Advanced Accounting Dayag Solution Manual

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Advanced Accounting Dayag Solution Manual
Accountancy (University of the East)
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Adva nc e d Ac c o unting So lutio n Ma nua l
Anto nio J. Da ya g
C ha pte r 1
Pro b le m I
Re q uire m e nt 1: Assum ing tha t A a nd B a g re e tha t e a c h p a rtne r is to re c e ive a c a p ita l c re d it e q ua l to
the a g re e d va lue s o f the ne t a sse ts e a c h p a rtne r inve ste d :

To re c o rd a djustm e nts: no thing to a d just sinc e b o th o f the m ha ve no se t o f b o o ks.
To c lo se the b o o ks: no thing to c lo se sinc e b o th o f the m ha ve no se t o f b o o ks.
To re c o rd inve stm e nts:
Pa rtne rship b o o ks:

C a sh………………………………………………………………………………. 120,000
Inve nto ry…………………………………………………………………………. 120,000
Eq uip m e nt……………………………………………………………………….. 240,000
A, c a p ita l………………………………………………………………... 480,000
Initia l inve stm e nt.
C a sh……………………………………………………………………………….. 120,000
La nd ……………………………………………………………………………….. 240,000
Building ……………………………………………………………………………. 480,000
Mo rtg a g e p a ya b le ……………………………………………………. 240,000
B, c a p ita l……………………………………………………………….. 600,000
Initia l inve stm e nt.
Re q uire m e nt 2: Assum ing tha t A a nd B a g re e tha t e a c h p a rtne r is to re c e ive a n e q ua l c a p ita l inte re st.
To re c o rd a djustm e nts: no thing to a d just sinc e b o th o f the m ha ve no se t o f b o o ks.
To c lo se the b o o ks: no thing to c lo se sinc e b o th o f the m ha ve no se t o f b o o ks.
Pa rtne rship b o o ks:

Bo nus Appro a c h:
C a sh…………………………………………………………………………… 120,000
Inve nto ry……………………………………………………………………… 120,000
Eq uip m e nt……………………………………………………………………. 240,000
A, c a p ita l…………………………………………………………….. 480,000

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C a sh…………………………………………………………………………… 120,000
La nd ……………………………………………………………………………. 240,000
Building ………………………………………………………………………… 480,000
Mo rtg a g e p a ya b le ………………………………………………… 240,000
B, c a p ita l.……………………………………………………….…… 600,000
B, c a p ita l……………………………………………………………………….. 60,000

A, c a p ita l……………………………………………………………… 60,000
To ta l a g re e d c a p ita l (P480,000 + P600,000)….P 1,080,000

Multip lie d b y: C a p ita l inte re st (e q ua l)………... 1/ 2
Pa rtne r’ s ind ivid ua l c a p ita l inte re st…………….P 540,000
Le ss: A’ s c a p ita l inte re st………………………..….480,000
Bo nus to A…….……………………………………..P 60,000
Re va lua tio n (G o o dwill) Appro a c h:
C a sh…………………………………………………………………………… 120,000
Inve nto ry……………………………………………………………………… 120,000
Eq uip m e nt………………………………………………………………… .... 240,000
A, c a p ita l…………………………………………………………….. 480,000
C a sh…………………………………………………………………………… 120,000
La nd ……………………………………………………………………………. 240,000
Building ………………………………………………………………………... ..480,000
Mo rtg a g e p a ya b le ………………………………………………… 240,000
B, c a p ita l.……………………………………………………….…… 600,000
Asse ts (o r g o o d will o r inta ng ib le a sse t)…………………………………... 120,000

A, c a p ita l…………………..……………………………………….. 120,000

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To ta l a g re e d c a p ita l (P600,000 / 1/2)………..…. P1,200,000

Le ss: To ta l c o ntrib ute d c a p ita l
(P480,000 + P 600,000)………………………………....… 1,080,000
G o o d will to A……………..…………………………. P 120,000
Pro b le m II
Inve ste d Inve ste d Inve ste d

Ag re e d Fa ir Va lue s b y Jo hn b y Je ff b y Ja ne
C a sh P100,000 --- ---
Eq uip m e nt P 110,000 ---
To ta l a sse ts 100,000 P 110,000 0
No te p a ya b le a ssum e d b y p a rtne rship --- 30,000 ---
Ne t a sse ts inve ste d P100,000 P 80,000 P 0
1. Bo nus Me tho d 2. G o o d will Me tho d (Re va lua tio n o f Asse t)
C a sh 100,000
C a sh 100,000 Eq uip m e nt 110,000
Eq uip m e nt 110,000 G o o d w ill 90,000
No te Pa ya b le 30,000 No te Pa ya b le 30,000
Jo hn, C a p ita l 60,000 Jo hn, C a p ita l 90,000
Je ff, C a p ita l 60,000 Je ff, C a p ita l 90,000
Ja ne , C a p ita l 60,000 Ja ne , C a p ita l 90,000
2. The b o nus m e tho d is use d w he n Jo hn a nd Je ff re c o g nize tha t Ja ne is b ring ing so m e thing o f va lue to
the firm o the r tha n a ta ng ib le a sse t, b ut the y d o no t w a nt to re c o g nize a n inta ng ib le a sse t. To
e q ua lize the c a p ita l a c c o unts, P40,000 is tra nsfe rre d fro m Jo hn's c a p ita l a c c o unt a nd P20,000 is
tra nsfe rre d fro m Je ff's c a p ita l a c c o unt.
The g o o d w ill m e tho d is use d w he n the p a rtne rs re c o g nize the inta ng ib le na ture o f the skills Ja ne is
b ring ing to the p a rtne rship . Ho w e ve r, the c a p ita l a c c o unts a re e q ua lize d b y re c o g nizing a n
inta ng ib le a sse t a nd a c o rre sp o nd ing inc re a se in the c a p ita l a c c o unts o f the p a rtne rs. Unle ss the

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inta ng ib le a sse t c a n b e sp e c ific a lly id e ntifie d , suc h a s a p a te nt b e ing inve ste d , it sho uld no t b e
re c o g nize d , b e c a use o f a la c k o f justific a tio n fo r g o o d w ill in a ne w b usine ss.
Pro b le m III
1. (a ) C a sh 13,000
Ac c o unts Re c e iva b le 8,000
O ffic e Sup p lie s 2,000
O ffic e Eq uip m e nt 30,000
Ac c o unts Pa ya b le 2,000
To m , C a p ita l 51,000
C a sh 12,000
Ac c o unts Re c e iva b le 6,000
O ffic e Sup p lie s 800
La nd 30,000
Ac c o unts Pa ya b le 5,000
Mo rtg a g e Pa ya b le 18,800
Julie , C a p ita l 25,000
(b ) To m , Dra w ing 15,000
C a sh 15,000
Julie , Dra w ing 12,000
C a sh 12,000
(c ) Inc o m e Sum m a ry 50,000
To m , C a p ita l P50,000 (P51,000/ P76,000) 33,553
Julie , C a p ita l P50,000 (P25,000/ P76,000) 16,447
To m , C a p ita l 15,000
Julie , C a p ita l 12,000
To m , Dra w ing 15,000

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Julie , Dra w ing 12,000
2. TO M A ND JULIE PARTNERSHIP
Sta te m e nt o f C ha ng e s in Pa rtne rs' C a p ita l

Fo r the Ye a r End e d De c e m b e r 31, 20x4
To m Julie To ta l
C a p ita l b a la nc e s, Ja n. 1 P 0 P0 P 0
Ad d : Ad d itio na l inve stm e nts 51,000 25,000 76,000
Ne t inc o m e a llo c a tio n 33,553 16,447 50,000
To ta ls P 84,553 P 41,447 P126,000
Le ss: Withd ra w a ls 15,000 12,000 27,000
C a p ita l b a la nc e s, De c . 31 P 69,553 P 29,447 P99,000
Pro b le m IV
Bo o k o f H is to b e re ta ine d b y the ne w pa rtne rship .
The fo llo w ing p ro c e d ure s a re to b e fo llo w e d :

Ind ivid ua l ve rsus So le Pro p rie to r
Bo o ks o f *Bo o ks o f
Ind ivid ua l So le Pro p rie to r
Ad justing e ntrie s N/ A Ye s
C lo sing e ntrie s (re a l a c c o unts) N/ A No
Inve stm e nts Ye s**
Ba la nc e She e t Ye s
* Bo o ks o f H; Pa rtne rship b o o ks
** Inve stm e nts o f ind ivid ua l; a d d itio na l inve stm e nts o r w ithd ra w a ls o f so le p ro p rie to r.
1. Bo o ks o f So le Pro p rie to r (H):
a . To re c o rd a djustm e nts:
a . H, c a p ita l………………………………………………………………… 1,800

Allo wa nc e fo r d o ub tful a c c o unts……………………………. 1,800
Ad d itio na l p ro visio n c o m p ute d a s fo llo ws:
Re q uire d a llo wa nc e : 10% x P48,000 = P 4,800
Le ss: Pre vio us b a la nc e ………………… 3,000

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Ad d itio na l p ro visio n…………………… P 1,800
b . Inte re st re c e iva b le o r a c c rue d inte re st inc o m e …………………. 3,600

H, c a p ita l…………………………………………………………… 3,600
Inte re st inc o m e fo r nine m o nths c o m p ute d a s fo llo ws:
P60,000 x 8% x 9/12 = P3,000.
c . H, c a p ita l………………………………………………………………….. 6,000

Me rc ha nd ise inve nto ry………………………………………….. 6,000
De c line in the va lue o f me rc ha nd ise .
P27,000 – P21,000 = P6,000.
d . H, c a p ita l…………………………………………………………………. 4,800

Ac c um ula te d d e p re c ia tio n……………………………………. 4,800
Und e r d e p re c ia tio n.
e . Pre p a id e xp e nse s………………………………………………………... 2,400

H, c a p ita l…………………………………………………………… 2,400
Exp e nse s p a id in a d va nc e .
H, c a p ita l…………………………………………………………………… 7,200

Ac c rue d e xp e nse s…………………………………………………. 7,200
Unre c o rd e d e xp e nse s.
No te : All a d justm e nt tha t re fle c ts no m ina l a c c o unts sho uld b e c o urse d thro ug h the
c a p ita l a c c o unt, sinc e a ll no m ina l a c c o unts a re a lre a d y c lo se d a t the tim e o f

fo rm a tio n.
b . To c lo se the b o o ks: no thing to c lo se sinc e the b o o ks o f H w ill b e re ta ine d .
c . To re c o rd inve stm e nt:
C a sh……………………………………………………………………………. 116,100
I, c a p ita l……………………………………………………………… 116,100
Initia l inve stm e nt c o mp ute d a s fo llo ws:

Una d juste d c a p ita l o f H………………………………P 246,000

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Ad d (d e d uc t): a d justm e nts:

a . Do ub tful a c c o unts...……………………...( 1,800)
b . Inte re st inc o m e …………………………….. 3,600
c . De c line in the va lue o f m e rc ha ndise ….( 6,000)
d . Und e r-d e p re c ia tio n……………………….( 4,800)
e . Pre p a id e xp e nse s………………………….. 2,400
Ac c rue d e xp e nse s………………………...( 7,200)
Ad juste d c a p ita l b a la nc e o f H……………..……...P 232,200
Divid e d b y: C a p ita l inte re st o f H…………………… 2/3
To ta l a g re e d c a p ita l…………………………….…….P 348,300
Multip lie d b y: C a p ita l inte re st o f I……………..…… 1/3
Inve stm e nt o f I…………………………………………P 116,100
No te : The initia l inve stm e nt o f H is a lre a d y re c o rd e d sinc e his b o o ks a re a lre a d y
re ta ine d . No furthe r e ntry is re q uire d sinc e the re a re no a d d itio na l inve stm e nts o r
w ithd ra w a ls m a d e b y H.
2. The b a la nc e she e t fo r b o th c a se s p re se nte d a b o ve is a s fo llo w s:
HI Pa rtne rship
Ba la nc e She e t
No ve m b e r 1, 20x4
Asse ts
C a sh P 236,100
Ac c o unts re c e iva b le s P 48,000
Le ss: Allo w a nc e fo r d o ub tful a c c o unts………........... 4,800 43,200
No te s re c e iva b le ……................................................... 60,000
Inte re st re c e iva b le ……………….................................. 3,600
Me rc ha nd ise Inve nto ry................................................ 21,000
Pre p a id e xp e nse s………….......................................... 2,400
Eq uip m e nt (ne t)…………............................................. P 72,000
Le ss: Ac c um ula te d d e p re c ia tio n………………........ 10,800 61,200

To ta l Asse ts.................................................................... P 427,500

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Lia b ilitie s a nd C a p ita l
Lia b ilitie s
Ac c rue d e xp e nse s…….. ....................................... P 7,200
Ac c o unts p a ya b le ................................................... 12,000
No te s p a ya b le …………........................................... 60,000
To ta l Lia b ilitie s................................................................ P 79,200
C a p ita l...........................................................................
H, c a p ita l……………………….................................. P 232,200
I, c a p ita l…………………........................................... 116,100
To ta l C a p ita l.................................................................. P 348,300
To ta l Lia b ilitie s a nd C a p ita l.......................................... P 427,500
Pro b le m V
Ne w se t o f b o o ks. The fo llo w ing p ro c e d ure s a re to b e fo llo w e d :
So le Pro p rie to r ve rsus So le Pro p rie to r
Bo o ks o f Bo o ks o f
So le Pro p rie to r So le Pro p rie to r *Ne w Se t o f
(Ba ke r) (C a rte r) Bo o ks
Ad justing e ntrie s Ye s Ye s
C lo sing e ntrie s (re a l a c c o unts) Ye s Ye s
Inve stm e nts Ye s**
Ba la nc e She e t Ye s
* Pa rtne rship b o o ks
** Ad d itio na l inve stm e nts o r w ithd ra w a ls o f so le p ro p rie to rs.

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1. Bo o ks o f So le Pro p rie to r
a . To re c o rd a djustm e nts:
Bo o ks o f J Bo o ks o f K
a . J, c a p ita l…………………………12,000 a . Me rc ha nd ise Inve nto ry………… 6,000

Me rc ha nd ise Inve nto ry…… 12,000 K, c a p ita l……………………… 6,000
Wo rthle ss inve nto ry. Up w a rd re va lua tio n.
b . J, c a p ita l………………………… 7,200 b . K, c a p ita l……….…………………. 3,000
Allo w a nc e fo r d o ub tful Allo w a nc e fo r d o ub tful
Ac c o unts………………….. 7,200 a c c o unts……………………. 3,000
Wo rthle ss a c c o unts. Ad d itio na l p ro visio n.
Re q uire d a llo w a nc e :
5% x P180,000…….. P9,000
Le ss: Pre vio us
Ba la nc e ……….. 6,000
Ad d itio na l
Pro visio n....…………P3,000
c . Re nt re c e iva b le …………………12,000 c . K, c a p ita l……………………………. 9,600
J, c a p ita l……………………. 12,000 Sa la rie s p a ya b le ………………. 9,600
Inc o m e e a rne d . Unp a id sa la rie s.
d . Inte re st re c e iva b le …………………1,200
K, c a p ita l………….................. 1,200
Inte re st inc o m e fro m Aug ust
17 to O c to b e r 1.
P60,000 x 16% x 45/ 360
e . J, c a p ita l………………………… 8,400
O ffic e sup p lie s………………. 8,400
Exp ire d o ffic e sup p lie s.
f. J, c a p ita l………………………… 6,000
Ac c um ula te d d e p re c ia tio n
- e q uip m e nt……………… 6,000
Und e r-d e p re c ia te d .

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g . K, c a p ita l……………………………12,000
Ac c um ula te d d e p re c ia tio n-
Furniture a nd fixture s……… 12,000
Und e r-d e p re c ia te d .
h. J, c a p ita l…………………………. 1,800
Inte re st p a ya b le ……………. 1,800
Inte re st e xp e nse fro m
July 1 to O c to b e r 1.
P60,000 x 12% x 3/ 12
i. Pa te nt………………………………. 48,000
K, c a p ita l…………………….. 48,000
Unre c o rd e d p a te nt.
Una d juste d c a p ita l o f J…….……….P 372,000 Una d juste d c a p ita l o f K..……………...P432,000

Ad d (d e d uc t): a d justm e nts: Ad d (d e d uc t): a d justm e nts:
a . Wo rthle ss m e rc ha nd ise ……..( 12,000) a . Me rc ha nd ise re va lua tio n…….. 6,000
b . Wo rthle ss a c c o unts………….( 7,200) b . Wo rthle ss a c c o unts…………….( 3,000)
c . Re nt inc o m e ……………….…. 12,000 c . Sa la rie s…………….…….………..( 9,600)
e . O ffic e sup p lie s e xp e nse …….( 8,400) d . Inte re st inc o m e ………………….. 1,200
f. Ad d itio na l d e p re c ia tio n……( 6,000) g . Ad d itio na l d e p re c ia tio n………( 12,000)
h. Inte re st e xp e nse ………………( 1,800) h. Pa te nt………….……….…………. 48,000
Ad juste d c a p ita l o f J…………………P348,600 Ad juste d c a p ita l o f K….………………..P462,600
b . To c lo se the b o o ks:
Bo o ks o f J Bo o ks o f K
Allo w a nc e fo r d o ub tful Allo w a nc e fo r d o ub tful

a c c o unts................................. 12,000 a c c o unts................................. 9,000
Ac c um ula te d d e p re c ia tio n – Ac c um ula te d d e p re c ia tio n –
e q uip m e nt…………………… 60,000 furniture a nd fixture s ………. 36,000
Ac c o unts p a ya b le ……………159,600 Ac c o unts p a ya b le ……………. 120,000
No te s p a ya b le ………………… 60,000 Sa la rie s p a ya b le ………………. 9,600
Inte re st p a ya b le ………………. 1,800 K, c a p ita l…….…………………. 462,600
J, c a p ita l…….………………….348,600 C a sh…………………………. 54,000
C a sh………………………… 90,000 Ac c o unts re c e iva b le …….. 180,000
Ac c o unts re c e iva b le ……. 216,000 No te s re c e iva b le …………. 60,000
Me rc ha nd ise inve nto ry…. 180,000 Inte re st re c e iva b le ………... 1,200

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O ffic e sup p lie s……………. 24,000 Me rc ha nd ise inve nto ry….. 150,000
Eq uip m e nt…………………. 120,000 Furniture a nd fixture s.…….. 144,000
Re nt re c e iva b le …………... 12,000 Pa te nt………….……………. 48,000
C lo se the b o o ks o f J. C lo se the b o o ks o f K..
2. Ne w Se t o f Bo o ks -
C a sh………………………………………………………………. 90,000
Ac c o unts re c e iva b le ………………………………………….. 216,000
Me rc ha nd ise inve nto ry……………………………………….. 180,000
O ffic e sup p lie s………………………………………………….. 24,000
Eq uip m e nt (ne t)………………………………………………... 60,000
Re nt Re c e iva b le ……………………………………………….. 12,000
Allo w a nc e fo r d o ub tful a c c o unts……………………. 12,000
Ac c o unts p a ya b le ……………………………………….. 39,600
No te s p a ya b le ……………………………………………. 60,000
Inte re st p a ya b le ………………………………………….. 1,800
J, c a p ita l…………………………………………………… 468,600
C a sh………………………………………………………………. 54,000
Ac c o unts re c e iva b le ………………………………………….. 180,000
No te s re c e iva b le ………………………………………………. 60,000
Inte re st re c e iva b le …………………………………………….. 1,200
Me rc ha nd ise inve nto ry……………………………………….. 150,000
Furniture a nd fixture s (ne t)…..……………………………….. 108,000
Pa te nt…………..………………………………………………... 48,000
Allo w a nc e fo r d o ub tful a c c o unts……………………. 9,000
Ac c o unts p a ya b le ……………………………………….. 120,000
Sa la rie s p a ya b le ….………………………………………. 9,600
K, c a p ita l…………………………………………………… 462,600
3.

