)’s agreed contribution 240,000

Question 5
Paco, Quin, and Romy are partners with capital balances on June 30, 2011 of P300,000, P300,000
and P200,000, respectively, and sharing profits and losses equally. Romy is to retire, and it is agreed
that he is to take certain furniture (with second-hand value of P50,000) and a note for his interest. The
furniture is carried in the books at P65,000, but brand new would cost P80,000. Romy’s acquisition of
the furniture would result in:
Paco Quin Romy
Charge for furniture taken, at second-hand value P50,000
Share in realization loss, P65,000 – P50,000 5,000 5,000 5,000
Reduction in capital incident to Romy’s acquisition of the Furniture P5,000 P5,000 P55,000

Question 1
Presented below is the balance sheet for the LITTLE MIX partnership of Leigh, Perry, and Jade, who
share profits and losses in the ratio of 4:3:3, respectively.
Cash 90,000 Accounts payable 210,000
Other assets 830,000 Jade, loan 30,000
Leigh, loan 20,000 Leigh, capital 310,000
P940,000 Perry, capital 200,000
Jade, capital 190,000
P940,000
Assume that the assets and liabilities are fairly valued on the balance sheet and that the partnership
decides to admit Jessy as a new partner with a 20% interest. No goodwill or bonus is to be recorded.
How much should Jessy contribute in cash or other assets?
Ans. The carrying amount of the partnership is the sum of the capital accounts of Leigh, Perry, and
Jade, i.e., P700,000. If Jessy is to have a 20% interest without recording goodwill or bonus, the
current sum of the capital accounts will be equal to 80% of the carrying amount after the admission of
Jessy. Dividing the original carrying amount of P700,000 by 80% yields the new carrying amount after
Jessy's admission (P875,000). The difference between the respective carrying amounts is the amount
the new partner must contribute.
New partnership (P700,000 ÷ 80%) P875,000 Old partnership
(700,000) Jessy's contribution
P175,000
Question 8
Terry and Timmy entered into a partnership on May 31, 2011, contributing cash of P48,000 and
P32,000, respectively, and agreeing to divide earnings in the ratio of their initial investments after
allowing annual salary allowance of P12,000 each. On December 31, 2011, the income summary
account had a credit balance of P34,000, while drawing accounts showed debit balances of P14,000
for Terry and P10,000 for Timmy.
At the beginning of the next year, Tommy was admitted into the firm as a new partner with a 33-1/3%
interest for a capital credit equal to his cash investment of P60,000. Terry and Timmy then effected a
private cash settlement between themselves in order to make the capital balances conform to a new
profit-sharing ratio of 4:2:3, respectively, with salary allowances scrapped.
How much was the amount of goodwill, if any, that was recognized in connection with the admission
of the new partner?
The amount of goodwill that was recognized in connection with the admission of the new partner was
P30,000, computed as follows:

New capital implied from new partner’s investment:

P60,000/ 33 1/3% P180,000
Less: Resulting assets after new partner’s investment:
Original partners’ investment P 80,000
Net income 34,000
Drawings (24,000)
New partner’s investment 60,000 150,000
Implied goodwill (for original partners) P 30,000
Question 18
Presented below is the condensed balance sheet of the partnership of Michelle Dy, Anne Clutz, and
Raf Squad, who share profits and losses in the ratio of 6:3:1, respectively:
Cash 85,000 Liabilities P80,000
Other assets 415,000 Michelle Dy, capital 252,000
Total P500,000 Anne Clutz, capital 126,000
Raf Squad, capital 42,000
Total P500,000

Assume that the partners agree to sell to Johnrey 20% of their respective capital and profit and loss
interests for a total payment of P90,000. The payment by Johnrey is to be made directly to the
individual partners. The partners agree that implied goodwill is to be recorded prior to the acquisition
by Johnrey. What is the capital balance of Anne Clutz after the acquisition by Johnrey?
If Johnrey is to purchase a 20% interest in the partnership for P90,000, the partnership is estimated to
be worth P450,000 (P90,000 ÷ 20%). But the sum of the original capital balances is only P420,000.
Because goodwill is to be recognized prior to the purchase, P30,000 must be allocated to the capital
accounts of the original partners. This amount will be shared in the profit and loss ratio of 6:3:1. The
final step is to debit the capital accounts of the original partners for 20% of their respective interests
and to credit the new partner's account for P90,000.
Michelle Dy Anne Clutz Raf Squad Johnrey
Beginning capital P252 P126 P42 X
Goodwill 18 9 3 X
TOTAL P270 P135 P45
Minus 20% sold (54) (27) (9) 90
Ending capital P216 P108 P36 P90
Allocation of Net Income with Bonus, Salaries, Interest and Income tax.
Question 2
Red and White formed a partnership in 2011. The partnership agreement provides for annual salary
allowances of P55,000 for Red and P45,000 for White. The partners share profits equally and losses
in a 60:40 ratio. The partnership had earnings of P80,000 for 2011 before any allowance to partners.
What amount of these earnings should be credited to each partner’s capital account?
Red White Total
Salary allowances P 55,000 P 45,000 P 100,000
Loss after allowances (60:40) (12,000) (8,000) (20,000)
Earnings credited to partners P 43,000 P 37,000 P 80,000