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H I
Una d juste d c a p ita l (re fe r to 1a ) P372,000 P432,000
Ad juste d c a p ita l (re fe r to 1b ) 348,600 462,600

Ne t a d justm e nts (d e b it)/ c re d it (P 23,400) P 30,600
4. The b a la nc e she e t a fte r fo rm a tio n is a s fo llo w s:
J a nd K Pa rtne rship
Ba la nc e She e t
O c to b e r 1, 20x4
Asse ts
C a sh............................................................................... P 144,000
Ac c o unts re c e iva b le s................................................. P396,000
Le ss: Allo w a nc e fo r d o ub tful a c c o unts………......... 21,000 375,000
No te s re c e iva b le ……................................................... 60,000
Inte re st re c e iva b le ……………….................................. 1,200
Re nt re c e iva b le ………………....................................... 12,000
Me rc ha nd ise Inve nto ry................................................ 330,000
O ffic e sup p lie s............................................................... 24,000
Eq uip m e nt (ne t)…………............................................. 60,000
Furniture a nd fixture s (ne t)…………………................. 108,000
Pa te nt……………………............................................... 48,000
To ta l Asse ts.................................................................... P1,162,200
Lia b ilitie s a nd C a p ita l
Lia b ilitie s
Sa la rie s p a ya b le ……………................................... P 9,600
Ac c o unts p a ya b le .................................................. 159,600
No te s p a ya b le ………….......................................... 60,000
Inte re st p a ya b le …………….................................... 1,800
To ta l Lia b ilitie s............................................................... P 231,000

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C a p ita l
J, c a p ita l……………………….................................. P 468,600
K, c a p ita l…………………......................................... 462,600
To ta l C a p ita l.................................................................. P 931,200
To ta l Lia b ilitie s a nd C a p ita l.......................................... P1,162,200
Pro b le m VI
1. To ta l a sse ts – P1,094,000, a t fa ir va lue

2. To ta l lia b ilitie s - P540,000, a t fa ir va lue
3. To ta l c a p ita l - P554,000 (P1,094,000 – P540,000)
Ba la nc e She e t
Ja nua ry 1, 2009
Asse ts Lia b ilitie s a nd C a pita l
C a sh P 70,000 Lia b ilitie s
Ac c o unt Re c e iva b le (ne t) 108,000 Ac c o unts Pa ya b le P 190,000

Me rc ha nd ise Inve nto ry 208,000 Mo rtg a g e Pa ya b le __350,000
Build ing (ne t) 600,000 To ta l Lia b ilitie s P 540,000

Furniture a nd Fixture (ne t) 108,000 C a p ita l:
Ac c o unts Pa ya b le L, C a p ita l P 260,000
Mo rtg a g e Pa ya b le M, C a p ita l ___294,000
__________ To ta l C a p ita l P 554,000
To ta l Asse ts P1,094,000 To ta l Lia b ilitie s a nd C a p ita l P 1,094,000
Multiple C ho ic e Pro b le m s
1. c – P45,000
2. d – the p re va iling se lling p ric e w hic h is a lso the fa ir m a rke t va lue .
3. b - (P400,000 - P190,000) + [P270,000 - (P400,000 - P190,000)]/ 3 = P230,000
4. c
5. b - P60,000 + P80,000 + P100,000 = P240,000
6. c - P30,000 + P50,000 + P25,000 = P105,000/ 3 = P35,000 - P30,000 = P5,000
7. a
To ta l Ag re e d C a p ita l (P50,000/ 40%)…………………………............... P125,000

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Le ss: To ta l C o ntrib ute d C a p ita l (P65,000 + P50,000)…….................. 115,000
G o o d w ill (re va lua tio n o f a sse ts up w a rd )………………….................. P 10,000
Asse ts, fa ir va lue (P20,000 + P60,000 + P15,000)…………………………P 95,000

Le ss: Lia b ilitie s a ssum e d …………………………………………………..… 30,000
Bill, c a p ita l..…………………………………………………………………… P 65,000
8. b The c a p ita l b a la nc e s o f Willia m (WW) a nd Ma rtha (MM) a t the d a te o f p a rtne rship

fo rm a tio n a re d e te rm ine d a s fo llo w s:
Willia m Ma rtha
C a sh P20,000 P 30,000
Inve nto ry - 15,000
Build ing - 40,000
Furniture a nd e q uip m e nt 15,000 -
To ta l P35,000 P 85,000
Le ss m o rtg a g e a ssum e d
b y p a rtne rship (10,000)
Am o unts c re d ite d to c a p ita l P35,000 P 75,000
9.c
Eva n He le n
Una d juste d c a p ita l 59,625 33,500
Ad d (d e d uc t) a d justm e nts:
Allo w a nc e ( 555) ( 405)

De p re c ia tio n ______ ( 900)
Ad juste d c a p ita l 59,070 32,195
10. c : Jo ne s – P80,000 + P400,000 – P120,00 = P360,000

Sm ith – P40,000 + P280,000 – P60,000 = P260,000
11. c – P35,374 – re fe r to No . 12
12. c – P17,687
Una d juste d c a p ita l o f C C ………………………………………………………………….P 33,000
Ad d (d e d uc t): a d justm e nts-

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Allo w a nc e fo r d o ub tful a c c o unts (3% x P14,200)………………………………...( 426)

Inc re a se in m e rc ha nd ise inve nto ry (P23,000 – P20,000)………………………… 3,000
Pre p a id sa la ry………………………………………………………………………….... 600
Ac c rue d re nt e xp e nse …………………………………………………………………( 800)
Ad juste d c a p ita l b a la nc e o f C C ……………………………………… P35,374
Divid e d b y: C a p ita l inte re st o f C C …………………………………………………….... 2/ 3
To ta l c a p ita l o f the p a rtne rship ……………………………………………………………P 53,061
Le ss: Ad juste d c a p ita l b a la nc e o f C C ………………………………………………….. 35,374
C a p ita l b a la nc e o f DD…………………………………………………………………….. P 17,687
13. a
To ta l a sse ts:
C a sh P 70,000
Ma c hine ry 75,000
Build ing 225,000 P 370,000
Le ss Lia b ilitie s (Mo rtg a g e p a ya b le ) 90,000
Ne t a sse ts (e q ua l to FF’ s c a p ita l a c c o unt) P 280,000
14. d
FF, c a p ita l (se e no .13) P 280,000
Divid e b y FF’ s P & L sha re p e rc e nta g e 70%
To ta l p a rtne rship c a p ita l P 400,000
Re q uire d c a p ita l o f C C (P400,000 x 30%) P 120,000
Le ss: Asse ts a lre a d y c o ntrib ute d :
C a sh P 30,000
Ma c hine ry a nd e q uip m e nt 25,000
Furniture a nd fixture s 10,000 65,000
C a sh to b e inve ste d b y C C P 55,000
15. a
Ag re e d Fa ir Va lue s Inve ste d Inve ste d Inve ste d
b y Jo hn b y Je ff b y Ja ne
C a sh 100,000 --- ---
Eq uip m e nt 110,000 ---
To ta l a sse ts 100,000 110,000 0

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No te p a ya b le a ssum e d b y p a rtne rship --- 30,000 ---

Ne t a sse ts inve ste d 100,000 80,000 0
Bo nus Me tho d G o o d w ill Me tho d
C a sh 100,000
C a sh 100,000 Eq uip m e nt 110,000
Eq uip m e nt 110,000 G o o d w ill 90,000
No te Pa ya b le 30,000 No te Pa ya b le 30,000
Jo hn, C a p ita l 60,000 Jo hn, C a p ita l 90,000
Je ff, C a p ita l 60,000 Je ff, C a p ita l 90,000
Ja ne , C a p ita l 60,000 Ja ne , C a p ita l 90,000
No te :
The b o nus me tho d is use d whe n Jo hn a nd Je ff re c o g nize tha t Ja ne is b ring ing so me thing o f va lue to the
firm o the r tha n a ta ng ib le a sse t, b ut the y d o no t wa nt to re c o g nize a n inta ng ib le a sse t. To e q ua lize the
c a p ita l a c c o unts, P40,000 is tra nsfe rre d fro m Jo hn's c a p ita l a c c o unt a nd P20,000 is tra nsfe rre d fro m Je ff's
c a p ita l a c c o unt.
The g o o d will me tho d is use d whe n the p a rtne rs re c o g nize the inta ng ib le na ture o f the skills Ja ne is
b ring ing to the p a rtne rship . Ho we ve r, the c a p ita l a c c o unts a re e q ua lize d b y re c o g nizing a n inta ng ib le
a sse t a nd a c o rre sp o nd ing inc re a se in the c a p ita l a c c o unts o f the p a rtne rs. Unle ss the inta ng ib le a sse t
c a n b e sp e c ific a lly id e ntifie d , suc h a s a p a te nt b e ing inve ste d, it sho uld no t b e re c o g nize d , b e c a use o f a
la c k o f justific a tio n fo r g o o d will in a ne w b usine ss.
16. c – re fe r to No . 15 fo r c o m p uta tio n.

17. a
FF, c a p ita l:
Una d juste d b a la nc e P 57,000
Ad justm e nts:
Ac c um ula te d d e p re c ia tio n ( 1,500)
Allo w a nc e fo r d o ub tful a c c o unt (12,000)
Ad juste d b a la nc e P 43,500

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G G , c a p ita l:
Ad justm e nts:
Allo w a nc e fo r d o ub tful a c c o unt ( 4,500)
18. c
G G ’ s a d juste d c a p ita l (se e no . 17) P 40,500
Divid e b y G G ’ s P & L sha re p e rc e nta g e 40%
To ta l p a rtne rship c a p ita l P 101,250
Multip ly b y FF’ s P & L sha re p e rc e nta g e 60%
FF’ s c a p ita l c re d it 60,750
FF’ s c o ntrib ute d c a p ita l (se e no . 1) 43,500
Ad d itio na l c a sh to b e inve ste d b y FF P 17,250
19. d
To ta l c a p ita l o f the ne w p a rtne rship (se e no . 20) P 296,875
Multip ly b y RR’ s inte re st 20%
C a sh to b e inve ste d b y RR P 59,375
20. (a )
OO PP To ta l
(60%) (40%)
Una d juste d c a p ita l b a la nc e s P133,000 P108,000 P241,000
Ad justm e nts:
Allo w a nc e fo r b a d d e b ts ( 2,700) ( 1,800) ( 4,500)
Inve nto rie s 3,000 2,000 5,000
Ac c rue d e xp e nse s ( 2,400) ( 1,600) ( 4,000)
Ad juste d c a p ita l b a la nc e s P130,900 P106,600 P237,500
To ta l c a p ita l b e fo re the fo rm a tio n o f the ne w p a rtne rship (se e a b o ve ) P 237,500

Divid e b y the to ta l p e rc e nta g e sha re o f O O a nd PP (50% + 30%) 80%
To ta l c a p ita l o f the p a rtne rship a fte r the a d m issio n o f RR P 296,875

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21. a
Ag re e d C a p ita l C o ntrib ute d C a p ita l Se ttle m e nt
OO P148,437.50 (50% x P296,875) P 130,900 P 17,537.50
PP 89,062.50 (30% x P296,875) 106,600 (17,537.50)
The re fo re , O O w ill p a y PP P17,537.50
22. c
To ta l p a rtne rship c a p ita l (P113,640/ 1/ 3) P 340,920
Le ss DD’ s c a p ita l 113,640
C C ’ s c a p ita l a fte r a d justm e nts P 227,280
Ad justm e nts m a d e :
Allo w a nc e fo r d o ub tful a c c o unt (2% x P96,000) 1,920
Me rc ha nd ise inve nto ry ( 16,000)
Pre p a id e xp e nse s ( 5,200)
Ac c rue d e xp e nse s 3,200
C C ’ s c a p ita l b e fo re a d justm e nts P 211,200
23. a
Asse ts inve ste d b y C C :
C a sh:
C a p ita l P211,200
Ad d Ac c o unts p a ya b le 49,600
To ta l a sse ts (e xc lud ing c a sh) 260,800
Le ss No nc a sh a sse ts (96,000 + P144,000) 240,000 P20,800
Ac c o unts re c e iva b le (96,000 – P1,920) 94,080
Me rc ha nd ise inve nto ry 160,000
Pre p a id e xp e nse s 5,200 P 280,080
C a sh inve ste d b y DD 113,640
To ta l a sse ts o f the p a rtne rship P 393,720
24. d
To ta l p a rtne rship c a p ita l (P180,000/ 60%) P 300,000

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G G ’ s C a p ita l (P300,000 x 40%) P 120,000

Le ss C a sh inve stm e nt 30,000
Me rc ha nd ise to b e inve ste d b y G G P 90,000
25. a
Ad juste d c a p ita l o f JJ:
To ta l a sse ts (a t a g re e d va lua tio ns) P 180,000
Le ss Ac c o unts p a ya b le 48,000 P 132,000
Re q uire d c a p ita l o f JJ 180,000
C a sh to b e inve ste d b y JJ P 48,000
Q uiz- I
1. P276,000 = (P480,000 – P228,000) + [P324,000 - (P480,000 – P228,000)]/ 3

2. Philip , P100,000; Ra y, P100,000 a nd Sa ra h, P90,000 (P300,000 – P210,000)
3. P330,000
P330,000 = P50,000 + (P310,000 - P30,000)
4. c The c a p ita l b a la nc e s o f e a c h p a rtne r a re d e te rmine d a s fo llo w s:
Ap p le Blue C ro w n
C a sh P50,000
Pro p e rty P 80,000
Mo rtg a g e a ssum e d (35,000)
Eq uip m e nt P 55,000
Am o unt c re d ite d to
c a p ita l a c c o unts P50,000 P 45,000 P 55,000
5. P15,000
(P190,000 – P160,000) x 1/ 2 = P15,000
6. P18,000 – the p re va iling se lling p ric e w hic h is a lso the fa ir m a rke t va lue .
7.
8. P15,000
P30,000 + P50,000 + P25,000 = P105,000/ 3 = P35,000
P50,000 - P35,000 = P15,000
9. P45,000
10. P225,000

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11. P375,000 = P400,000 – P25,000

12. P50,000
13. P280,000
Pa ne Sills
C a sh P 40,000 P 30,000
Build ing .. 350,000
Sub to ta l P140,000 P380,000
Le ss: Lia b ility a ssum e d b y the p a rtne rship .. (100,000)
C a p ita l b a la nc e s, 7/ 1/ 06 P140,000 P280,000
14. d
Ad juste d c a p ita l o f LL P 165,900
C o ntrib ute d c a p ita l o f MM 82,950
To ta l c a p ita l P 248,850
15. a
FF, c a p ita l:
Ad justm e nts:
Allo w a nc e fo r d o ub tful a c c o unt (12,000)
G G , c a p ita l:
Ad justm e nts:
Allo w a nc e fo r d o ub tful a c c o unt ( 4,500)
THEO RIES
C o m ple tio n sta te m e nts:
1. a c c o unting
2. G AAP

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3. a . c a sh b a sis inste a d o f a c c rua l b a sis

b . p rio r p e rio d a d justm e nts
c . use o f fa ir (o r c urre nt) va lue s inste a d o f histo ric a l c o st
d . re c o g nitio n o f g o o d w ill in situa tio ns no t invo lving b usine ss c o m b ina tio ns
4. d ra w ing s
5. fa ir (o r c urre nt) va lue s
6. a c hie ving e q uity a m o ng the p a rtne rs
7. c a p ita l b a la nc e s
8. p ro fe ssio na l c o rp o ra tio n
True o r Fa lse
9 Fa lse 14. True 19. Fa lse 24. Fa lse 29. Fa lse

10. True 15. Fa lse 20. True 25. True 30. True
11. Fa lse 16. Fa lse 21. Fa lse 26. Fa lse
12. True 17. Fa lse 22. True 27. True
13. Fa lse 18. True 23. Fa lse 28. True
No te fo r the fo llo wing num b e rs:
17. Individuals, partne rships, and c o rpo ratio ns are allo we d to b e partne rs in a partne rship.
19. A ll o f the g e ne ral partne rs are liab le fo r all the partne rship’s de b ts.
21. Mo st sm all partne rships m aintain the ir financ ial info rm atio n using the tax b asis.
23., While the partne rship do e s no t pay inc o m e taxe s, it is re spo nsib le fo r o the r taxe s suc h as pay ro ll taxe s and franc hise taxe s.
24. The pro prie tary the o ry is b ase d o n the no tio n that the b usine ss e ntity is an ag g re g atio n o f the o wne rs
26. This is an e xam ple o f the pro prie tary the o ry o f e q uity .
28. A ny b asis (i.e ., c arry ing value , tax b asis, o r m arke t value ) c an b e use d to value no nc ash asse ts c o ntrib ute d to a partne rship
MULTIPLE- C HO IC E Q UESTIO NS
31. a 36. d 41. c 46. a 51. d
32. B 37. b 42. c 47. c 52. b

33. a 38. c 43. a 48. b 53. b
34. e 39. a 44. d 49. b
35. d 40. a 45. b 50. c

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C ha pte r 2
Pro b le m I
1. Be g inning C a p ita l.
Inc o me summa ry………… 345,600
X, d ra wing ……. 144,000
Y, d ra wing ……. 201,600
X, c a p ita l, Ja nua ry 1……….. P 360,000

X, c a p ita l, Ja nua ry 1……….. 504,000
To ta l c a p ita ls P 864,000
X’ s sha re o f ne t inc o me : 360/ 864 o f P345,600 P 144,000

Y’ s sha re o f ne t inc o me 504/ 864o f P345,600 201,600
2. End ing C a p ita l.

X, d ra wing ……. 153,600
Y, d ra wing ……. 192,000
X, c a p ita l, De c e mb e r 31……….. P 432,000

X, c a p ita l, De c e mb e r 31……….. 540,000
X’ s sha re o f ne t inc o me : 432/ 972 o f P345,600 P 153,600

Y’ s sha re o f ne t inc o me 540/ 972 o f P345,600 192,000
To ta l P 345,600
3. Inte re st o n Exc e ss Ave ra g e C a p ita l Ba la nc e .

Y, d ra wing ……. 4,320
Inte re st a llo we d b a se d o n a ve ra g e c a p ita ls.
Y’ s inte re st o n e xc e ss a ve ra g e c a p ita l:
6% o f (P486,000 – P414,000)………………….. P 4,320
C a p ita l No . o f Mo s.
X: b a la nc e Unc ha ng e d
1/ 1/ x4: P360,000 x 3 P1,080,000
4/ 1/ x4: 432,000 x 9 3,888,000
12 P4,968,000
Ave ra g e P 414,000
C a p ita l No . o f Mo s.
Y: b a la nc e Unc ha ng e d
1/ 1/ x4: P504,000 x 2 P 1,008,000
3/ 1/ x4: 468,000 X 8 3,744,000
11/ 1/ x4: 540,000 x 2 1,080,000
12 P5,832,000
Ave ra g e P 486,000
To ta l P 900,000

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The ne t e ffe c t o f the fo re g o ing o n c a p ita ls is:
X Y To ta l
Inte re st o n e xc e ss P 4,320 P 4,320
a ve ra g e c a p ita l……
Ba la nc e (1:2)……….. P 113,760 227,520 341,280
To ta l P 113,760 P 231,840 P345,600
The a llo c a tio n o f ne t inc o m e m a y b e sum m a rize d in a sing le e ntry a s fo llo w s:
Inc o me summa ry……………. 345,600

X, d ra wing ……. 113,760
Y, d ra wing ……. 231,840
Pro b le m II
1. A b o nus o f 20% o f ne t inc o m e b e fo re the b o nus is d e d uc te d , the b o nus w o uld b e c o m p ute d a s
fo llo w s:
Le t B = Bo nus
B = 20% o f Ne t inc o me
B = 20% o f P504,000
B = P100,800
2. A b o nus o f 20% o f ne t inc o m e a fte r d e d uc tio n o f the b o nus, the b o nus w o uld b e c o m p ute d a s
fo llo w s:
Le t B = Bo nus
B = 20% o f Ne t inc o me a fte r Bo nus
B = 20% (P504,000 – B)
B = P100,800 - .20B
1.20 B = P100,800
B = P84,000
Pro b le m III
1. Bo nus is b a se d o n ne t inc o m e b e fo re b o nus, sa la rie s a nd inte re st
The sc he d ule sho w ing the a llo c a tio n o f ne t inc o m e is p re se nte d a s fo llo w s:
A B To ta l
Bo nus…. P 100,800 P 100,800
Sa la rie s……… 48,000 P 72,000 120,000
Inte re st…………. 14,400 9,600 24,000
Ba la nc e (2;1)………. 172,800 86,400 259,200
To ta l P336,000 P168,000 P504,000
2. Bo nus is b a se d o n ne t inc o m e a fte r b o nus b ut b e fo re sa la rie s a nd inte re st

A B To ta l
Bo nus…. P 84,000 P 84,000
Sa la rie s……… 48,000 P 72,000 120,000
Inte re st…………. 14,400 9,600 24,000
Ba la nc e (2;1)………. 184,000 92,000 276,000
To ta l P330,400 P173,600 P504,000

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3. Bo nus is b a se d o n ne t inc o m e a fte r b o nus a nd sa la rie s b ut b e fo re inte re st:

Le t B = Bo nus; S = Sa la rie s; a nd I = Inte re st.
B = 20% o f Ne t inc o me a fte r Bo nus a nd Sa la rie s b e fo re Inte re st
B = 20% (P504,000 – B – S)
B = 20% (P504,000 – B – P120,000)
B = 20% (P384,000 – B)
B = P76,800 - .20B
1.20 B = P76,800
B = P64,000
Pro o f:
Ne t inc o me b e fo re b o nus, sa la rie s a nd inte re sts…………… P504,000
Le ss: Bo nus……………… 64,000
Sa la rie s……………0 120,000
Ne t inc o me a fte r b o nus, sa la rie s b e fo re inte re sts…………… P320,000
Multip lie d b y: Bo nus ra te …………. 20%
Bo nus………… P 64,000
A B To ta l
Bo nus…. P 64,000 P 64,000
Sa la rie s……… 48,000 P 72,000 120,000
Inte re st…………. 14,400 9,600 24,000
Ba la nc e (2;1)………. 197,333 98,667 296,000
To ta l P323,733 P180,267 P504,000
4. Bo nus is b a se d o n ne t inc o m e a fte r b o nus, sa la rie s a nd inte re st:

B = 20% o f Ne t inc o me a fte r Bo nus, Sa la rie s a nd Inte re st
B = 20% (P504,000 – B – S - I)
B = 20% (P504,000 – B – P120,000 – P24,000)
B = 20% (P360,000 – B)
B = P72,000 - .20B
1.20 B = P72,000
B = P60,000
Pro o f:
Ne t inc o me b e fo re b o nus, sa la rie s a nd inte re sts…………… P504,000
Le ss: Bo nus……………… 60,000
Sa la rie s…………… 120,000
Inte re st…………….. 24,000
Ne t inc o me a fte r b o nus, sa la rie s b e fo re inte re sts…………… P300,000
Multip lie d b y: Bo nus ra te …………. 20%
Bo nus………… P 60,000
A B To ta l
Bo nus…. P 60,000 P 60,000
Sa la rie s……… 48,000 P 72,000 120,000
Inte re st…………. 14,400 9,600 24,000
Ba la nc e (2;1)………. 200,000 100,000 300,000
To ta l P322,400 P181,600 P504,000

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5. Bo nus is b a se d o n ne t inc o m e a fte r sa la rie s b ut b e fo re b o nus a nd inte re st:

B = 20% o f Ne t inc o me a fte r Sa la rie s b e fo re Bo nus a nd Inte re st
B = 20% (P504,000 – S)
B = 20% (P504,000 – P120,000)
B = 20% (P384,000)
B = P76,800
Re fe r to No te o f No . 3.
6. Bo nus is b a se d o n ne t inc o m e a fte r inte re st b ut b e fo re b o nus a nd sa la rie s:

B = 20% o f Ne t inc o me a fte r Inte re st b e fo re Bo nus a nd Sa la rie s
B = 20% (P504,000 – P24,000I
B = 20% (P480,000)
B = P96,000
Re fe r to No te o f No . 3.
7. Bo nus is b a se d o n ne t inc o m e b e fo re b o nus b ut a fte r inc o m e ta x (ta x ra te is 35%):

Le t B = Bo nus;
B = 20% (P504,000 – T)
B = P100,800 - .20T
Le t T = Inc o me ta x
T = 35% (P504,000)
T = P176,400
Sub stituting the e q ua tio n fo r T in the e q ua tio n fo r B:

Le t B = P100,800 - .20 (P176,400)
B = P100,800 – P35,280
B = P65,520
Pro o f:
Ne t inc o me b e fo re b o nus a nd inc o me ta x…………… P504,000
Le ss: Bo nus……………… 65,520
Ne t inc o me b e fo re b o nus a fte r inc o me ta x…….. P438,480
Le ss: Inc o me ta x…………… _176,400
Ne t inc o me a fte r b o nus a nd inc o me ta x……… P262,080
Bo nus a s c o m p ute d a b o ve :
Le ss: Inc o me ta x (35% x P504,000) 176,400
Ne t inc o me a fte r inc o me ta x b e fo re b o nus…….. P327,600
Multip lie d b y: Bo nus ra te ……… ____ 20%
Ne t inc o me a fte r b o nus a nd inc o me ta x……… P 65,520
8. Bo nus is b a se d o n ne t inc o m e , tha t is, a fte r b o nus a nd inc o m e ta x:

Le t B = Bo nus; T = Inc o me ta x
B = 20% (P504,000 – B - T)
B = P100,800 - .20B - .20T
Le t T = Inc o me ta x
T = 35% (P504,000)
T = P176,400

lOMoARcPSD|10477308
Sub stituting the e q ua tio n fo r T in the e q ua tio n fo r B:

Le t B = P100,800 - .20B - .20T
B = P100,800 - .2B - .20 (P176,400)
1.20B = P100,800 – P35,280
1.20B = P65,520
B = P54,600
Pro o f:
Le ss: Bo nus……………… 54,600
Ne t inc o me b e fo re inc o me ta x…….. P449,400
Le ss: Inc o me ta x (35% x P504,000) 176,400
Bo nus a s c o m p ute d a b o ve :
Multip lie d b y: Bo nus ra te ……… ____ 20%
Bo nus…………… P 54,600
Pro b le m IV
B = Bo nus to Ro d g e rs
B = 0.20(Ne t Inc o me - inte re st - sa la ry - b o nus)
B = 0.20(P168,000 - [0.08(P150,000)] - P60,000 – B)
B = 0.20(P96,000 - B)
B = P19,200 - 0.20B
1.20B = P19,200
B = P16,000
Pro b le m V
Ja m e s Ke lle r Rive rs To ta ls
Inte re st (8%) P4,400 (b e lo w ) P5,600 P7,200 P17,200
Sa la ry 13,000 15,000 20,000 48,000
Re m a ining inc o m e (lo ss):

P30,000
(17,200)
(48,000)
P(35,000) (7,040) (10,560) (17,600) (36,200)
To ta ls P10,360 P10,040 P9,600 P30,000
C ALC ULATIO N O F JAMES INTEREST ALLO C ATIO N

Ba la nc e , Ja nua ry 1 – June 1 (P48,000 x 5 m o nths) P240,000
Ba la nc e , June 1 – De c e m b e r 31 (60,000 x 7 m o nths) 420,000
To ta l P660,000
Mo nths ÷ 12
Ave ra g e m o nthly c a p ita l b a la nc e P 55,000
Inte re st ra te x 8%
Inte re st a llo c a tio n (a b o ve ) _P 4,400

lOMoARcPSD|10477308
STATEMENT O F PARTNERS’ C APITAL

Ja m e s Ke lle r Rive rs To ta ls
Be g inning b a la nc e s P 48,000 P70,000 P90,000 P208,000
Ad d itio na l c o ntrib utio n 12,000 0 0 12,000
Inc o m e (a b o ve ) 10,060 10,040 9,600 30,000
Dra w ing s (P1,000/ m o nth) (12,000) (12,000) (12,000) (36,000)
End ing c a p ita l b a la nc e s P58,360 P68,040 P87,600 P214,000
Pro b le m VI
1: Ne t inc o m e is P360,000
P Q To ta l
Sa la rie s P 80,000 P 100,000 P180,000
Bo nus o n ne t inc o m e 21,600 43,200 64,800
Inte re st o n a ve ra g e c a p ita l b a la nc e s 9,800 16,800 26,600
Re m a ind e r is P 88,600 (p o sitive ) ___53,160 __35,440 ___88,600
To ta ls P 164,560 P195,440 P 360,000
2. Ne t inc o m e is P240,000
P Q To ta l
Sa la rie s P 80,000 P 100,000 P 180,000
Bo nus o n ne t inc o m e 14,400 28,800 43,200
Re m a ind e r is P 9,800 (ne g a tive ) _(4,900) __(4,900) __(9,800)
To ta ls P 99,300 P 140,700 P240,000
3. Ne t lo ss is P40,000
P Q To ta l
Sa la rie s P 80,000 P 100,000 P 180,000
Bo nus (no d istrib utio n) 0 0 0
Re m a ind e r is P 246,600 (ne g a tive ) (123,300) (123,300) (246,600)
To ta ls (P33,500) (P 6,500) (P 40,000)
Pro b le m VII:
1 a nd 2. To ta l C a re y Dre w
To ta l to a llo c a te : P150,000
As Bo nus (No te A b e lo w) (25,000) P25,000
As Sa la rie s (72,000) 36,000 P36,000
As Inte re st (No te B b e lo w) (10,720) 6,560 4,160
Sub to ta l: P 42,280 P67,560 P40,160
Re sid ua l Pro fit-sha ring (42,280) 21,140 21,140
Fina l Allo c a tio ns: P 0 P88,700 P61,300
No te A (Bo nus):
Bo nus = .20(Ne t Inc o me Bo nus)
1.2Bo nus = .20(P150,000)
1.2Bo nus = 30,000
Bo nus = P25,000

lOMoARcPSD|10477308
No te B (Inte re st):
C a p ita l Fra c tio n Inte re st
C a re y: Amo unt o f Ye a r Ra te = Sub to ta l
P100,000 1/ 12 0.08 P 667
(12,000)
88,000 6/ 12 0.08 3,520
(12,000)
76,000 3/ 12 0.08 1,520
(12,000)
P 64,000 2/ 12 0.08 853
1.0000 P6,560
C a p ita l Fra c tio n Inte re st

Dre w: Amo unt o f Ye a r Ra te = Sub to ta l
P70,000 1/ 12 0.08 P 467
(12,000)
58,000 6/ 12 0.08 2,320
(12,000)
46,000 3/ 12 0.08 920
(12,000)
P34,000 2/ 12 0.08 453
1.0000 P4,160
Pro b le m VIII
Jo ne s w o uld ha ve to re c e ive a b o nus o f P12,000 to b e ind iffe re nt to the two p ro fit-sha ring o p tio ns. Sinc e
C a b le w o uld re c e ive the sa m e b o nus, the to ta l b o nus w o uld ha ve to b e P24,000. The re fo re ,
P24,000 = 10% ฀ (Ne t inc o m e - Sa la rie s - Bo nuse s)

P24,000 = 10% ฀ (Ne t inc o m e - [30,000 + 40,000] - 24,000)
P24,000 = 10% ฀ (Ne t inc o m e - 94,000)
P24,000 = 10% ฀ Ne t inc o m e - 9,400
P33,400 = 10% ฀ Ne t inc o m e
Ne t inc o m e P334,000
Pro b le m IX
1. It sho uld b e no te d tha t the o rd e r o f p rio rity is o f no sig nific a nc e w he n it c o m e s to a llo c a tio n o f ne t
inc o m e . Unle ss in c a se s, w he n the re is a re sulting re sid ua l lo ss, w he re in the re sid ua l lo ss sho uld b e
a llo c a te d b a se d o n the ir a g re e m e nt. In this c a se , the re is no suc h a g re e m e nt, so the a llo c a tio n
w o uld still b e to sa tisfy c o m p le te ly a ll p ro visio ns o f the p ro fit a nd lo ss a g re e m e nt a nd use the p ro fit
a nd lo ss ra tio s to a b so rb a ny d e fic ie nc y o r a d d itio na l lo ss c a use b y suc h a c tio n.
O lse n Ka tc h To ta l
Inte re st P 2,000 P 2,400 P 4,400
Bo nus 10,000 10,000
Sa la rie s 48,000 36,000 84,000
Re m a ind e r (6:4) __8,040 __5,360 _13,400
P58,040 P26,960 P85,000

lOMoARcPSD|10477308
We ig hte d Ave ra g e C a lc ula tio n:
O lse n:
C a p ita l G ro ss
Ba la nc e # o f Mo nths C a p ita l
1/ 1 to 4/ 1 20,000 3 60,000
4/ 1 to 10/ 1 25,000 6 150,000
10/ 1 to 12/ 31 30,000 3 90,000
To ta l 300,000
Ave ra g e 25,000
Ka tc h:
C a p ita l G ro ss
Ba la nc e # o f Mo nths C a p ita l
1/ 1 to 3/ 1 40,000 2 80,000
3/ 1 to 9/ 1 30,000 6 180,000
9/ 1 to 11/ 1 20,000 2 40,000
11/ 1 to 12/ 31 30,000 2 60,000
To ta l 360,000
Ave ra g e 30,000
2. O lse n Ka tc h To ta l
Sa la rie s P48,000 P36,000 P 84,000
Bo nus 10,000 10,000
Inte re st* 2,000 2,400 4,400
Re m a ind e r 39,960 26,640 66,600
Fina l Pro fit: P89,960 P75,040 P165,000
*se e p a rt 'a ' so lutio n fo r w e ig hte d a ve ra g e c a p ita l c a lc ula tio n
Pro b le m X
We ig hte d Ave ra g e C a p ita l C a lc ula tio n:
Ma tt
C a p Ba l # mo nths G ro ss
Cap
1/ 1 to 6/ 1 35,000 5 175,000
6/ 1 to 10/ 1 45,000 4 180,000
10/ 1 to 12/ 31 50,000 3 150,000
To ta l 505,000
Ave ra g e 42,083
Je ff
C a p Ba l # mo nths G ro ss C a p
1/ 1 to 3/ 1 25,000 2 50,000
3/ 1 to 9/ 1 35,000 6 210,000
9/ 1 to 11/ 1 25,000 2 50,000
11/ 1 to 12/ 1 20,000 1 20,000
12/ 1 to 12/ 31 28,000 1 28,000

lOMoARcPSD|10477308
To ta l 358,000
Ave ra g e 29,833
1. Ma tt Je ff To ta l
Sa la ry P N/ A P N/ A P 0
Bo nus N/ A N/ A 0
Inte re st 4,208 2,983 7,191
Sub to ta l P 4,208 P 2,983 P 7,191
Re ma ind e r 29,404 29,405 58,809
To ta l P33,612 P32,388 P66,000
Sa la ry P 0 P 9,000 P 9,000
Bo nus N/ A N/ A 0
Inte re st 5,000 2,800 7,800
Sub to ta l P 5,000 P11,800 P16,800
Re ma ind e r 29,520 19,680 49,200
To ta l P34,520 P31,480 P66,000
Sa la ry P10,000 P15,000 P25,000
Bo nus N/ A N/ A 0
Inte re st N/ A N/ A 0
Sub to ta l P10,000 P15,000 P25,000
Re ma ind e r 23,992 17,008 41,000
To ta l P33,992 P32,008 P66,000
Sa la ry P20,000 P35,000 P55,000
Bo nus* 6,000 N/ A 6,000
Inte re st 4,208 2,983 7,191
Sub to ta l P30,208 P37,983 P68,191
Re ma ind e r (1,096) (1,095) (2,191)
To ta l P29,112 P36,888 P66,000
Pro b le m XI
1. Allo c a tio n/ Distrib utio n o f Ne t Inc o m e
AA BB CC To ta l
Sa la rie s 14,400 12,000 13,600 40,000
Inte re st-12% o f Ave . C a p . 12,960 17,280 24,840 55,080
Ba la nc e / Re ma ind e r (4:3:3) ( 1,200) ( 900) ( 900) ( 3,000)
Sha re in Ne t Inc o me 26,160 28,380 37,540 92,080
2. Sta te m e nt o f Pa rtne rs’ C a p ita l

AA BB CC To ta l
C a p ita l, Ja nua ry 2, 2010 96,000 144,000 216,000 456,000
Ad d itio na l Inve stme nts
(Withd ra wa ls) 24,000 (36,000) (12,000)
Ne t Inc o me 26,160 28,380 37,540 92,080
Pe rso na l Withd ra w a ls ( 9,000) ( 9,000) ( 9,000) (27,000)

lOMoARcPSD|10477308
C a p ita l, De c e mb e r 31, 2010 137,160 163,380 208,540 509,080
3. Allo c a tio n/ Distrib utio n o f Ne t Inc o m e

AA BB CC To ta l
Inte re st-12% o f Ave . C a p . 12,960 17,280 24,840 55,080
Ba la nc e / Re ma ind e r (4:3:3) ( 1,200) ( 900) ( 900) ( 3,000)
Sha re in Ne t Inc o me 11,760 16,380 23,940 52,080*
*Ne t inc o me b e fo re p a rtne rs’ sa la rie s a nd inte re sts…………………P 92,080
Le ss: O p e ra ting e xp e nse s (inc lud ing sa la rie s)……………………….. 40,000
Ne t Inc o me a fte r p a rtne rs’ sa la rie s b ut b e fo re inte re sts……………P 52,080
Inc ide ntally , the e ntry to re c o rd the salarie s wo uld b e :

O p e ra ting e xp e nse s (fo r sa la rie s)…………………. 40,000
AA, c a p ita l……………………………………………………….. 14,400
BB, c a p ita l……………………………………………………….. 12,000
C C , c a p ita l……………………………………………………….. 13,600
3. Sta te m e nt o f Pa rtne rs’ C a p ita l

AA BB CC
C a p ita l, Ja nua ry 2, 2010 96,000 144,000 216,000
Ad d it’ l. Inv. (Withd ra wa ls) 24,000 ( 36,000)
Ne t Inc o me 11,760 16,380 23,940
Sa l. (re fe r to e ntry a b o ve ) 14,400 12,000 13,600
Pe rso na l Withd ra w a ls ( 9,000) ( 9,000) ( 9,000)
C a p ita l. De c e mb e r 31, 2010 137,160 163,380 208,540
Pro b le m XII
Pa rtne rs C um ula tive
C o m p o ne nts o f Allo c a tio n Dura nd Pric e Russe ll To ta l
Pro fit/ lo ss p e rc e nta g e .................................... 35% 25% 40% ................
G a in o n sa le o f e q uip m e nt ........................... P 5,000 P 5,000 P 5,000 P 15,000
Sa la rie s .............................................................. 40,000 20,000 45,000 105,000
Bo nus (No te A) ................................................. .............. 5,000 .............. 5,000
Bo nus (No te A) ................................................. 2,692 2,692 2,692 8,076
Inte re st o n c a p ita l (No te B) ........................... 7,958 11,417 6,750 26,125
Re m a ining p ro fit (lo ss) .................................... 14,280 10,200 16,319 40,799
Pro fit (lo ss) a llo c a tio n .................................... P 69,930 P 54,309 P75,761 P200,000
No te A: Bo nus to Pric e b a se d o n sa le s is 5% × (P1,100,000 – P1,000,000)

Bo nus to a ll p a rtne rs b a se d o n ne t inc o m e :
Bo nus = 30% × [(ne t inc o m e – P150,000) – b o nus]
Bo nus = 30% × [(P185,000 – P150,000) – b o nus]
130% Bo nus = P10,500
Bo nus = P8,076
The to ta l b o nus o f P8,076 d ivid e d e q ua lly a m o ng the p a rtne rs is P2,692 p e r p a rtne r.
No te B: C a lc ula tio n o f w e ig hte d -a ve ra g e c a p ita l (c a p ita l is re d uc e d b y d ra w s in e xc e ss o f sa la rie s):

Dura nd Pric e Russe ll
P75,000 × 5/ 12 = P 31,250 P125,000 × 1/ 12 = P 10,417 P40,000 × 1/ 12 = P 3,333

85,000 × 4/ 12 = 28,333 120,000 × 2/ 12 = 20,000 70,000 × 11/ 12 = 64,167
80,000 × 3/ 12 = 20,000 115,000 × 3/ 12 = 28,750
110,000 × 6/ 12 = 55,000
P 79,583 P 114,167 P 67,500
10% 10% 10%
P 7,958 P 11,417 P 6,750

lOMoARcPSD|10477308
Pro b le m XIII
1. Distrib utio n o f inc o m e fo r 20x4:
No rr C a ylo r To ta l
Inte re st P 12,000 P 9,600 P 21,600
C o mp e nsa tio n __10,000 __14,000 __24,000
Sub to ta ls P 22,000 P 23,600 P 45,600
Allo c a tio n o f re ma ind e r __14,640 __9,760 __24,400
To ta ls P 36,640 P 33,360 P 70,000
2. C a p ita l a c c o unt b a la nc e s a t the e nd o f 20x4:

No rr C a ylo r
Be g inning c a p ita l b a la nc e s P 100,000 P 80,000
Sha re o f inc o me 36,640 33,360
Withd ra wa ls _(12,000) _(12,000)
End ing c a p ita l b a la nc e s P 124,640 P 101,360
3. Distrib utio n o f inc o me fo r 20x5:

No rr C a ylo r To ta l
Inte re st P 14,957 P 12,163 P 27,120
C o mp e nsa tio n __8,000 __12,000 __240,000
Sub to ta ls P 22,957 P 24,163 P 47,120
Allo c a tio n o f re ma ind e r __13,872 __9,248 _(23,120)
To ta ls P 9,085 P 14,915 P 24,000
4. C a p ita l a c c o unt b a la nc e s a t the e nd o f 20x5:
No rr C a ylo r
Be g inning c a p ita l b a la nc e s P 124,640 P 101,360
Sha re o f inc o me 9,085 14,915
Withd ra wa ls _(12,000) _(12,000)
End ing c a p ita l b a la nc e s P 121,725 P 104,275
Pro b le m XIV
1. The inte re st fa c to r wa s p ro b a b ly inse rte d to re wa rd Pa g e fo r c o ntrib uting P50,000 mo re to the p a rtne rship tha n
C hild e rs. The sa la ry a llo wa nc e g ive s a n a d d itio na l P15,000 to C hild e rs in re c o g nitio n o f the full-time (ra the r
tha n p a rt-time ) e mp lo yme nt. The 40:60 sp lit o f the re ma ining inc o me wa s p ro b a b ly ne g o tia te d b y the p a rtne rs
b a se d o n o the r fa c to rs suc h a s b usine ss e xp e rie nc e , re p uta tio n, e tc .
2. The d ra wing s sho w the a sse ts re mo ve d b y a p a rtne r d uring a p e rio d o f time . A sa la ry a llo w a nc e is a d d e d to
e a c h p a rtne r's c a p ita l fo r the ye a r (usua lly in re c o g nitio n o f wo rk d o ne ) a nd is a c o mp o ne nt o f ne t inc o me
a llo c a tio n. The two numb e rs a re o fte n d e sig ne d to b e e q ua l b ut a g re e me nt is no t ne c e ssa ry. Fo r e xa mp le , a
sa la ry a llo wa nc e mig ht b e hig h to re c o g nize wo rk c o ntrib ute d b y o ne p a rtne r. The a llo wa nc e inc re a se s the
a p p ro p ria te c a p ita l b a la nc e . The p a rtne r mig ht, tho ug h, re mo ve little o r no mo ne y so tha t the p a rtne rship
c o uld ma inta in its liq uid ity.
3.
Pa g e , Dra wing s ......................................................................................... 5,000
Re p a ir Exp e nse ................................................................................... 5,000
(To re c la ssify p a yme nt ma d e to re p a ir p e rso na l re sid e nc e .)
Pa g e , C a p ita l ............................................................................................. 13,000
C hild e rs, C a p ita l ........................................................................................ 11,000
Pa g e , Dra wing s (a d juste d ) .............................................................. 13,000
C hild e rs, Dra wing s ............................................................................. 11,000
(To c lo se d ra wing s a c c o unts fo r 2008.)