Question 14

Beck, the active partner in Beck & Cris, receives an annual bonus of 25% of partnership net income
after deducting the bonus. For the year ended December 31, partnership net income before the
bonus amounted to P300,000. Beck's bonus for the year should be
Calculating the bonus requires formulating an equation with one unknown. The bonus (B) is equal to
25% of net income (P300,000) minus the bonus.

B = .25(NI - B)
B = .25(P300,000 - B)
B = P 75,000 - .25B
1.25B =P 75,000
B = P 60,000
Question 13 & 15
Herm, Marc, and Alex formed a partnership on January 1, 2011, and contributed P150,000,
P200,000, and P250,000, respectively. The articles of co-partnership provide that the operating
income be shared among the partners as follows: as salary, P24,000 for Herm, P18,000 for Marc, and
P12,000 for Alex; interest of 12% on the average capital during 2011 of the three partners; and, the
remainder in the ratio of 2:4:4, respectively.
The operating income for the year ending December 31, 2011 amounted to P176,000. Herm
contributed additional capital of P30,000 on July 1 and made a drawing of P10,000 on October 1;
Marc contributes additional capital of P20,000 on August 1 and made a drawing of P10,000 on
October 1; and, Alex made a drawing of P30,000 on November 1.
The partners’ capital balances on December 31, 2011 are Herm, P223,180; Marc, P272,060; and
Alex, P280,760, respectively, computed as follows:
Herm Marc Alex
Capital balances, Jan. 1 P150,000 P200,000 P250,000
Additional contributions 30,000 20,000 -
Drawings (10,000) (10,000) (30,000)
Share in operating income (6) 53,180 62,060 60,760
Capital balances, Dec. 31, 2011 P223,180 P272,060 P280,760
The division of the P176,000 operating income is:
Herm: P150,000 x 12/12 P150,000
30,000 x 6/12 15,000
(10,000) x 3/12 (2,500)
Average Capital P162,500

P200,000 x 12/12 P200,000

Marc:
20,000 x 5/12 8,333
(10,000) x 3/12 (2,500)
Average capital P205,833

Alex: P250,000 x 12/12 P250,000

(30,000) x 2/12 (5,500)
Average capital P245,000

Herm Marc Alex Total

Salary allowances P24,000 P18,000 P12,000 P54,000
12% interest on average capital 19,500 24,700 29,400 73,600
Remainder, 2:4:4 9,680 19,360 19,360 48,400
Division of ope. inc. P53,180 62,060 P60,670 P176,000
Question 19
Partner's Aura, Flora, Stella and Bloom are initially invested P 45 000, P 60 000, P 65 000, and P
85 000 each to form a Winx Co. on July 1, 2020. They divided profits and losses based on the
following:
a.) Annual salaries of P 15 000, P 20 000 and, P 20000 to Aura, Flora, and Stella;
b.) 10% annual interest on original capital to Stella;
c.) 20% bonus to Bloom before salaries, interests, and bonus;
d.) The balance is to be divided 4:3:2:1 ratio to Aura, Flora, Stella, and Bloom each, respectively;
If on December 31, 2021 the capital balances of Flora and Stella total P250,000, how much would
have been the total profit given to Bloom (2020-2021)?
Beginning Capital-Flora and Stella 2 x (60T + 65T) 125,000
+ Profit 125,000
- Withdrawal 0
Ending Capital-Flora and Stella 250,000
Flora Stella Total
Salaries (1 and a half periods) 30,000 30,000 60,000
Interest 9,750 9,750
Bonus 0 0 0
Excess 33150 22100 55,250
Total Profit 125,000
Excess 55,250
Ratio for Nareen and Stella 5/10
Excess Profit for all partners 110500
Aura Flora Stella Bloom Total
Profit before salaries, interest and bonus 253,437.50
Salaries (1.5 periods) 22,500.00 30,000.00 30,000.00 - 82,500.00
Interest (1.5 periods) 9,750.00 - 9,750.00
Bonus - - - 50,687.50 50,687.50
Excess 44,200.00 33,150.00 22,100.00 11,050.00 110,500.00
Total Profit 66,700.00 63,150.00 61,850.00 61,737.50 253,437.50

Profit before salaries, interest and bonus = 82,500 +9,750 + 110,500 + B

B = .20P
P =82,500 +9,750 + 110,500 + .20P
.80P =202,750.00
P =253,437.50
B =253,437.50 x 20%
B =50,687.50