lOMoARcPSD|10477308
Re ve nue s ................................................................................................. 90,000

Exp e nse s (a d juste d b y first e ntry) .................................................... 59,000
Inc o me Summa ry ............................................................................... 31,000
(To c lo se re ve nue a nd e xp e nse a c c o unts fo r 2008.)
Inc o me Summa ry ...................................................................................... 31,000

Pa g e , C a p ita l ..................................................................................... 11,000
C hild e rs, C a p ita l ................................................................................ 20,000
(To c lo se ne t inc o me to p a rtne rs' c a p ita l–se e a llo c a tio n p la n sho wn b e lo w.)
Allo c a tio n o f Inc o me Pa g e C hild e rs
Inte re st (10% o f b e g inning b a la nc e ) P 8,000 P 3,000
Sa la ry a llo wa nc e s 5,000 20,000
Re ma ining inc o me (lo ss):
P31,000
(11,000)
(25,000)
P (5,000) (2,000) (40%) (3,000) (60%)
P11,000 P20,000
4. To ta l c a p ita l (o rig ina l b a la nc e s o f P110,000 p lus 2008

ne t inc o me le ss d ra wing s) ................................................................ P117,000
Inve stme nt b y Smith .................................................................................. 43,000
To ta l c a p ita l a fte r inve stme nt ................................................................. P160,000
O wne rship p o rtio n a c q uire d b y Smith ................................................... 20%
Smith, c a p ita l ......................................................................................... P 32,000
Amo unt p a id ......................................................................................... 43,000
Bo nus p a id b y Smith—a ssig ne d to o rig ina l p a rtne rs ............................ P 11,000
Bo nus to Pa g e (40%) ................................................................................. P4,400
Bo nus to C hild e rs (60%) ............................................................................ P6,600
C a sh ........................................................................................................ 43,000
Smith, C a p ita l (20% o f to ta l c a p ita l) .............................................. 32,000
Pa g e , C a p ita l ..................................................................................... 4,400
C hild e rs, C a p ita l ................................................................................ 6,600
1. c
C a p ita l, Be g 45,000
Ad d itio na l Inve stm e nt 50,000
Withd ra w a l (800 x 12) (96,000)
Ne t inc o m e (? ) 31,000
C a p ita l, End ing P 30,000
2. b
A B 10M
Sa la rie s 2,000 25,000 45,000
Bo nus 8,000 0 8,000
Inte re st (20% x a ve ra g e c a p ita l) 8,000 10,000 18,000
Ba la nc e - e q ua lly 8,500 8,500 1,700
10M 44,500 8,800

lOMoARcPSD|10477308
*Bo nus= 10% (NI - B)

B= .10 (8,800 - B)
B= 8,800 - .10B
1.10B= 8,800
B= 8,000
3. b The ne t inc o m e o f P80,000 is a llo c a te d to Blue a nd G re e n in the fo llo w ing

m a nne r:
Blue G re e n Ne t Inc o m e
P 80,000
Sa la ry a llo w a nc e s P 55,000 P45,000 (100,000)
Re m a ind e r P (20,000)
Allo c a tio n o f the ne g a tive
re m a ind e r in the
60:40 ra tio (12,000) (8,000) 20,000
Allo c a tio n o f ne t inc o m e P 43,000 P37,000 P -0-
4. a
A B To ta l
Sa la rie s 30,000 P 45,000 P 75,000
Bo nus* 3,600 3,600
Inte re st: 10% x Ave . c a p ita l 5,000 6,500 11,500
1:3 4,625 18,500
To ta l P 43,225 P 108,600
*Bo nus = 12% (NI – S – B)

B= .12 (108,600 – 75,000 – B)
B= .12 (33,600 – B)
B= 4,032 - .12B
1.12B = 4,032
B= 3,600
5. a
A B To ta l
Sa la rie s P 40,000 P 45,000 P 85,000
Bo nus (re fe r to No te ) 0
Inte re st o n a ve ra g e c a p ita l (15%) 6,000 9,000 15,000
Ba la nc e (2:1) (32,000) (16,000) (48,000)
To ta l P 14,000 P 38,000 P 52,000
No te :
1. The b a sis o f the b o nus is ne g a tive , so the re ’ s no b o nus a t a ll.
2. It sho uld b e no te d tha t the o rd e r o f p rio rity is o f no sig nific a nc e w he n it c o m e s to a llo c a tio n o f
ne t inc o m e . Whe n the re is a re sulting re sid ua l lo ss, w he re in the re sid ua l lo ss sho uld b e
a llo c a te d b a se d o n the ir a g re e m e nt. In this c a se , the re is no suc h a g re e m e nt, so the
a llo c a tio n w o uld still b e to sa tisfy c o m p le te ly a ll p ro visio ns o f the p ro fit a nd lo ss a g re e m e nt
a nd use the p ro fit a nd lo ss ra tio s to a b so rb a ny d e fic ie nc y o r a d d itio na l lo ss c a use d b y suc h
a c tio n.
6. d
A B C To ta l
Sa la rie s P 40,000 P 40,000 P 80,000
Bo nus* P 1,000 1,000
3:4:3 __3,000 4,000 _3,000 10,000
To ta l P 43,000 P 4,000 P 91,000

lOMoARcPSD|10477308
*Bo nus = 10% (NI – S – B)

B= .10 (91,000 – 80,000 – B)
B= .10 (11,000 – B)
B= 1,100 - .10B
1.10B = 1,100
B= 1,000
7. c
A B To ta l
Sa la rie s P 41,600 P 38,400 P 80,000
Bo nus (re fe r to No te ) 0
Inte re st o n a ve ra g e c a p ita l (10%) 2,000 3,500 5,500
Ba la nc e (1:2) (16,500) (49,500)
To ta l P 27,100 P 52,000
No te :
1. The b a sis o f the b o nus is ne g a tive , so the re ’ s no b o nus a t a ll.
2. It sho uld b e no te d tha t the o rd e r o f p rio rity is o f no sig nific a nc e w he n it c o m e s to a llo c a tio n o f
ne t inc o m e . Whe n the re is a re sulting re sid ua l lo ss, w he re in the re sid ua l lo ss sho uld b e
a llo c a te d b a se d o n the ir a g re e m e nt. In this c a se , the re is no suc h a g re e m e nt, so the
a llo c a tio n w o uld still b e to sa tisfy c o m p le te ly a ll p ro visio ns o f the p ro fit a nd lo ss a g re e m e nt
a nd use the p ro fit a nd lo ss ra tio s to a b so rb a ny d e fic ie nc y o r a d d itio na l lo ss c a use d b y suc h
a c tio n.
8. b
2/ 1/ 20x4: P20,000 x 4 = P 80,000
6/ 1/ 20x4: P40,000 x 3 = 120,000
9/ 1/ 20x4: P30,000 x 4 = 120,000
P 320,000 / 12 m o nths = P26,667
No te : Annua l is 12 m o nths.
9. c
Ma c k Rub e n To ta l
Sa la rie s P 90,000 P 60,000 P 150,000
6:4 _30,000 __20,000 50,000
To ta l P120,000 P 80,000 P 200,000
10. c – Ro b b ie , P50,000 x 90/ 150 = P30,000; Rub e n, P50,000 x 60/ 150 = P20,000
11. c - B = .05(P180,000 - P150,000)
12. d - B = {[(P540,000 - P500,000)/ P500,000] - .05} P120,000
13. d - (P60,000 - P50,000)(.60) + (P80,000 - P60,000)(.70)
14. c - (P300,000 - P200,000)(.75) + (P380,000 - P300,000)(.60)
15. c - (P300,000 - P100,000)(.35) + (P450,000 - P300,000)(.55)
16. d - (P120,000 - P50,000)(.40)
17. a - (P600,000 - P350,000)(.40 - .30)
18. b
XX YY ZZ To ta l
Sa la ry 60,000 48,000 36,000 144,000
Inte re st: 10% x a ve ra g e c a p ita l 7,500 48,750
Ba la nc e : e q ua lly 5,000 5,000 5,000 15,000
207,750
X: P100,000 x 6 = P600,000
P160,000 x 6 = 960,000 P1,560,000 / 12 = P 130,000

lOMoARcPSD|10477308
Y (sa m e w ith b e g inning sinc e no a d d itio na l

inve stm e nts o r w ithd ra w a ls w e re m a d e ) 150,000
Z: P225,000 x 9 = P2,025,000
P155,000 x 3 = 465,000 P2,490,000/ 12 = 207,500
P 487,500 x 10% = P48,750
19. d - ASSIG NMENT O F INC O ME

ARTHUR BAXTER C ARTWRIG HT TO TAL
Inte re st—10% o f b e g inning c a p ita l P 6,000 P 8,000 P10,000 P24,000
Sa la ry ........................................................ 20,000 20,000
Allo c a tio n o f re ma ining inc o me
(P6,000 d ivid e d o n a 3:3:4 b a sis) ............ 1,800 1,800 2,400 6,000
To ta ls ............................................ P 7,800 P29,800 P12,400 P50,000
STATEMENT O F C APITAL
ARTHUR BAXTER C ARTWRIG HT TO TAL
Be g inning c a p ita l ...................................... P60,000 P80,000 P100,000 P240,000
Ne t inc o me (a b o ve ) ................................ 7,800 29,800 12,400 50,000
Dra wing s (g ive n) ....................................... (5,000) (5,000) (5,000) (15,000)
End ing c a p ita l ........................................... P62,800 P104,800 P107,400 P275,000
20. a
ASSIG NMENT O F INC O ME—YEAR O NE
WINSTO N DURHAM SALEM TO TAL
Inte re st—10% o f b e g inning c a p ita l ........ P11,000 P 8,000 P11,000 P30,000
Sa la ry ........................................................ 20,000 -0- 10,000 30,000
Allo c a tio n o f re ma ining lo ss
(P80,000 d ivid e d o n a 5:2:3 b a sis) ........... (40,000) (16,000) (24,000) (80,000)
To ta ls ............................................ P(9,000) P (8,000) P (3,000) P (20,000)
STATEMENT O F C APITAL—YEAR O NE
Be g inning c a p ita l ...................................... P110,000 P80,000 P110,000 P300,000
Ne t lo ss (a b o ve ) ........................................ (9,000) (8,000) (3,000) (20,000)
Dra wing s (g ive n) ....................................... (10,000) (10,000) (10,000) (30,000)
End ing c a p ita l .................................... P 91,000 P62,000 P 97,000 P250,000
ASSIG NMENT O F INC O ME—YEAR TWO

Inte re st—10% o f b e g inning c a p ita l P 9,100 P 6,200 P 9,700 P25,000
Sa la ry ........................................................ 20,000 -0- 10,000 30,000
Allo c a tio n o f re ma ining lo ss
(P15,000 d ivid e d o n a 5:2:3 b a sis) .......... (7,500) (3,000) (4,500) (15,000)
To ta ls ............................................ P21,600 P3,200 P15,200 P40,000
STATEMENT O F C APITAL—YEAR TWO

Be g inning c a p ita l (a b o ve ) ...................... P 91,000 P62,000 P 97,000 P250,000
Ne t inc o me (a b o ve ) ................................ 21,600 3,200 15,200 40,000
Dra wing s (g ive n) ....................................... (10,000) (10,000) (10,000) (30,000)
End ing c a p ita l .................................... P102,600 P55,200 P102,200 P260,000

lOMoARcPSD|10477308
21. a
C a p ita l, Be g inning
Ad d itio na l inve stm e nt 25,000
Withd ra w a ls (130,000)
Ne t inc o m e 45,000 / 30% = P 150,000
Ne t De c re a se (60,000)
22. a
F G H To ta l
10% inte re st a Ave ra g e c a p ita l 12,000 6,000 4,000 22,000
Sa la rie s 30,000 20,000 50,000
Eq ua lly (35,000) ________ _________ (105,000)
7,000 (33,000)
23. d , P66,200; E, P34,100; F, P29,700

D E F To ta l
Sa la rie s 25,000 20,000 25,000 70,000
Bo nus o n inc o m e (10% x P130,000) 13,000 13,000
Re m a ind e r (6:3:1) 28,200 14,100 _4,700 47,000
66,200 34,100 29,700 130,000
24. a
C W N To ta l
C a p ita l, 1/ 1/ x4 100,000 150,000 200,000 450,000
Ne t Inc o m e – 20x4 29,000 63,000 58,000 150,000
Withd ra w a l – p e rso na l (12,000) (12,000) (12,000) (36,000)
C a p ita l, 12/ 31/ x4 117,000 20,100 24,600 564,000
Ne t inc o m e – 20x4 C W N To ta l
10% inte re st o n b e g inning c a p ita l 10,000 15,000 20,000 45,000
Sa la ry - 10,000 - 10,000
20% : 40% : 40% 19,000 38,000 38,000 95,000
29,000 63,000 58,000 150,000
C a p ita l, 1/ 1/ x5 117,000 201,000 246,000 564,000

Ne t inc o m e 34,420 75,540 70,040 180,000
Withd ra w a ls – p e rso na l (12,000) (12,000) (12,000) (36,000)
C a p ita l, 12/ 31/ x5 139,420 264,540 304,040 708,000
Ne t inc o m e – 20x5 117,000 201,000 246,000 564,000

10% inte re st a b e g inning c a p ita l 34,420 75,540 70,040 180,000
Sa la ry (12,000) (12,000) (12,000) (36,000)
20% : 40% : 40% 139,420 264,540 304,040 708,000
25. d - re fe r to No .24
26. b - re fe r to No .24
27. c - re fe r to No .24

lOMoARcPSD|10477308
28. b
Y E I To ta l
C a p ita l, 1/ 1/ Ye a r 1 143,000 104,000 143,000 390,000
Ne t inc o m e (lo ss) (11,700) (10,400) (3,900) (26,000)
C a p ita l, 12/ 31/ Ye a r I 118,300 80,600 126,100 325,000
Ye a r I Ne t lo ss
Sa la ry 26,000 - 13,000 3,900
Inte re st – 10% x b e g inning c a p ita l 14,300 10,400 14,300 3,900
5:2:3 (52,000) (20,800) (31,200) (10,400)
To ta l (11,700) (10,400) (3,900) (2,600)
C a p ita l, 1/ 1/ Ye a r2 118,300 80,600 126,100 325,000

Ne t inc o m e (lo ss) 28,080 76,700 19,760 52,000
C a p ita l, 12/ 31/ Ye a r 2 133,380 144,300 132,860 338,000
Ye a r 2 Ne t lo ss 26,000 - 13,000 3,900

Sa la ry 11,830 8,060 12,610 32,500
Inte re st – 10% x b e g inning c a p ita l (9,750) (3,900) (5,850) (19,500)
5:2:3 28,080 76,700 19,750 52,000
29. d - re fe r to No .28
30. c - re fe r to No .28
31. a - re fe r to No .28
32. d
Be c a use b o th p a rtne rs ha ve e q ua l c a p ita l b a la nc e s, NN's c a p ita l ha s to b e inc re a se d to e q ua l
tha t o f MM's. Sinc e MM's c a p ita l b a la nc e is P60,000 a nd NN's is P20,000, a n a d d itio na l P40,000 ha s
to b e c re d ite d to NN's c a p ita l to m a ke it e q ua l MM's c a p ita l. This a d d itio na l a m o unt c re d ite d to
NN's c a p ita l is the g o o d w ill tha t NN is b ring ing to the p a rtne rship .
33. a - MM's sha re o f the ne t inc o m e o f P25,000 is 60%, o r P15,000.
34. b
2/ 1/ 20x4: P20,000 x 4 = P 80,000
6/ 1/ 20x4: P40,000 x 3 = 120,000
9/ 1/ 20x4: P30,000 x 4 = 120,000
P 320,000 / 12 m o nths = P26,667
No te : Annua l - 12 m o nths.
35. b
Inte re st: (P500,000 x 10%) = P50,000
Sa la ry: (P10,000 + P20,000) = P30,000
Bo nus: C o nd itio n no t m e t = P0
To ta l a llo c a tio ns = P80,000 a nd o ve r-a llo c a tio ns =

P80,000 - P60,000 = P20,000

lOMoARcPSD|10477308
36. b
Blo o m :
Inte re st a llo c a tio n: P20,000
Sa la ry a llo c a tio n: P10,000
C a rne s:
Inte re st a llo c a tio n: P30,000
Sa la ry a llo c a tio n: P20,000
The re is a to ta l o f P80,000 fo r p o sitive a llo c a tio ns. To b ring the m d o w n to a P20,000 lo ss, a
re sid ua l a d justm e nt o f (P100,000) is ne e d e d w hic h is a llo c a te d (P40,000) to Blo o m a nd
(P60,000) to C a rne s. Afte r the se a m o unts a re a ssig ne d to the p a rtne rs, e a c h p a rtne r’ s
c a p ita l a c c o unt will b e re d uc e d b y a ne t P10,000.
37. c
J P B To ta l
Sa la rie s P 50,000 P 60,000 P 30,000 P140,000
Bo nus* 16,000 8,000 16,000 40,000
Re ma ind e r (3:4:3) (6,000) (8,000) (6,000) (20,000)
To ta l P 60,000 P 60,000 P 40,000 P160,000
*sinc e p ro b le m is sile nt it sho uld b e b a se d o n ne t inc o me b e fo re a ny de duc tio ns.
38. c
A P B To ta l
Sa la rie s P 30,000 P 10,000 P 40,000 P 80,000
Bo nus (10% o f a ve ra g e c a p ita l) 5,000 3,000 2,000 10,000
Re ma ind e r (4:4:2) _ 24,000 __24,000 _12,000 60,000
To ta l P 59,000 P 37,000 P 54,000 P150,000
39. c
A P B To ta l
Sa la rie s P 30,000 P 10,000 P 40,000 P 80,000
Bo nus (10% o f a ve ra g e c a p ita l) 5,000 3,000 2,000 10,000
Re ma ind e r (4:4:2) (16,000) (16,000) ( 8,000) (40,000)
To ta l P 19,000 (P3,000) P 34,000 P 50,000
40. b
To ta l a g re e d c a p ita l = to ta l c o ntrib ute d c a p ita l*
(P200,000 + P100,000 + P100,000) P 400,000
Multip lie d b y: C a p ita l inte re sts o f Ma y _____35%
P 140,000
*No g o o d will o r a sse t a djustme nt
41 d
P60,000, sa la ry = P25,000, sa la ry + [.20 (NI – B)]
P60,000 = P25,000 + P35,000, b o nus
The re fo re , b o nus w o uld b e P35,000
B = .20 (NI – B)
P35,000 = . 20 (NI – P35,000)
P35,000 = .20NI – P7,000
P35,000 + P7,000 = .20NI
P42,000 = .20NI
NI = P210,000

lOMoARcPSD|10477308
42. c - P30,000 + P40,000 = P70,000, a nnua l sa la ry to a llo c a te ne t inc o m e .
43. b
[P70,000 – (P40,000 + P10,000 +P2,000)]
- Sa la ry to p a rtne rs is a n a llo c a tio n o f ne t inc o m e (the y a re no t e xp e nse s)
- Pa rtne r’ s w ithd ra w a ls a re d e d uc tio n to c a p ita l a c c o unts.
44. c
Bo nus = 20% (NI b e fo re d e d uc tio n o n sa la rie s, inte re sts a nd b o nus)
B = 20% (NI a fte r d e d uc tio n o f sa la rie s, inte re sts a nd b o nus + sa la rie s + inte re sts + b o nus)
B = 20% [P46,750 + (P1,000 x 12 m o nths) + (.05 x P25,000) + B]
B = .20 [P60,000 + B]
B = P12,000 + .20B
1.20 B = P12,000
B = P15,000
45. a
Allo c a tio n/ Distrib utio n o f Ne t Inc o m e
DD EE To ta l
Sa la rie s 18,000 24,000 42,000
Inte re st (10% o f Ave . C a p .) 15,000 20,000 35,000
Ba la nc e / Re m a ind e r (60%:40%) 25,800 17,200 __43,000
Sha re in Ne t Inc o m e 58,800 61,200 120,000*
*P 500,000 – P100,000 (e xc lud ing sa la rie s a nd int. – P100,000
Sta te m e nt o f Pa rtne rs’ C a p ita l

DD EE To ta l
C a p ita l, Ma rc h 1, 2011 150,000 180,000 330,000
Ad d itio na l Inve stm e nts 60,000 60,000
Ne t Inc o m e 58,800 61,200 1240,000
Pe rso na l Withd ra w a ls (18,000) (24,000) ( 42,000)
C a p ita l, Ma rc h 1, 2012 190,800 277,200 468,000
Allo c a tio n/ Distrib utio n o f Ne t Inc o m e

DD EE To ta l
Inte re st o n Ave ra g e C a p ita l – 10% P 15,000 P20,000 P 35,000
Ba la nc e / Re m a ind e r – 60%:40% 51,000 34,000 85,000
Sha re in Ne t Inc o m e P 66,000 P54,000 P 120,000
Sta te m e nt o f Pa rtne rs’ C a p ita l

DD EE
C a p ita l b a la nc e , 2/ 28/ 20x4 P 150,000 P 180,000
Ad d itio na l Inve stm e nt 60,000
Sha re in Ne t Inc o m e 66,000 54,000
Sa la rie s 18,000 24,000
Sa la ry w ithd ra w a ls ( 18,000) ( 24,000)
C a p ita l b a la nc e , Ma rc h 1, 20x5 P 216,000 P 294,000
46. a – re fe r to No . 45
47. b – re fe r to No . 45
48. c – re fe r to No . 45

lOMoARcPSD|10477308
49. a
NN OO To ta l
Sa la ry a llo w a nc e s P180,000 P - P180,000
Ba la nc e / Re m a ind e r: Eq ua lly 15,000 15,000 30,000
Ne t Inc o m e fo r 20x5 P195,000 P 15,000 P 210,000
Ad justm e nt o f ne t inc o m e fo r 20x4 – 60% : 40% 24,000 16,000 40,000
To ta l P219,000 P31,000 P250,000
No te : Any a d justm e nts re la te d to a p a rtic ula r ye a r, the p ro fit a nd lo ss ra tio e xisting o n tha t ye a r
sho uld b e use d a s a b a sis fo r a llo c a ting the re q uire d a d justm e nts.
50 – 53: No re q uire m e nt
54. b
O ld P & L Inte re sts Ac q uire d Ne w P & L
Ab e 70% 59.50%
Be rt 20% 85% 17.00%
C a rl 10% 8.50%
Da ve 15% 15.00%
To ta l 100% 100% 100%
55. b
Una d juste d ne t inc o me , 20x5 P 15,000
Ad d (d e d uc t): a d justme nts -
Ac c rue d e xp e nse – 20x5 (1,050)
Ac c rue d inc o me – 20x5 875
Pre p a id e xp e nse – 20x4 (1,400)
De fe rre d o r une a rne d inc o me – 20x4 __1,225
Ad juste d ne t inc o me , 20x5 P 14,650
Multip lie d b y: P& L o f Da ve _____17%
Sha re in ne t inc o me – 20x5 P2,490.50
Q uiz – II
1. P47,500 = [(P0,000 x 4) + (P40,000 x 6) + (P65,000 x 2)]/ 12
2. P6,400 = [(P60,000 x 2) + (P90,000 x 5) + (P70,000 x 4) + P110,000] (.08)
3. P3,703 - B = .08(P250,000 - P200,000 - B)
4. P39,150 = (P130,000 - P10,000 - P15,000 - P18,000) .45
5. Nic k, P44,075; Jo e , P48,435; Mike , P57,490
Nic k Jo e Mike To ta l
Inte re st o n c a p ita l
P200,000 x .09 P18,000
P350,000 x .09 P31,500
P180,000 x .09 P16,200 P65,700
Sa la ry 25,000 15,000 35,000 75,000
Bo nus .1(P150,000 - P100,000) 5,000 5,000
Re sid ua l
P4,300 x .25 1,075
P4,300 x .45 1,935
P4,500 x .30 ______ _______ 1,290 4,300
To ta ls P44,075 P48,435 P57,490 P150,000
6. P185,000 = P35,000 + (P500,000 - P35,000 - P50,000 - P40,000) .4

7. P78,000 = (P250,000 x .08) + [P300,000 - (P200,000 + P250,000 + P400,000)(.08)] .25

lOMoARcPSD|10477308
8. P10,000 = (P60,000 - P50,000)(.40) + (P80,000 - P60,000)(.30)

9. P57,000 = (P300,000 - P200,000)(.25) + (P380,000 - P300,000)(.40)
10. P197,500 = (P300,000 - P100,000)(.65) + (P450,000 - P300,000)(.45)
11. P42,000 = (P120,000 - P50,000)(.60)
12. P36,000 = (P200,000 - P120,000)(.45)
13. P105,000 = (P520,000 - P370,000)(.70)
14. P78,000 = (P650,000 - P520,000)(.60)
15. P13,000 inc re a se = (P250,000 - P120,000)(.70 - .60)
16. P25,000 d e c re a se = (P600,000 - P350,000)(.70 - .60)
17. P68,800
G a rlic Pe p p e r Sa lt To ta l
Sa la ry 60,000 24,000 84,000
Inte re sts – 10% o n b e g inning 4,000 4,800 3,200 12,000
Eq ua lly 4,000 4,000 4,000 12,000
To ta l 8,000 68,800 108,000
18. P310,000
Using b o nus fo rm ula to so lve fo r inc o m e :
Bo nus = .20 (NI – Bo nus – Sa la ry)
35,000 = .20 NI – [.20 x P35,000] – [.20 x P100,000*]
62,000 = .2Inc o m e
P310,000 = inc o m e
*sa la rie s 25,000 + 75,000
19. Ja m e s, P58,360; Ke lle r, P68,040; Rive rs, P87,600

Ja m e s Ke lle r Rive rs To ta l
Inte re st – 8% 4,400 5,600 7,200 17,200
Sa la ry 13,000 15,000 20,000 48,000
2:3:5 (7,040) (10,560) (17,600) (35,200)
To ta l 10,360 10,040 9,600 30,000
Inte re st:
Ja m e s: P48,000 x 5 = P240,000
P60,000 x 7 = 420,000 P660,000/ 12 = P55,000 x 8% = P4,400
C a p ita l, b e g inning 48,000 70,000 90,000 208,000

Ad d itio na l inve stm e nts 12,000 12,000
Ne t inc o m e (lo ss) 10,360 10,040 9,600 30,000
Withd ra w a ls – P1,000 p e r m o nth (12,000) (12,000) (12,000) (36,000)
C a p ita l, e nd ing 58,360 68,040 87,600 214,000
20. JJ, P27,000; KK, P24,000; LL, P39,000

JJ KK LL To ta l
Bo nus (20%) ..................................... P18,000 P -0- P -0- P18,000
Inte re st (15% o f a ve ra g e c a p ita l) 15,000 30,000 45,000 90,000
Re m a ining lo ss ($18,000) .............. (6,000) (6,000) (6,000) (18,000)
Inc o m e a ssig nm e nt ....................... P27,000 P24,000 P39,000 P90,000

lOMoARcPSD|10477308
21. PP, P64,600; SS, P49,000; TT, P2,000

PP SS TT To ta ls
Inte re st (10%) 6,600 (b e lo w ) 4,000 2,000 12,600
Sa la ry 18,000 25,000 8,000 51,000
Re m a ining inc o m e (lo ss) (16,000) ( 8,000) (16,000) (40,000)
To ta ls 8,600 21,000 (6,000) 23,600
C ALC ULATIO N O F PURKERSO N'S INTEREST ALLO C ATIO N

Ba la nc e , Ja nua ry 1—Ap ril 1 (P60,000 × 3) P180,000
Ba la nc e , Ap ril 1—De c e m b e r 31 (P68,000 × 9) 612,000
To ta l ................................................................................................... P792,000
Mo nths ............................................................................................... ÷ 12
Ave ra g e m o nthly c a p ita l b a la nc e ............................................. P 66,000
Inte re st ra te ...................................................................................... × 10%
Inte re st a llo c a tio n (a b o ve ) ........................................................... P 6,600
STATEMENT O F PARTNERS' C APITAL

PP SS TT To ta ls
Be g inning b a la nc e s ......................... 60,000 40,000 20,000 120,000
Ad d itio na l c o ntrib utio n ................... 8,000 -0- -0- 8,000
Inc o m e (a b o ve ) ............................ 8,600 21,000 (6,000) 23,600
Dra w ing s (P1,000 p e r m o nth) ......... (12,000) (12,000) (12,000) (36,000)
End ing c a p ita l b a la nc e s ................. 64,600 49,000 2,000 115,600
22. End ing c a p ita l b a la nc e s:

20x4 .......................................... 4,720 32,400 32,880 70,000
20x5 .......................................... 4,766 30,088 37,146 72,000
20x6 ……………………………. 9,610 36,243 36,147 82,000
INC O ME ALLO C ATIO N—20x4

LL CC RR To ta l
Inte re st (12% o f b e g inning c a p ita l) 2,400 7,200 6,000 15,600
Sa la ry 12,000 8,000 -0- 20,000
Re m a ining inc o m e / lo ss (19,680) (32,800) (13,120) (65,600)
To ta ls (5,280) (17,600) (7,120) (30,000)
STATEMENT O F PARTNERS' C APITAL—DEC EMBER 31, 20x4

LL CC RR To ta l
Be g inning b a la nc e s ..................... 20,000 60,000 50,000 130,000
Inc o m e a llo c a tio n ........................ (5,280) (17,600) (7,120) (30,000)
Dra w ing s ........................................ (10,000) (10,000) (10,000) (30,000)
End ing b a la nc e s .................... 4,720 32,400 32,880 70,000

LL CC RR To ta l
Inte re st(12% o f b e g inning c a p ita l a b o ve ) *566 3,888 3,946 8,400
Sa la ry ............................................. 12,000 8,000 -0- 20,000
Re m a ining inc o m e / lo ss: (2,520) (4,200) (1,680) (8,400)
To ta ls ...................... 10,046 7,688 2,266 20,000
*Ro und e d

lOMoARcPSD|10477308

LL CC RR To ta l
Be g inning b a la nc e s (a b o ve ) 4,720 32,400 32,880 70,000
Ad d itio na l inve stm e nt ................. -0- -0- 12,000 12,000
Inc o m e a llo c a tio n ........................ 10,046 7,688 2,266 20,000
Dra w ing s ........................................ (10,000) (10,000) (10,000) (30,000)
End ing b a la nc e s .................... 4,766 30,088 37,146 72,000

LL CC RR To ta l
Inte re st (12 % o f b e g inning c a p ita l
a b o ve )* ................................... 572 3,611 4,457 8,640
Sa la ry ............................................. 12,000 8,000 -0- 20,000
Re m a ining inc o m e ........................ 2,272 4,544 4,544 11,360
To ta ls .................................. 14,844 16,155 9,001 40,000
*Ro und e d

LL CC RR To ta l
Be g inning b a la nc e s (a b o ve ) 4,766 30,088 37,146 72,000
Inc o m e a llo c a tio n 14,844 16,155 9,001 40,000
Dra w ing s (10,000) (10,000) (10,000) (30,000)
End ing b a la nc e s 9,610 36,243 36,147 82,000
23. Julio , P2,820 d e c re a se ; Fo ng , P120 inc re a se

Sho rt-te rm p re p a ym e nts 2,700
Julio , C a p ita l 2,820
Fo ng , C a p ita l 120
Sa la rie s Pa ya b le 5,400
The c o rre c tio n to p a rtne rs' c a p ita l a c c o unts is
c o m p ute d a s fo llo w s:
Julio Fo ng
Inve nto rie s und e rsta te d b y P12,000,
De c . 31, 20x5 P 6,000 P 6,000
Inve nto rie s und e rsta te d b y P12,000,
Ja n. 1, 20x6 (7,200) (4,800)
Ac c rue d sa la rie s o f P5,400 no t re c o rd e d ,
De c . 31, 20x6 (3,240) (2,160)
Sho rt-te rm p re p a ym e nts o f P2,700
no t re c o rd e d , De c . 31, 20x6 1,620 1,080
Ne t c o rre c tio ns to p a rtne rs' c a p ita l
a c c o unts P(2,820) P 120
THEO RIES
True o f Fa lse
1. Fa lse 6. Fa lse 11. True 16. True 21. Fa lse 26. Fa lse
2. True 7. True 12. True 17. Fa lse 22. True 27. True
3. True 8. Fa lse 13. Fa lse 18. Fa lse 23. Fa lse 28. Fa lse
4. Fa lse 9. True 14. True 19. True 24. True
5. True 10. Fa lse 15. Fa lse 20. True 25. Fa lse

lOMoARcPSD|10477308

1. While the p artne rship law m ay have indic ate d that the p artne rs c anno t withdraw re so urc e s and m ake the
p artne rship inso lve nt, withdrawals are ty p ic ally c o ntro lle d b y the artic le s o f p artne rship .
4. If the p artne rship ag re e m e nt is sile nt with re g ard to p ro fit and lo ss allo c atio n, p ro fits and lo sse s are share d
e q ually .
6. The inte re st c o m p o ne nt o f p artne rship p ro fit and lo ss allo c atio n re wards partne rs fo r c ap ital c o ntrib utio ns.
8. The inte re st o n c ap ital b alanc e s c o m p o ne nt o f p artne rship p ro fit and lo ss allo c atio n m ay b e b ase d o n the
b e g inning , e nding , sim p le ave rag e c ap ital b alanc e , o r we ig hte d ave rag e c ap ital b alanc e .
10. The salary c o m p o ne nt o f the p artne rship p ro fit and lo ss allo c atio n wo uld b e e xp e c te d to b e re ne g o tiate d
p e rio dic ally as the dutie s o f the p artne rs c hang e .
13. Partne rship s c an o ffe r b o nuse s to any o ne . The c ho ic e is up to the p artne rs. O n the o the r hand, the re is no
re q uire m e nt to e ve r o ffe r a b o nus.
15. While m any b o nuse s are b ase d o n a m e asure o f inc o m e , it is no t re q uire d. Bo nus c an b e b ase d o n o the r
c rite ria suc h as m arke t share , re ve nue , o r ave rag e c o st p e r unit.
17. Re sidual inte re sts m ay b e e q ual b ut the y are no t re q uire d to b e e q ual.
18. While p ro fit re sidual ratio s and lo ss re sidual ratio s are g e ne rally the sam e , the y c an diffe r.
21. Re sidual p ro fit and lo ss p e rc e ntag e s are the last c o m p o ne nt o f the p ro fit and lo ss allo c atio n p ro c e ss
ap p lie d b e c ause the y are de sig ne d to allo c ate any re m aining am o unt to the p artne rs.
23. The re are se ve ral way s that the diffe re nc e b e twe e n m arke t and b o o k value o f asse ts c an b e addre sse d
whe n the p ro fit and lo ss ratio s are c hang e d. Re valuing the asse ts is o ne o f the p o ssib ilitie s alo ng with
m aintaining a re c o rd o f asse ts with m arke t and b o o k value diffe re nc e s as we ll as dire c tly adjusting c ap ital
ac c o unts while le aving asse t value s unc hang e d.
Multiple C ho ic e
29. c 34. d 39. b 44. c
30. d 35. d 40. e 45. a
31. c 36. c 41. c 46. b
32. d 37. d 42. b 47. C
33. a 38. a 43. d

lOMoARcPSD|10477308
C ha pte r 3
Pro b le m I
1.
Be n, c a p ita l 350,000
Pe t, c a p ita l (50% x P700,000) 350,000
2. The to ta l c a p ita l o f BIG Ente rta inm e nt G a lle y re m a ins a t P1,480,000. The to ta l a m o unt p a id b y Pe t to
Be n d o e s no t a ffe c t the p a rtne rship a nd Pe t d o e s no t b e c o m e a p a rtne r w ith the a ssig nm e nt o f ha lf
o f Be n’ s inte re st.
Pro b le m II
1.
a. D, c a p ita l…………………………………………………………… 24,000
F, c a p ita l…………………………………………………......... 24,000
b .1.
D, c a p ita l (P72,000 x ¼)………………………………………… 18,000
E, c a p ita l (P48,000 x ¼)………………………………………… 12,000
F, c a p ita l…………………………………………………. 30,000
The c a p ita l b a la nc e s o f the p a rtne rs a fte r the a d m issio n o f F w o uld b e a s fo llo w s:
D E F (b o o k va lue ) To ta l_
C a p ita l b e fo re a d m issio n…P 72,000 P 48,000 P120,000
x: Inte re st re m a ine d ……….. ¾ ¾ ________
C a p ita l a fte r a d m issio n….. P54,000 P 36,000 P 30,000 P120,000
The re fo re , the p ro fit a nd lo ss ra tio o f the p a rtne rs a fte r the a d m issio n o f F w o uld b e a s fo llo w s:
D, c a p ita l (70% x ¾)……………………………………………… 52.50%

E, c a p ita l (30% x ¾)………………………………………………. 22.50%
F, c a p ita l (e q uiva le nt to inte re st a c q uire d )…………………. 25.00%
To ta l………………………………………………………………….100.00%
b .2
b .2.1
D, c a p ita l (P72,000 x ¼)………………………………………… 18,000
E, c a p ita l (P48,000 x ¼)………………………………………… 12,000
F, c a p ita l…………………………………………………. 30,000
The p o sitive e xc e ss o f P6,000 re p re se nts a p e rso na l g a in o f D a nd E, c o m p ute d a s fo llo ws:

Am o unt p a id (P21,600 + P14,400)…………………………………. P36,000
Le ss: BV o f inte re st a c q uire d –
(P 120,000 x ¼)……………………………............................. 30,000
Exc e ss (G a in o f D a nd E – p e rso na l in na ture )….……………….. P 6,000
The p a rtne rship d o e s no t re c o rd this g a in b e c a use it wa s no t b e ne fite d fro m it.

lOMoARcPSD|10477308
b .2.2
Asse ts (G o o d will)……………………………………………….. 24,000
D, c a p ita l (P24,000 x 70%).……………………………........ 16,800
E, c a p ita l (P24,000 x 30%).……………………………......... 7,200
O r,
Am o unt p a id (P21,600 + P14,400)…………….. P36,000 / ¼ P144,000 (100%)
(P 120,000 x ¼)……………………………... 30,000 120,000 (100%)
Exc e ss……………………………………………….. P 6,000
Divid e d b y (c a p ita lize d a t): Inte re st a c q uire d ¼
Re va lua tio n o f Asse t Up w a rd ………………….. P24,000 P 24,000 (100%)
D, c a p ita l [(P72,000 + P16,800) x ¼]………………………… 22,200

E, c a p ita l [(P48,000 + P7,200) x ¼]…………………………… 13,800
F, c a p ita l…………………………………………………...... 36,000
D E F (a m o unt p a id ) To ta l_
C a p ita l b e fo re a d m issio n… P 72,000 P 48,000 P120,000
Re va lua tio n up w a rd ………. 16,0800 7,200 24,000
C a p ita l b a la nc e a fte r
re va lua tio n………………. P 88,800 P 55,200 P144,000
x: Inte re st re m a ine d ……….. ¾ ¾ ________
C a p ita l a fte r a d m issio n….. P66,600 P 41,400 P 36,000 P144,000
C a p ita l inte re st %.............. 25

P & L %: D (3/ 4 x 70%)…… 52.50
E (3/ 4 x 30%)…… 22.50
F (1/ 4)…………… 25
It sho uld b e o b se rve d tha t the to ta l c a p ita l b a la nc e a fte r the a d m issio n inc re a se s e q uiva le nt to
the re va lua tio n o f a sse ts a m o unting to P24,000. The re a so n o f suc h a d justm e nts is to e q ua lize
the c a p ita l o f the ne w p a rtne r to the a m o unt p a id .
b .3
b .3.1
D, c a p ita l (P72,000 x ¼)………………………………………… 18,000
E, c a p ita l (P48,000 x ¼)………………………………………… 12,000
F, c a p ita l…………………………………………………. 30,000
The ne g a tive e xc e ss o f P3,600 re p re se nts a p e rso na l lo ss o f D a nd E, c o m p ute d a s fo llo ws:
Am o unt p a id ……………………….…………………………………. P 26,400

(P 120,000 x ¼)……………………………............................. 30,000
Exc e ss (Lo ss o f D a nd E – p e rso na l in na ture )….………………… P( 3,600)

lOMoARcPSD|10477308
b .3.2
The e ntry to re c o rd the tra nsa c tio n in the b o o ks fo llo w s:
D, c a p ita l (P14,400 x 70%).…………………………………….. 10,080
E, c a p ita l (P14,400 x 30%).……………………………………... 4,320
Asse ts ……………………………………………………..... 14,400
O r,
Am o unt p a id ………………………….………….. P 26,400 / ¼ P 105,600 (100%)
(P 120,000 x ¼)……………………………... 30,000 120,000 (100%)
Exc e ss……………………………………………….. P( 3,600)
Divid e d b y: Inte re st a c q uire d ………………….. ¼
Re va lua tio n o f Asse t Do w nw a rd ..…………….. P(14,400) P(14,400) (100%)
D, c a p ita l [(P72,000 – P10,080) x ¼]………………………. 15,480

E, c a p ita l [(P48,000 – P4,320) x ¼]………………………….. 10,920
F, c a p ita l………………………………………………….. 26,400
D E F (a m o unt p a id ) To ta l_
C a p ita l b e fo re a d m issio n…P 72,000 P 48,000 P120,000
Re va lua tio n d o w nw a rd …… 10,080 4,320 14,400
C a p ita l b a la nc e a fte r
re va lua tio n……………….. P 61,920 P 48,680 P 105,600
x: Inte re st re m a ine d ………… ¾ ¾ ________
C a p ita l a fte r a d m issio n….. P46,440 P 32,760 P 26,400 P 105,600

P & L %: D (3/ 4 x 70%)…… 52.50
E (3/ 4 x 30%)…… 22.50
F (1/ 4)…………… 25
C o m p a riso n b e tw e e n b .3.1 a nd b .3.2:

Sc he d ule o f Ac c o unt Ba la nc e s
Ne t G o o d w ill/ Asse t C a p ita l__________

Asse ts Re va lua tio n = D E F___
Bo o k Va lue Ap p ro a c h
Ba la nc e s b e fo re a d m issio n P120,000 P 72,000 P 48,000
Ad m issio n ( 18,000) (12,000) P 30,000
Ba la nc e s a fte r a d missio n o f F P 120,000 P -0- P 54,000 P 36,000 P 30,000
Re va lua tio n Ap p ro a c h
Ba la nc e s b e fo re a d m issio n P120,000 P 72,000 P 48,000
Re va lua tio n P 24,000 16,800 7,200
Ad m issio n ( 22,200) (13,800) P 36,000
Ba la nc e s a fte r a d missio n o f F P120,000 P 24,000 P 66,600 P 41,400 P 36,000
De p re c ia tio n/ im p a irm e nt* ( 24,000) ( 12,600) ( 5,400) ( 6,000)
To ta ls P120,000 P -0- P 54,000 P 36,000 P 30,000
*ne w p ro fit a nd lo ss ra tio (D, 52.50%; E, 22.50%, a nd F, 25.00%)

lOMoARcPSD|10477308
The two m e tho ds will yie ld the sa m e re sults c o m p ute d a s fo llo ws;
C a p ita l__________
D E F___
Ba la nc e s a fte r a d m issio n o f F (BV a p p ro a c h) P 54,000 P 36,000 P 30,000
Ba la nc e s a fte r a d m issio n o f F (Re va lua tio n a p p ro a c h) 54,000 36,000 30,000
G a in o r (lo ss) thro ug h use o f b o o k va lue a p p ro a c h P -0- P -0- P -0-
Pro b le m III
a : No Bo nus o r No Re va lua tio n.
The to ta l a g re e d c a p ita l is e q ua l to to ta l a g re e d c a p ita l:
To ta l a g re e d c a p ita l (g ive n)………………………………………….P 48,000
Le ss: To ta l a g re e d c a p ita l (P24,000 + P12,000 + P12,000)………. 48,000
Diffe re nc e …………………………………………………………………P -0-
D, c a p ita l (P72,000 x ¼)………………………………………… 18,000

E, c a p ita l (P48,000 x ¼)………………………………………… 12,000
F, c a p ita l…………………………………………………. 30,000
b : Bo nus to Ne w Pa rtne r.
The to ta l c o ntrib ute d c a p ita l (TC C ) is e q ua l to to ta l a g re e d c a p ita l (TAC ), so no re va lua tio n
(g o o d w ill) sho uld b e re c o g nize d a s fo llo w s:
To ta l a g re e d c a p ita l (g ive n)…………………………………………P 48,000
Le ss: To ta l c o ntrib ute d c a p ita l (P24,000 + P12,000 + P12,000)…. 48,000
Diffe re nc e ………………………………………………………………..P -0-
The ne w p a rtne r’ s c o ntrib ute d c a p ita l is le ss tha n the a g re e d c a p ita l, the d iffe re nc e is a ttrib uta b le
to b o nus to ne w p a rtne r:
J’ s c o ntrib ute d c a p ita l (g ive n)……………………………………...P 12,000
J’ s a g re e d c a p ita l: (P48,000 x 35%)…………………………………. 16,800
Diffe re nc e (b o nus to ne w p a rtne r)………………………………….P 4,800

C a sh……………………………………………………………….. 12,000
G , c a p ita l (P4,800 x 60%)………………………………………. 2,880
H, c a p ita l (P4,800 x 40%)………………………………………. 1,920
J, c a p ita l ……………..…………………………………. 16,800
c : Re va lua tio n (G o o dwill) to Ne w Pa rtne r

The to ta l c o ntrib ute d c a p ita l (TC C ) is le ss tha n the to ta l a g re e d c a p ita l (TAC ), so re va lua tio n
To ta l a g re e d c a p ita l: (P18,000 / 1/ 3)……………………………….P 54,000
Le ss: To ta l c o ntrib ute d c a p ita l (P24,000 + P12,000 + P12,000)… 48,000
Diffe re nc e (re va lua tio n/ g o o d w ill)………………………………….P 6,000
The ne w p a rtne r’ s c o ntrib ute d c a p ita l is le ss tha n the a g re e d c a p ita l, the d iffe re nc e o f P6,000 in (a )
is a ttrib uta b le to re va lua tio n/ g o o d w ill to ne w p a rtne r:
J’ s a g re e d c a p ita l (g ive n) ………..…………………………………. 18,000
Diffe re nc e (re va lua tio n/ g o o d w ill to ne w p a rtne r)………………P 6,000

lOMoARcPSD|10477308

C a sh………………………………………………………………..12,000
Asse ts (g o o d will)………………………………………………… 6,000
J, c a p ita l ……………..…………………………………. 18,000
d: Bo nus to O ld Pa rtne rs.

To ta l a g re e d c a p ita l (sho uld e q ua l to TC C
sinc e it is a b o nus m e tho d )……………………………………P 60,000
[(P24,000 + P12,000 + (P30,000 – P6,000)]……………….…. 60,000
Diffe re nc e ………………………………………………………………..P -0-
The ne w p a rtne r’ s c o ntrib ute d c a p ita l is g re a te r tha n his a g re e d c a p ita l, the d iffe re nc e is
a ttrib uta b le to b o nus to o ld p a rtne rs:
J’ s c o ntrib ute d c a p ita l (P30,000 – P6,000)………………………..P 24,000
J’ s a g re e d c a p ita l: (P60,000 x 30%)………………………………... 18,000
Diffe re nc e (b o nus to o ld p a rtne rs)..………………………………..P( 6,000)

Ta ng ib le a sse t…………………………………………………….30,000
Mo rtg a g e p a ya b le ……………………………………. 6,000
J, c a p ita l ……………..…………………………………. 18,000
G , c a p ita l (P6,000 x 60%)…………………………….. 3,600
H, c a p ita l (P6,000 x 40%)…………………………….. 2,400
e : Re va lua tio n (G o o dwill) to O ld Pa rtne rs.

The to ta l c o ntrib ute d c a p ita l (TC C ) is le ss tha n the to ta l a g re e d c a p ita l (TAC ), so re va lua tio n sho uld
b e re c o g nize d a s fo llo w s:
To ta l a g re e d c a p ita l (g ive n) ………………………………………... P 76,800
Le ss: To ta l c o ntrib ute d c a p ita l (P24,000 + P12,000 +
P 8,400, re va lua tio n + P28,800)…………………………. 73,200
Diffe re nc e (re va lua tio n/ g o o d w ill)………………..………………… P 3,600
The ne w p a rtne r’ s c o ntrib ute d c a p ita l is e q ua l to the a g re e d c a p ita l, the d iffe re nc e o f P3,600 in (a )
is a ttrib uta b le to re va lua tio n (g o o d w ill) to o ld p a rtne rs:
J’ s c o ntrib ute d c a p ita l………………………………………………… P 28,800
J’ s a g re e d c a p ita l: (P76,800 x 37.5%)….………………………….... 28,800
Diffe re nc e …………………………..…………………………………… P -0-
The e ntrie s to re c o rd the tra nsa c tio n in the b o o ks fo llo w s:
Eq uip m e nt………………………………………………………… 8,400

G , c a p ita l (P8,400 x 60%)…………………………….. 5,040
H, c a p ita l (P8,400 x 40%)……………………………… 3,360
C a sh………….…………………………………………………….28,800
O the r a sse ts………………………………………………………. 3,600
J, c a p ita l ……………..…………………………………. 28,800
G , c a p ita l (P3,600 x 60%)…………………………….. 2,160
H, c a p ita l (P3,600 x 40%)……………………………… 1,440

lOMoARcPSD|10477308
f: Bo nus a nd Re va lua tio n (G o o dwill) to Ne w Pa rtne r.

Diffe re nc e (re va lua tio n/ g o o d w ill) …………………..……………..P 12,000
The ne w p a rtne r’ s c o ntrib ute d c a p ita l is le ss tha n the a g re e d c a p ita l, the d iffe re nc e o f P15,000 a re
c o m p o se d o f re va lua tio n o f P12,000 in (a ) a b o ve a nd the b a la nc e is b o nus to ne w p a rtne r:
J’ s c o ntrib ute d c a p ita l (g ive n)……………………………………... P 12,000
Diffe re nc e (to ta l b o nus a nd re va lua tio n)..………………………...P 15,000
Le ss: Re va lua tio n / g o o d w ill to ne w p a rtne r………………………. 12,000
Bo nus to ne w p a rtne r…………………………………………………... P 3,000

C a sh……………………………………………………………….. 12,000
Asse ts (g o o d will)………………………………………………… 12,000
G , c a p ita l (P3,000 x 60%)………………………………………. 1,800
H, c a p ita l (P3,000 x 40%)………………………………………. 1,200
J, c a p ita l ……………..…………………………………. 27,000
To re c o rd the a d m issio n o f J.
g : Bo nus a nd Re va lua tio n to O ld Pa rtne rs.

Diffe re nc e (re va lua tio n/ g o o d w ill)…………………....…………….P 18,000
The ne w p a rtne r’ s c o ntrib ute d c a p ita l is g re a te r tha n the a g re e d c a p ita l, the d iffe re nc e o f P3,600 is
b o nus to o ld p a rtne rs sinc e the re is a lre a d y a re va lua tio n(g o o d w ill) a s ind ic a te d b y (a ) a b o ve .
J’ s c o ntrib ute d c a p ita l (g ive n).…………………………………….. P 18,000
J’ s a g re e d c a p ita l: (P72,000 x 20%)………………………………… 14,400
Diffe re nc e (b o nus to o ld p a rtne rs)………………………………… P( 3,600)
Le ss: Re va lua tio n / g o o d w ill to o ld p a rtne rs……………………… 18,000
To ta l b o nus a nd re va lua tio n to o ld p a rtne rs.……………………. P 21,600
The P3,600 d iffe re nc e is c o nsid e re d a s a b o nus sinc e the re w a s a tra nsfe r o f c a p ita l (a s ind ic a te d b y
the d e c re a se in c a p ita l o f the ne w p a rtne r) m a d e b y the ne w p a rtne r to the o ld p a rtne rs.

C a sh………………………………………………………………..18,000
Asse ts (g o o d will)…………………………………………………18,000
J, c a p ita l ……………..………………………………… 14,400
G , c a p ita l (P21,600 x 60%)…………………………….. 12,960
H, c a p ita l (P21,600 x 40%)…………………………….. 8,640

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h: Re va lua tio n (G o o d will) to Ne w a nd O ld Pa rtne rs.

Diffe re nc e (re va lua tio n/ g o o d w ill ) …………………..……………. P 18,000
is a ttrib uta b le to re va lua tio n (g o o d w ill) to ne w p a rtne r a nd o ld p a rtne rs:
J’ s c o ntrib ute d c a p ita l (g ive n)…………………………………….. P 18,000
J’ s a g re e d c a p ita l: (P72,000 x 30%)………………………………... 21,600
Diffe re nc e (re va lua tio n/ g o o d w ill to ne w p a rtne r)..…………….P 3,600
Le ss: Re va lua tio n / g o o d w ill c o m p ute d in (a )..…………………. 18,000
Re va lua tio n/ g o o d w ill to o ld p a rtne rs……….……………………..P 14,400

C a sh………………………………………………………………..18,000
Asse ts (g o o d will)…………………………………………………18,000
J, c a p ita l ……………..…………………………………. 21,600
G , c a p ita l (P14,400 x 60%)…………………………… 8,640
H, c a p ita l (P14,400 x 40%)……………………………. 5,760
i: Bo nus to O ld Pa rtne rs with Bo nus A m o unt G ive n.

[(P24,000 + P12,000 + P24,000)……………...…………….…. 60,000
Diffe re nc e ………………………………………………………………..P -0-
The ne w p a rtne r’ s c o ntrib ute d c a p ita l is g re a te r tha n his a g re e d c a p ita l, the d iffe re nc e is
J’ s c o ntrib ute d c a p ita l…………………….. …………………………P 24,000
J’ s a g re e d c a p ita l (P24,000 – P6,000).……………………………... 18,000
Diffe re nc e (b o nus to o ld p a rtne rs)..……………………………….. P( 6,000)

C a sh………………………………………………………………..24,000
J, c a p ita l ……………..…………………………………. 18,000
G , c a p ita l (P6,000 x 60%)…………………………….. 3,600
H, c a p ita l (P6,000 x 40%)…………………………….. 2,400
j: Bo nus to Ne w Pa rtne r with a n Indic a tio n o f Bo nus.

The re is a n o ve rsta te m e nt o f a sse t a m o unting to P2,400 (P6,000 – P3,600) tha t is ne e d e d to b e
re c o rd e d to c o m p ly w ith the p ro visio ns o f G AAP re c o g nizing o ve rva lua tio n o f ne t a sse ts. The re fo re ,
the c o ntrib ute d c a p ita l o f p a rtne r G a nd H a re a s fo llo w s:
G , c a p ita l: P24,000 – (P2,400 x 60%)………………………….P 22,560
H, c a p ita l: P12,000 – (P2,400 x 40%)…………………………. 11,040
To ta l c o ntrib ute d c a p ita l b e fo re the a d m issio n………….. P 33,600

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sinc e it is a b o nus m e tho d )…………………………………… P 40,800
Le ss: To ta l c o ntrib ute d c a p ita l [P33,600 (a ) + P7,200].………… 40,800
Diffe re nc e ………………………………………………………………..P -0-
Diffe re nc e (b o nus to ne w p a rtne r)………………………………….P 5,040

G , c a p ita l (P2,400 x 60%)………………………………………. 1,440
H, c a p ita l (P2,400 x 40%)………………………………………. 960
Eq uip m e nts……………………………………………… 2,400
C a sh……………………………………………………………….. 7,200
G , c a p ita l (P5,040 x 60%)………………………………………. 3,024
H, c a p ita l (P5,040 x 40%)………………………………………. 2,016
J, c a p ita l ……………..…………………………………. 12,240
k: Re va lua tio n (G o o d will) to O ld Pa rtne rs with a n Indic a tio n o f a Re va lua tio n (G o o dwill) .
The re is a n und e rsta te m e nt o f a sse t a m o unting to P6,000 (P12,600 – P6,600) tha t is ne e d e d to b e
re c o rd e d (a lso e ve n in c a se s o f o ve rsta te m e nt) a s lo ng a s the re va lua tio n (g o o d w ill) a p p ro a c h is
b e ing use d . The re fo re , the c o ntrib ute d c a p ita l o f p a rtne r G a nd H a re a s fo llo w s:
G , c a p ita l: P24,000 + (P6,000 x 60%)………………………….P 27,600

H, c a p ita l: P12,000 + (P6,000 x 40%)………………………….. 14,400
To ta l c o ntrib ute d c a p ita l b e fo re the a d m issio n…………..P 42,000
To ta l a g re e d c a p ita l (P18,000 / ¼ )*…..……….…………………...P 72,000

Le ss: To ta l c o ntrib ute d c a p ita l [P42,000 (a ) + P18,000]………..… 60,000
Diffe re nc e (re va lua tio n/ g o o d w ill ) …………………..…………….P 12,000
*The o ld p a rtne r’ s to ta l c o ntrib ute d c a p ita l o f P42,000 sho uld no t b e use d a s a b a sis b e c a use it
w ill re sult to a ne g a tive re va lua tio n. In c a se s o f re va lua tio n a nd the re is no sp e c ific a tio n a s to
up w a rd o r d o w nw a rd a d justm e nts, the p re sum p tio n sho uld a lw a ys b e up w a rd . The P18,000 w a s
c a p ita lize d b y ¼ to d e te rmine the va lue o f the p a rtne rship a s a w ho le .
The ne w p a rtne r’ s c o ntrib ute d c a p ita l is e q ua l to the a g re e d c a p ita l, the d iffe re nc e o f P12,000 in (a )
is a ttrib uta b le to re va lua tio n (g o o d w ill) to o ld p a rtne rs:

J’ s a g re e d c a p ita l……………………………………………………… 18,000
Re va lua tio n/ g o o d w ill to ne w p a rtne r……….……………………...P -0-

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O the r a sse ts…………………………………………………….... 6,000

G , c a p ita l (P6,000 x 60%)…………………………….. 3,600
H, c a p ita l (P6,000 x 40%)…………………………….. 2,400
C a sh……………………………………………………………….. 18,000
Asse ts (g o o d will)………………………………………………… 12,000
J, c a p ita l ……………..…………………………………. 18,000
G , c a p ita l (P12,000 x 60%)…………………………… 7,200
H, c a p ita l (P12,000 x 40%)……………………………. 4,800
l: Re va lua tio n (G o o d will) to Ne w Pa rtne r with Re va lua tio n A m o unt G ive n.

To ta l a g re e d c a p ita l (TC C , P60,000 + P7,200, g o o d w ill) ……….P 67,200

Diffe re nc e (re va lua tio n/ g o o d w ill ) …………………..……………..P 7,200
is a ttrib uta b le to re va lua tio n (g o o d w ill) to ne w p a rtne r:

J’ s a g re e d c a p ita l: (P24,000 + P7,200)……………………………… 31,200
Re va lua tio n/ g o o d w ill to ne w p a rtne r……….……………………..P 7,200
C a sh……………………………………………………………….. 24,000
Asse ts (g o o d will)………………………………………………… 7,200
J, c a p ita l ……………..…………………………………. 31,200
To re c o rd the a d m issio n o f J.
m : Withdra wa ls Inste a d o f Re va lua tio n.

The to ta l c o ntrib ute d c a p ita l (TC C ) is g re a te r tha n to ta l a g re e d c a p ita l (TAC ), so it sho uld ha ve
b e e n a ne g a tive re va lua tio n. Sinc e the re w a s a n ind ic a tio n tha t c a p ita l b a la nc e s sho uld e q ua l to
the p ro fit a nd lo ss (o ld o r ne w ) ra tio , the n the d iffe re nc e sho uld b e c o nsid e re d a s w ithd ra w a ls (if it is
a p o sitive re va lua tio n it sho uld ha ve b e e n a d d itio na l inve stm e nt a nd if the TC C = TAC , it sho uld
ha ve b e e n se ttle m e nt b e tw e e n p a rtne rs) inste a d o f ne g a tive re va lua tio n.
To ta l a g re e d c a p ita l (g ive n)………………………………………...P 48,000
Le ss: To ta l c o ntrib ute d c a p ita l (P24,000 + P12,000 + P24,000).. 60,000
Diffe re nc e (w ithd ra w a ls)……………………………………………..P 12,000
Diffe re nc e ……………………………..………………………………….P -0-

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The w ithd ra w a ls o f P12,000 sho uld b e a ttrib uta b le to the o ld p a rtne rs c o m p ute d a s fo llo w s:
To ta l a g re e d c a p ita l (g ive n)……………………………. P 48,000
Le ss: J’ s a g re e d c a p ita l (P48,000 x 50%)……………… 24,000
To ta l a g re e d c a p ita l o f the o ld p a rtne rs……………… P 24,000
Le ss: G ’ s a g re e d c a p ita l (P24,000 x 60%)………………P 14,400
H’ s a g re e d c a p ita l (P24,000 x 40%)……………… 9,600 24,000
G ’ s w ithd ra w a l: P24,000 – P14,400……………………… P 9,600

H’ s w ithd ra w a l: P12,000 – P9,600……………………….. P 2,400

C a sh (P24,000 – P12,000)………………………………………. 12,000
G , c a p ita l…………………………………………………………. 9,600
H, c a p ita l………………………………………………………….. 2,400
J, c a p ita l ……………..…………………………………. 24,000
n: Bo nus a nd Re va lua tio n (G o o dwill) Whe n No t Sp e c ific a lly Sta te d .

n.1: Re va lua tio n (G o o dwill) o r Bo nus to Ne w Pa rtne r.
n.1.1: Bo nus Appro a c h.
The to ta l c o ntrib ute d c a p ita l (TC C ) is e q ua l to the to ta l a g re e d c a p ita l (TAC ), so no re va lua tio n
To ta l a g re e d c a p ita l (sho uld e q ua l to TC C ,

Diffe re nc e ……………………………..…………………..…………….P -0-
The ne w p a rtne r’ s c o ntrib ute d c a p ita l is le ss tha n the a g re e d c a p ita l, the d iffe re nc e is
a ttrib uta b le to b o nus to ne w p a rtne r:
J’ s c o ntrib ute d c a p ita l (g ive n).……………………………………...P 18,000

Diffe re nc e (b o nus to ne w p a rtne r)..………………………………..P 3,600
C a sh………………………………………………………………..18,000
G , c a p ita l (P3,600 x 60%)……………………………………… 1,260
H, c a p ita l (P3,600 x 40%)………………………………………. 1,440
J, c a p ita l ……………..…………………………………. 21,600
n.1.2: Re va lua tio n (G o o dwill) Appro a c h.

To ta l a g re e d c a p ita l:
(P24,000 + P12,000) / (100% - 40%)…………………………...P 60,000
Diffe re nc e (re va lua tio n/ g o o d w ill).…………………..…………….P 6,000

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The ne w p a rtne r’ s c o ntrib ute d c a p ita l is le ss tha n the a g re e d c a p ita l, the d iffe re nc e o f P6,000 in
(a ) is a ttrib uta b le to re va lua tio n (g o o d w ill) to ne w p a rtne r:
J’ s c o ntrib ute d c a p ita l (g ive n).…………………………………….P 18,000

J’ s a g re e d c a p ita l: (P60,000 x 40%)……………………………….. 24,000
Diffe re nc e (re va lua tio n/ g o o d w ill to ne w p a rtne r)..…………...P 6,000
C a sh………………………………………………………………..18,000
Asse ts (g o o d will)………………………………………………… 6,000
J, c a p ita l ……………..…………………………………. 24,000
The fo llo wing ite m s sho uld b e o b se rve d:

1. The Ne w Pro fit a nd Lo ss Ra tio . The c a p ita l inte re st o f J is 40%, w hile his p ro fit a nd lo ss is 25%, so the
ne w p ro fit a nd lo ss inte re st o f the ne w p a rtne rship is c o m p ute d a s fo llo w s:
____G H _ J____
P & L %: G (60% x 75%)…… 45
H (40% x 75%)…… 30
J ……..…………… 25
2. The C a pita l Ba la nc e s o f the Ne w Pa rtne rs. Afte r a d m issio n o f p a rtne r J, the c a p ita l b a la nc e s o f the
ne w p a rtne rs a re c o m p ute d a s fo llo w s:
Bo nus Ap p ro a c h (to ta l a g re e d c a p ita l)

- re fe r to Alte rna tive 1 a b o ve :
G , c a p ita l (P24,000 – P2,160)………………………………P 21,840

H, c a p ita l (P12,000 – P1,440)……………………………… 10,560
J, c a p ita l…………………………………………………....... 21,600
To ta l……………………………………………………………. P 54,000
Re va lua tio n (g o o d w ill) Ap p ro a c h (to ta l a g re e d c a p ita l)

G , c a p ita l……………………………………………………...P 24,000

H, c a p ita l……………………………………………………… 12,000
J, c a p ita l (P60,000 x 40%)………………………………….. 24,000
To ta l…………………………………………………………….P 60,000

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Sc he dule o f A c c o unt Balanc e s

Asse ts Re va lua tio n = G H J___
Bo nus Ap p ro a c h
Ba la nc e s a fte r a d missio n o f J P 54,000 P -0- P 21,840 P 10,560 P 21,600
P 54,000
Ba la nc e s a fte r a d missio n o f J P 6,000 P 24,000 P 12,000 P 24,000
De p re c ia tio n/ im p a irme nt* ( 6,000) ( 2,700) ( 1,800) ( 1,500)
To ta ls P 54,000 P -0- P 21,300 P 10,200 P 22,500
*ne w pro fit a nd lo ss ra tio (G , 45% ; H, 30% , a nd J, 25% )
The tw o m e tho d s w ill yie ld the sa m e re sults c o m p ute d a s fo llo w s;

C a p ita l__________
G H J__
Ba la nc e s a fte r a d m issio n o f J (Bo nus a p p ro a c h) P 21,840 P10,560 P 21,600
Ba la nc e s a fte r a d m issio n o f J (Re va lua tio n a p p ro a c h) 21,300 10,200 22,500
G a in o r (lo ss) thro ug h use o f b o nus a p p ro a c h P 540 P 360 P( 900)
n.2: Re va lua tio n (G o o dwill) o r Bo nus to O ld Pa rtne rs.

n.2.1: Bo nus Appro a c h.
The to ta l c o ntrib ute d c a p ita l (TC C ) is e q ua l to the to ta l a g re e d c a p ita l (TAC ), so no re va lua tio n
To ta l a g re e d c a p ita l (sho uld e q ua l to TC C ,

Diffe re nc e ……………………………..…………………..…………….P -0-
The ne w p a rtne r’ s c o ntrib ute d c a p ita l is g re a te r tha n the a g re e d c a p ita l, the d iffe re nc e is
J’ s c o ntrib ute d c a p ita l (g ive n).……………………………………...P 18,000

Diffe re nc e (b o nus to o ld p a rtne rs)..…………………………………P 1,800
C a sh………………………………………………………………..18,000
J, c a p ita l ……………..…………………………………. 16,200
G , c a p ita l (P1,800 x 60%)…………………………….. 1,080
H, c a p ita l (P1,800 x 40%)……………………………… 720

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n.2.2: Re va lua tio n (G o o dwill) Appro a c h.

The to ta l c o ntrib ute d c a p ita l (TC C ) is g re a te r tha n the to ta l a g re e d c a p ita l (TAC ), so re va lua tio n
To ta l a g re e d c a p ita l: P18,000 / 30%...............…………………...P 60,000

Diffe re nc e (re va lua tio n/ g o o d w ill).…………………..…………….P 6,000
The ne w p a rtne r’ s c o ntrib ute d c a p ita l is e q ua l to the a g re e d c a p ita l, the d iffe re nc e o f P6,000 in
(a ) is a ttrib uta b le to re va lua tio n (g o o d w ill) to o ld p a rtne rs:
J’ s c o ntrib ute d c a p ita l (g ive n).…………………………………….P 18,000

J’ s a g re e d c a p ita l: (P60,000 x 30%)……………………………….. 18,000
Diffe re nc e ………………………………………………....……………P -0-
C a sh………………………………………………………………..18,000
Asse ts (g o o d will)………………………………………………… 6,000
J, c a p ita l ……………..…………………………………. 18,000
G , c a p ita l (P6,000 x 60%)…………………………….. 3,600
H, c a p ita l (P6,000 x 40%)……………………………… 2,400
1. The Ne w Pro fit a nd Lo ss Ra tio . The c a p ita l inte re st o f J is 30%, w hile his p ro fit a nd lo ss is 40%, so the
ne w p ro fit a nd lo ss inte re st o f the ne w p a rtne rship is c o m p ute d a s fo llo w s:
____G H _ J____
P & L %: G (60% x 60%)…… 36
H (40% x 60%)…… 24
J ……..…………… 40
2. The C a pita l Ba la nc e s o f the Ne w Pa rtne rs. Afte r a d m issio n o f p a rtne r J, the c a p ita l b a la nc e s o f the
ne w p a rtne rs a re c o m p ute d a s fo llo w s:
Bo nus Ap p ro a c h (to ta l a g re e d c a p ita l)

G , c a p ita l (P24,000 + P1,080)…..……………………………P 25,080
H, c a p ita l (P12,000 + P720)………………………………… 12,600
J, c a p ita l…………………………………………………....... 16,200
To ta l……………………………………………………………. P 54,000
Re va lua tio n (g o o d w ill) Ap p ro a c h (to ta l a g re e d c a p ita l)

G , c a p ita l (P24,000 + P3,600)……………………………...P 27,600
H, c a p ita l (P12,000 + P2,400)………………………………. 14,400
J, c a p ita l (P60,000 x 30%)………………………………….. 18,000
To ta l…………………………………………………………….P 60,000

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Sc he dule o f A c c o unt Ba la nc e s

Asse ts Re va lua tio n = G H J___
Ba la nc e s a fte r a d missio n o f J P 54,000 P -0- P 25,080 P 12,720 P 16,200
Ba la nc e s a fte r a d missio n o f J P 54,000 P 6,000 P 27,600 P 14,400 P 18,000
De p re c ia tio n/ im p a irm e nt* ( 6,000) ( 2,160) ( 1,440) ( 2,400)
To ta ls P 54,000 P -0- P 25,440 P 12,960 P 15,600
*ne w pro fit a nd lo ss ra tio (G , 36% ; H, 24% , a nd J, 40% )
The tw o m e tho d s w ill yie ld the sa m e re sults c o m p ute d a s fo llo w s;

C a p ita l__________
G H J__
Ba la nc e s a fte r a d m issio n o f J (Bo nus a p p ro a c h) P 25,080 P 12,720 P 16,200
Ba la nc e s a fte r a d m issio n o f J (Re va lua tio n a p p ro a c h) 25,440 12,960 15,600
G a in o r (lo ss) thro ug h use o f b o nus a p p ro a c h P( 360) P( 240) P 600
Pro b le m IV
1. Pho e nix, C a p ita l 22,500
Da lla s, C a p ita l 22,500
2. Pho e nix, C a p ita l 18,000

Tuc so n, C a p ita l 10,000
3. C a sh 60,000
Pho e nix, C a p ita l (P60,000 - P40,000) × .50 10,000
(P90,000 + P50,000) + P60,000 = P200,000; The re fo re , no g o o d w ill is to b e re c o g nize d .

Da lla s, c a p ita l = P200,000 × 0.20 = P40,000
4. G o o d w ill 20,000
Pho e nix, C a p ita l 10,000
P40,000/ 0.20 = P200,000

G o o d w ill = P200,000 - (P90,000 + P50,000 + P40,000) = P$20,000
C a sh 40,000

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Pro b le m V
1. Bo o k va lue o f inte re st a c q uire d = (P180,000 + P90,000) × 1/ 3 = $90,000
Bo nus Me tho d
C a sh 90,000
Mo o re , C a p ita l 90,000
2. Bo o k va lue o f inte re st a c q uire d = (P180,000 + P120,000) × 0.45 = P135,000

Bo o k va lue o f inte re st is g re a te r tha n a sse ts inve ste d .
Bo nus Me tho d
C a sh 120,000
Bro w n, C a p ita l (0.60 × P15,000) 9,000
C o ss, C a p ita l (0.40 × P15,000) 6,000
The g o o d w ill m e tho d is no t a p p lic a b le b e c a use the p a rtne rs a g re e d to to ta l c a p ita l inte re st o f P300,000.
1
3. Bo o k va lue o f inte re st a c q uire d (P180,000 + P120,000) × = P100,000
3
Bo nus m e tho d c a nno t b e use d b e c a use Mo o re w ill no t a c c e p t le ss tha n P120,000 c a p ita l inte re st.
G o o d w ill Me tho d
To ta l c a p ita l im p lie d fro m c o ntra c t [P120,000/ (1/ 3)] P360,000
Minus c urre nt c a p ita l b a la nc e + Mo o re 's inve stm e nt (P180,000 + P120,000) 300,000
G o o d w ill P60,000
G o o d w ill 60,000
Bro w n, C a p ita l (0.60 × P60,000) 36,000
C o ss, C a p ita l (0.40 × P60,000) 24,000
C a sh 120,000
4. Bo o k va lue o f inte re st a c q uire d (P180,000 + P40,000) × ¼ = P55,000

Bo o k va lue o f inte re st a c q uire d is g re a te r tha n a sse ts inve ste d .
Bo nus Me tho d
C a sh 40,000
Bro w n, C a p ita l (0.60 × P15,000) 9,000
C o ss, C a p ita l (0.40 × P15,000) 6,000
5. Bo o k va lue o f inte re st a c q uire d (P180,000 + P35,000) × 0.20 = P43,000

Bo o k va lue o f inte re st a c q uire d is g re a te r tha n the a sse t inve ste d .

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To ta l c a p ita l P225,000
Minus re c o rd e d va lue o f ne t a sse ts + Mo o re 's inve stm e nt (P180,000 + P35,000) 215,000
C a sh 35,000
G o o d w ill 10,000
6. Bo o k va lue o f inte re st a c q uire d (P180,000 + P150,000) × (1/ 3) = P110,000

Bo o k va lue o f inte re st a c q uire d is le ss tha n a sse t inve ste d .
Bo nus Me tho d
La nd 150,000
Bro w n, C a p ita l (0.60 × P40,000) 24,000
C o ss, C a p ita l (0.40 × P40,000) 16,000
Ne t va lue o f firm im p lie d b y c o ntra c t [P150,000/ (1/ 3)] P450,000
Minus c urre nt c a p ita l + Mo o re 's inve stm e nt (P180,000 + P150,000) 330,000
G o o d w ill 120,000
Bro w n, C a p ita l (0.60 × P120,000) 72,000
C o ss, C a p ita l (0.40 × P120,000) 48,000
La nd 150,000
7. Bo nus Me tho d
Bro w n, C a p ita l (0.30 × P92,000) 27,600
C o ss, C a p ita l (0.30 × P88,000) 26,400
Pro b le m s- VI
1. (a ) G o o d w ill m e tho d :
C a sh………………………………………………………… 5,000
G o o d w ill…………………………………………………… 4,200
Ma so n, C a p ita l………………………………………… 2,520
No rris, C a p ita l………………………………………….. 1,680
O ste r, C a p ita l………………………………………….. 5,000
C o m p uta tio n o f g o o d w ill:

To ta l c a p ita l a fte r a d justm e nt fo r g o o d w ill,
P5,000 / .25…………………………………………….. P20,000
To ta l c a p ita l b e fo re a d justm e nt fo r g o o d w ill….. 15,800
G o o d w ill a llo w e d o ld p a rtne rs……………………..P 4,200

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Distrib utio n o f g o o d w ill:

Ma so n: 3/ 5 o f P4,200…………………………………P 2,250
No rris: 2/ 5 o f P4,200…………………………………… 1,680
P 4,200
(b ) Bo nus m e tho d :
C a sh………………………………………………………… 5,000
Ma so n, C a p ita l………………………………………… 630
No rris, C a p ita l………………………………………….. 420
O ste r, C a p ita l………………………………………….. 3,950
C o m p uta tio n o f b o nus:
Am o unt inve ste d b y O ste r………………………….. P 5,000
O ste r’ s inte re st, 25% o f P 15,800………………..….. 3,950
Bo nus a llo w e d o ld p a rtne rs………………………… P 1,050
Distrib utio n o f b o nus:
Ma so n: 3/ 5 o f P1,050…………………………………. P 630
No rris: 2/ 5 o f P1,050…………………………………… 420
P 1,050
(c ) The b o nus m e tho d w ill b e p re fe rre d b y O ste r, w ho w ill g a in P350. No rris w ill g a in P140,
w hile Ma so n will lo se P490.
C O MPARISO N WHEN G O O DWILL IS FO UND TO EXIST
Go o d- O the r Ma so n No rris O ste r

w ill__ Asse ts C a p ita l C a p ita l C a p ita l
Whe n g o o d w ill m e tho d is use d ….. P4,200 P15,800 P8,520 P6,480 P5,500
Whe n b o nus m e tho d is use d ……… P15,800 P6,630 P5,220 P3,950
Ad d re c o g nitio n o f g o o d w ill
(g a in d istrib ute d in p ro fit a nd lo ss
ra tio , e q ua lly)………………………. P4,200 1,400 1,400 1,400
P4,200 P15,800 P8,030 P6,620 P5,350
G a in (lo ss) thro ug h use o f
b o nus m e tho d ………………………. (P 490) P 140 P350
C O MPARISO N WHEN G O O DWILL IS NO T REALIZED

De d uc t w rite -o ff o f g o o d w ill
(lo ss d istrib uta b le e q ua lly)………… P4,200 1,400 1,400 1,400
P15,800 P7,120 P5,080 P3,600
G a in (lo ss) thro ug h use o f b o nus m e tho d …………………… (P 490) P 140 P350
2. (a ) G o o d w ill m e tho d :
C a sh………………………………………………………… 5,000
G o o d w ill…………………………………………………… 2,200
O ste r, C a p ita l………………………………………….. 7,200

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C o m p uta tio n o f g o o d w ill:

To ta l c a p ita l a fte r a d justm e nt fo r g o o d w ill,
P10,800 / .60…………………………………………….P18,000
To ta l c a p ita l b e fo re a d justm e nt fo r g o o d w ill….. 15,800
G o o d w ill a llo w e d to O ste r………………………….. P 2,200
(b )Bo nus m e tho d :

C a sh………………………………………………………… 5,000
Ma so n, C a p ita l…………………………………………… 792
No rris, C a p ita l…………………………………………….. 528
O ste r, C a p ita l………………………………………….. 6,320
C o m p uta tio n o f b o nus:
O ste r’ s inte re st, 40% o f P 15,800………………..….. 6,320
Am o unt inve ste d b y O ste r………………………….. P 5,000
Bo nus a llo w e d to O ste r……………………………… P 1,320
C ha rg e to p a rtne rs fo r b o nus a llo w e d to O ste r:
Ma so n: 3/ 5 o f P1,320…………………………………. P 792
No rris: 2/ 5 o f P1,320…………………………………… 528
P 1,320
(c ) The g o o d w ill m e tho d w ill b e p re fe rre d b y O ste r, w ho w ill g a in P146.66. No rris’ lo ss is

P205.33, a nd Ma so n’ s g a in is P58.67.
C O MPARISO N WHEN G O O DWILL IS FO UND TO EXIST

Ad d re c o g nitio n o f g o o d w ill
(g a in d istrib ute d in p ro fit a nd lo ss
ra tio , e q ua lly)………………………. P2,200 733.33 733.33 733.34
P2,200 P15,800 P5,941.33 P5,005.33 P7,053.34
b o nus m e tho d ………………………. (P 58.67) P 205.33 (P146.66)
C O MPARISO N WHEN G O O DWILL IS NO T REALIZED

Whe n g o o d w ill m e tho d is use d ….. P2,200 P15,800 P6,000 P4800 P7,200
De d uc t w rite -o ff o f g o o d w ill
(lo ss d istrib uta b le e q ua lly)………… P2,200 733.33 733.33 733.34
P15,800 P5,266.67 P4,066.67 P6,466.66
b o nus m e tho d ………………………. (P58.67) P205.33 (P146.66)

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Pro b le m VII
1. The to ta l inte re st o f the re tiring p a rtne r K a m o unte d to :
C a p ita l inte re st………………………………………………….P 36,000
Ad d (d e d uc t):
Sha re in ne t inc o m e …………………………………….. 7,200
Lo a n re c e iva b le ………………………………………….( 6,000)
To ta l Inte re st o f K b e fo re his re tire m e nt............................P 37,200
2.
a . Pa ym e nt a t Bo o k Va lue (Se ttle m e nt p ric e is e q ua l to the inte re st o f re tiring p a rtne r).
K, c a p ita l…………………………………………………………. 37,200
C a sh………………………….………………………….. 37,200
b . Pa ym e nt a t Mo re tha n Bo o k Va lue ((Se ttle me nt p ric e is g re a te r tha n the inte re st o f re tiring p a rtne r).
b .1. Bo nus to Re tiring Pa rtne r. The e xc e ss is c o nsid e re d b o nus c ha rg e a b le to L a nd M.
K, c a p ita l…………………………………………………………. 37,200
L, c a p ita l (P4,800 x 5/7)……………………………………….. 3,429
M, c a p ita l (P4,800 x 2/7)………………………………………. 1,371
C a sh………………………….………………………….. 42,000
Am o unt p a id ………………………..………………………….. P 42,000

Le ss: BV o f K’ s to ta l inte re st (30%).……..……..................... 37,200
Bo nus to Re tiring Pa rtne r……………………………………… P 4,800

1. It sho uld b e o b se rve d tha t und e r b o nus a p p ro a c h, und e rva lua tio n o f ne t a sse ts sho uld no t b e
re c o rd e d fo r this w ill b e in c o ntra d ic tio n o f c urre nt a c c o unting sta nd a rd s.
2. The c a p ita l b a la nc e s o f the p a rtne rs a fte r the re tire m e nt o f K a re a s fo llo w s:

L, c a p ita l (P48,000 + P12,000, p ro fit – P3,429, b o nus)………………P56,571
M, c a p ita l (P18,000 + P4,800 p ro fit – P1,371, b o nus)……………….. 21,429
Assum ing the sa m e d a ta , e xc e p t that b y m utual ag re e m e nt the inve nto ry is to b e a d juste d to the ir
fa ir va lue . The n, the und e rva lue d a sse t sho uld b e re c o rd e d first b e fo re the se ttle m e nt.

Inve nto ry………………………………………………………… 4,800
K, c a p ita l (P4,800 x 30%)……………………………. 1,440
L, c a p ita l (P4,800 x 50%)…………………………….. 2,400
M, c a p ita l (P4,800 x 20%)…………………………… 960
K, c a p ita l………………………………………………………….38,640
L, c a p ita l (P3,360 x 5/7)……………………………………….. 2,400
M, c a p ita l (P3,360 x 2/7)……………………………………… 960
C a sh………………………….…………………………. 42,000
Am o unt p a id ………………………..…………………………... P 42,000

Le ss: BV o f K’ s to ta l inte re st (30%) - (P37,200 + P1,440).... 38,640
Bo nus to Re tiring Pa rtne r……………………………………… P 3,360

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b .2: Pa rtia l Re va lua tio n (G o o dwill) to Re tiring Pa rtne r.

Inve nto ry………………………………………………………… 4,800
K, c a p ita l (P4,800 x 30%)…………………………….. 1,440
L, c a p ita l (P4,800 x 50%)…………………………….. 2,400
M, c a p ita l (P4,800 x 20%)……………………………. 960
K, c a p ita l…………………………………………………………. 38,640

Asse ts (G o o d will)……………………………………………….. 3,360
C a sh………………………….………………………….. 42,000
Am o unt p a id ………………………..………………………….. P 42,000

Le ss: BV o f K’ s to ta l inte re st (30%) - P37,200 + P1,440........ 38,640
Pa rtia l re va lua tio n (g o o d w ill) to Re tiring Pa rtne r………… P 3,360

1. So m e a rg ue tha t, in a c c o rd a nc e w ith the c o st b a sis, o nly the re va lua tio n (g o o d w ill) o f P3,360 tha t ha s
b e e n p urc ha se d sho uld b e re c o rd e d .
2. The situa tio n a t b a r is the sa m e situa tio n in a d m issio n b y inve stm e nt C a se 9, tha t re c o g nitio n o f
und e rsta te m e nt o f a sse ts is in c o m p lia nc e with G AAP und e r the re va lua tio n (g o o d w ill) a p p ro a c h.

L, c a p ita l (P48,000 + P12,000, p ro fit + P2,400, a d justm e nt).………P62,400
M, c a p ita l (P18,000 + P4,800, p ro fit + P960 a d justm e nt)…….…… 23,760
A m o difie d ve rsio n o f this p artial re valuatio n (g o o dwill) ap p ro ac h ha p p e ns a ssum ing tha t w he n asse ts
and liab ilitie s are re value d o nly to the e xte nt o f the e xc e ss p ay m e nt to K, the e ntry to re c o rd the
tra nsa c tio n is a s fo llo w s:
K, c a p ita l…………………………………………………………. 37,200

Asse ts ……………)………………………………………………. 4,800
C a sh………………………….………………………….. 42,000
Am o unt p a id ………………………..………………………….. P 42,000

Le ss: BV o f K’ s to ta l inte re st (30%)……………………......... 37,200
Pa rtia l re va lua tio n (g o o d w ill) to Re tiring Pa rtne r………… P 4,800
b .3: To ta l Re va lua tio n (G o o dwill) to Re tiring Pa rtne r.

Inve nto ry………………………………………………………… 4,800
K, c a p ita l (P4,800 x 30%)…………………………….. 1,440
L, c a p ita l (P4,800 x 50%)…………………………….. 2,400
M, c a p ita l (P4,800 x 20%)……………………………. 960
The e xc e ss is c o nsid e re d a s re va lua tio n (g o o d w ill) to b e re c o g nize d .

Asse ts (G o o d will)……………………………………………….. 11,200
K, c a p ita l (P11,200 x 30%)…………………………….. 3,360
L, c a p ita l (P11,200 x 50%)…………………………….. 5,600
M, c a p ita l (P11,200 x 20%)……………………………. 2,240

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Am o unt p a id ………………………..………………………….. P 42,000

Le ss: BV o f K’ s to ta l inte re st (30%) - P31,000 + P1,200....... 36,640
Pa rtia l re va lua tio n (g o o d w ill) to Re tiring Pa rtne r………… P 3,360*
Divid e d b y (c a p ita lize d a t): Pro fit a nd lo ss % o f K............. 30%
To ta l Re va lua tio n (g o o d w ill)…………………………………. P 11,200
*The P3,360 re p re se nts K’s 30% inte re st in re va lua tio n (g o o d will) o f P11,200. No tic e tha t the P3,360 re p re se nts K’s
inte re st in the g a in, whic h wo uld b e re a lize d if the re va lua tio n (g o o d will) we re so ld . The re fo re , K’s p e rc e nta g e is
use d to sug g e st the to ta l va lue o f the re va lua tio n (g o o d will).
K, c a p ita l (P 38,640 + P3,360)…………………………………. 42,000

C a sh………………………….………………………….. 42,000

1. Whe the r p a rt o r a ll o f the g o o d w ill is re c o g nize d , o p p o ne nts o f this p ro c e d ure c o nte nd tha t
tra nsa c tio ns b e tw e e n p a rtne rs sho uld no t b e vie w e d a s a rm ’ s le ng th; the re fo re , the m e a sure o f
re va lua tio n (g o o d w ill) m a y no t b e d e te rm ine d o b je c tive ly. Also , ine q uita b le re sults m a y b e p ro d uc e d if
the re m a ining p a rtne rs sub se q ue ntly c ha ng e d the ir p ro fit a nd lo ss ra tio .

L, c a p ita l (P48,000 + P12,000, p ro fit + P2,400, a d justm e nt + P5,600).P68,000
M, c a p ita l (P18,000 + P4,400, p ro fit + P960 a d justm e nt + P2,240)….. 26,000
Fo r p urp o se s o f c o m p a riso n, le t us assum e that the re is no unde rvalue d inve nto ry am o unting to P4,800 in
C a se 2 a b o ve . Re fe r to the fo llo w ing sc he d ule fo r c o m p a riso n.
Sc he dule o f A c c o unt Ba la nc e s
G o o d w ill/ Asse t C a p ita l__________

Re va lua tio n L M_____
Ba la nc e s a fte r re tire m e nt o f K P -0- P 56,571 P 21,429
Pa rtia l Re va lua tio n (G o o d w ill) Ap p ro a c h

Ba la nc e s a fte r re tire m e nt o f K* P 4,800** P 60,000 P 22,800
De p re c ia tio n/ im p a irme nt*** ( 4,800) ( 3,429) ( 1,371)
To ta ls P -0- P 58,971 P 21,429
*e xc lud ing und e rva lue d inve nto ry o f P2,400 a nd P960 fo r L a nd M, re sp e c tive ly.
** P42,000 – P37,200 = P4,800, p a rtia l re va lua tio n
*** o ld p ro fit a nd lo ss ra tio (L, 5/ 7 a nd M, 2/ 7)
To ta l Re va lua tio n (G o o d w ill) Ap p ro a c h

Ba la nc e s a fte r re tire m e nt o f K* P 16,000** P 68,000 P 26,000
De p re c ia tio n/ im p a irme nt*** ( 16,000) ( 11,429) ( 4,571)
To ta ls P -0- P 56,571 P 21,429
*e xc lud ing und e rva lue d inve nto ry o f P2,400 a nd P960 fo r L a nd M, re sp e c tive ly.
** P42,000 – P37,200 = P4,800, p a rtia l re va lua tio n / 30% = P16,000.
L, c a p ita l: (P48,000 + P12,000) + (P16,000 x 50%) = P68,000
M, c a p ita l: (P18,000 + P4,800) + (P16,000 x 20%) = P 26,000
*** o ld p ro fit a nd lo ss ra tio (L, 5/ 7 a nd M, 2/ 7)

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The thre e m e tho d s w ill yie ld the sa m e re sults c o m p ute d a s fo llo w s;

To ta l_______
L M__
Ba la nc e s a fte r re tire m e nt o f K (Bo nus a p p ro a c h) P 56,571 P 21,249
Ba la nc e s a fte r re tire m e nt o f K (Pa rtia l Re va lua tio n a p p ro a c h) P 56,571 P 21,249
Ba la nc e s a fte r re tire m e nt o f K (To ta l Re va lua tio n a p p ro a c h) P 56,571 P 21,249
c : Pa ym e nt a t Le ss tha n Bo o k Va lue ((Se ttle m e nt p ric e is le ss tha n the inte re st o f re tiring pa rtne r) .
c .1. Bo nus to Re m a ining Pa rtne rs. The e xc e ss is c o nsid e re d b o nus c ha rg e a b le to L a nd M.
K, c a p ita l…………………………………………………………. 37,200

C a sh………………………….………………………….. 31,200
L, c a p ita l (P6,000 x 5/7)………………………………. 4,286
M, c a p ita l (P6,000 x 2/7)……………………………… 1,714
Am o unt p a id ………………………..…………………………… P 31,200

Le ss: BV o f K’ s to ta l inte re st (30%).……..……..................... 37,200
Bo nus to Re m a ining Pa rtne rs…………………………………. P 6,000
The c a p ita l b a la nc e s o f the p a rtne rs a fte r the re tire m e nt o f K a re a s fo llo w s:

L, c a p ita l (P48,000 + P12,000, p ro fit + P4,286, b o nus)……………..P64,286
M, c a p ita l (P18,000 + P4,800 p ro fit + P1,714, b o nus)……………….. 24,514
c .2: Pa rtia l Re va lua tio n/ Write - do wn o f Sp e c ific Asse ts (Sha re o f Re tiring Pa rtne r) .
K, c a p ita l…………………………………………………………. 37,200

Sp e c ific Asse t…..……………………………………… 6,000
C a sh………………………….………………………….. 31,200
Am o unt p a id ………………………..…………………………… P 31,200

Le ss: BV o f K’ s to ta l inte re st (30%)………………………....... 37,200
Pa rtia l re va lua tio n/ w rite -d o w n o f sp e c ific a sse ts……..… P 6,000

L, c a p ita l (P48,000 + P12,000, p ro fit)………………………….………P60,000
M, c a p ita l (P18,000 + P4,800, p ro fit)…………………………….…… 22,800
c .3: To ta l Re va lua tio n/ Write - do wn o f Asse ts (Entire Entity) .

K, c a p ita l (P20,000 x 30%)…………………………………...... 6,000
L, c a p ita l (P20,000 x 50%)………………………………………10,000
M, c a p ita l (P20,000 x 20%)……………………………………. 4,000
Asse ts……………………………………………………. 20,000
To re c o rd w rite -d o w n o f a sse ts c o m p ute d a s fo llo w s:
Am o unt p a id ………………………..…………………………….P 31,200
Le ss: BV o f K’ s to ta l inte re st (30%)………………………........ 37,200
Pa rtia l re va lua tio n/ w rite -d o w n o f a sse t……………………..P 6,000*
Divid e d b y (c a p ita lize d a t): Pro fit a nd lo ss % o f K............ 30%
To ta l Re va lua tio n/ Write -d o w n o f a sse ts….………………….P 20,000

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*The P6,000 re p re se nts K’ s 30% inte re st in write -d o wn o f a sse ts o f P20,000. No tic e tha t the P6,000 re p re se nts
K’ s inte re st in the lo ss.
K, c a p ita l (P 37,200 - P6,000)………………………………. 31,200

C a sh………………………….………………………... 31,200

L, c a p ita l (P48,000 + P12,000, p ro fit – P10,000)…………………………...P50,000
M, c a p ita l (P18,000 + P4,800, p ro fit - P4,000)……………………….….. 18,800
Asse ts (G o o d will)……………………………………………….. 11,200

K, c a p ita l (P11,200 x 30%)…………………………….. 3,360
L, c a p ita l (P11,200 x 50%)…………………………….. 5,600
M, c a p ita l (P11,200 x 20%)……………………………. 2,240
To re c o rd to ta l re va lua tio n (g o o d w ill) c o m p ute d a s fo llo w s:
Am o unt p a id ………………………..………………………….. P 42,000
Le ss: BV o f K’ s to ta l inte re st (30%) - P31,000 + P1,200....... 38,640
Pa rtia l re va lua tio n (g o o d w ill) to Re tiring Pa rtne r………… P 3,360*
Divid e d b y (c a p ita lize d a t): Pro fit a nd lo ss % o f K............. 30%
To ta l Re va lua tio n ……………………………………………….. 11,200
Pro b le m VIII
1. G re y, C a p ita l P200,000 + (P30,000 × 2/ 6) 210,000
Po rtne y, C a p ita l (P20,000 × 3/ 4) 15,000
Ro ss, C a p ita l (P20,000 × 1/ 4) 5,000
C a sh 230,000
2. G o o d will (P20,000 ÷ 2/ 6) 60,000

Po rtne y, C a p ita l 30,000
G re y, C a p ita l 20,000
Ro ss, C a p ita l 10,000
G re y, C a p ita l 230,000
C a sh 230,000
Pro b le m IX
1. (a ) C , C a p ita l 105,000
A, C a p ita l 21,000
B, C a p ita l 14,000
C a sh 140,000
(b ) G o o d will 35,000
C , C a p ita l 35,000
C , C a p ita l 140,000
C a sh 140,000
(c ) 0.5X =P35,000
X =P70,000
G o o d will 70,000
A, C a p ita l 21,000
B, C a p ita l 14,000
C , C a p ita l 35,000

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C , C a p ita l 140,000
C a sh 140,000
2. The b o nus me tho d is mo re o b je c tive . Tha t is, the b o nus me tho d d o e s no t re q uire the a llo c a tio n o f a sub je c tive
va lue to g o o d will. Sinc e this is no t a n a rm’ s le ng th tra nsa c tio n, the re is no o b je c tive b a sis to re va lue the firm a s
a who le .
Pro b le m X
(1) Sinc e a d e b it wa s ma d e to Ag le r’ s c a p ita l a c c o unt, a b o nus wa s p a id to the re tiring p a rtne r o f P80,000 (5/ 8
g o o d will = P50,000), re sulting in a to ta l p a yme nt to C o lte r o f P230,000. The e ntry wo uld b e :
Ag le r, C a p ita l 50,000
Ba te s, C a p ita l 30,000
C o lte r, C a p ita l 150,000
C a sh 230,000
(2) Und e r the p a rtia l g o o d will a p p ro a c h, o nly the g o o d will a ttrib ute d to the re tiring p a rtne r is re c o rd e d . Thus, the
p a yme nt to C o lte r wa s P210,000 (P150,000 + P60,000).
Und e r the to ta l G o o d will, sinc e P66,000 wa s c re d ite d , to ta l g o o d will o f P220,000 (P66,000/ 0.3) is re c o rd e d . C o lte r
is a llo c a te d P44,000 (P220,000 × 0.20). Thus, the p a yme nt to C o lte r wa s P194,000 (P150,000 + P44,000).
Pro b le m XI
1. Pa rtne rship Bo o ks Re ta ine d
Entrie s in the Bo o ks o f the Ne w C o rp o ra tio n using the Pa rtne rship Bo o ks:
Inve nto rie s (P36,000 – P 30,600) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,400
Eq uip me nt (P84,000 – P72,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
G o o d will . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
Allo wa nc e fo r Do ub tful Ac c o unts (P1,200 – P720) . . . . . . . . . . . . 480
Ac c umula te d De p re c ia tio n o f Eq uip me nt (P36,600 – P31,200). . 5,400
Ac c rue d e xp e nse s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,320
AA, C a p ita l (P22,200 x 0.80) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,760
BB, C a p ita l (P22,200 x 0.20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,440
To a djust a sse ts a nd lia b ilitie s to a g re e d a mo unts a nd to divide ne t g a in
o f P22,200 b e twe e n p a rtne rs in 4:1 ra tio
AA, C a p ita l (P57,588 + P17,760) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,348

BB, C a p ita l (P19,212 + P4,440) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,652
C o mmo n sto c k (P10 p a r x 9,000 sha re s) . . . . . . . . . . . . . . . . . . . . 90,000
Pa id -in c a p ita l in e xc e ss o f p a r [(P11 – P10) x 9,000 sha re s] . . . . 9,000
To re c o rd distrib utio n o f c o mmo n sto c k o f J & K C o rp o ra tio n to p a rtne rs;
AA: (P57,588 + P17,760) / P11 p e r sha re = 6,850 sha re s
BB: (P19,212 + P4,440) / P11p e r sha re = 2,150 sha re s
To ta l sha re s................................................ 9,000 sha re s
2. Ne w Bo o ks O pe ne d fo r the C o rpo ra tio n

Entrie s in the Bo o ks o f the Pa rtne rship :
Inve nto rie s (P36,000 – P 30,600) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,400
Eq uip me nt (P84,000 – P72,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
G o o d will . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
Allo wa nc e fo r Do ub tful Ac c o unts (P1,200 – P720) . . . . . . . . . . . . 480
Ac c umula te d De p re c ia tio n o f Eq uip me nt (P36,600 – P31,200). . 5,400
Ac c rue d e xp e nse s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,320
AA, C a p ita l (P22,200 x 0.80) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,760
BB, C a p ita l (P22,200 x 0.20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,440
To a djust a sse ts a nd lia b ilitie s to a g re e d a mo unts a nd to divide ne t g a in
o f P22,200 b e twe e n p a rtne rs in 4:1 ra tio
Re c e iva b le fro m A&B C o rp o ra tio n (P76,800 + P22,200) . . . . . . . . . . 99,000

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Ac c o unts Pa ya b le . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000
Ac c rue d e xp e nse s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,320
Allo wa nc e fo r Do ub tful Ac c o unts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Ac c umula te d De p re c ia tio n o f Eq uip me nt . . . . . . . . . . . . . . . . . . . . . 36,600
C a sh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,400
Ac c o unts Re c e iva b le . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,720
Inve nto rie s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000
Eq uip me nt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,000
G o o d will . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
To re c o rd tra nsfe r o f a sse ts a nd lia b ilitie s to A&B C o rp o ra tio n.
C o mmo n Sto c k o f A & B C o rp o ra tio n (9,000 sha re s x P11) . . . . . . . 99,000

Re c e iva b le fro m A & B C o rp o ra tio n . . . . . . . . . . . . . . . . . . . . . . . 99,000
To re c o rd re c e ip t o f 9,000 sha re s o f P10 p a r c o mmo n sto c k
va lue d a t P11 a sha re in p a yme nt fo r ne t a sse ts tra nsfe rre d to A
& B C o rp o ra tio n.
AA, C a p ita l (P57,588 + P17,760) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,348

BB, C a p ita l (P19,212 + P4,440) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,652
C o mmo n Sto c k o f J & K C o rp o ra tio n . . . . . . . . . . . . . . . . . . . . . . . 99,000
To re c o rd distrib utio n o f c o mmo n sto c k o f J & K C o rp o ra tio n to p a rtne rs;
AA: (P57,588 + P17,760) / P11 p e r sha re = 6,850 sha re s
BB: (P19,212 + P4,440) / P11p e r sha re = 2,150 sha re s
To ta l sha re s................................................ 9,000 sha re s
In the A c c o unting Re c o rds o f the C o rpo ra tio n:
Entrie s in the Bo o ks o f the Ne w C o rp o ra tio n:

C a sh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,400
Ac c o unts Re c e iva b le . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,720
Inve nto rie s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000
Eq uip me nt (P84,000 - P36,600). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,400
G o o d will . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
Allo w a nc e fo r Do ub tful Ac c o unts . . . . . . . . . . . . . . . . . . . . . . . . 1,200
Ac c o unts Pa ya b le . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000
Ac c rue d Exp e nse s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,320
Pa ya b le to A & B Pa rtne rship . . . . . . . . . . . . . . . . . . . . . ............. 99,000
To re c o rd a c q uisitio n o f a sse ts a nd lia b ilitie s fro m A&B Pa rtne rship .
Pa ya b le to A & B Pa rtne rship . . . . . . . . . . . . . . . . . . . . . . . . . 99,000

C o mmo n sto c k, P10 p a r (9,000 x P10) . . . . . . . . . . . . . . . . . . . . . 90,000
Pa id -In C a p ita l in Exc e ss o f Pa r . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
To re c o rd issua nc e o f 9,000 sha re s o f c o mmo n sto c k va lue d a t
P11 a sha re in p a yme nt fo r ne t a sse ts o f A&B Pa rtne rship .
Pro b le m XII
C a sh 8,700
Tra d e Ac c o unts Re c e iva b le 13,250
Inve nto rie s 28,000
Eq uip m e nt 35,000
Allo w a nc e fo r Do ub tful Ac c o unts 800
No te s Pa ya b le 10,000
Tra d e Ac c o unts Pa ya b le 9,800
Pa ya b le to Sa d e a nd Tip p 64,350
To re c o rd a c q uisitio n o f ne t a sse ts fro m Sa d e & Tip p LLP.

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Pa ya b le to Sa d e a nd Tip p 64,350
C o m m o n Sto c k, P1 p a r 10,000
Pa id -in C a p ita l Exc e ss o f Pa r 54,350
To re c o rd issua nc e o f 10,000 sha re s o f c o m m o n sto c k to
Sa d e a nd Tip p .
Pro b le m XII
1. C a sh 20,000
Inve nto ry 15,000
Eq uip m e nt 67,000
Sno w , C a p ita l 102,000
C a sh 50,000
La nd 120,000
Mo rtg a g e Pa ya b le 40,000
Wa ite , C a p ita l 130,000
2. Sno w , C a p ita l 7,680
Wa ite , C a p ita l 16,320
Inc o m e Sum m a ry 24,000
Sno w Wa ite To ta l
Ne t lo ss to b e a llo c a te d
Inte re st o n c a p ita l inve stm e nt
P102,000 × 10% P10,200
P130,000 × 10% P13,000 P23,200
Sa la rie s to p a rtne rs 15,000 20,000 35,000
58,200
Allo c a tio n 40:60 (32,880) (49,320) (82,200)
Ne t lo ss a llo c a te d to p a rtne rs P(7,680) P(16,320) P(24,000)
3. C a sh 70,000
Sno w , C a p ita l (P13,400 × 40%) 5,360
Wa ite , C a p ita l (P13,400 × 60%) 8,040
Yo ung , C a p ita l 83,400
C a p ita l inte re st o f Sno w (P102,000 - P7,680) P94,320

C a p ita l inte re st o f Wa ite (P130,000 - P16,320) 113,680
Inve stm e nt o f Yo ung 70,000
To ta l c a p ita l inte re st in ne w p a rtne rship 278,000
Pe rc e nta g e a c q uire d b y Yo ung 30%
C a p ita l inte re st o f Yo ung 83,400
Inve stm e nt b y Yo ung (70,000)
Bo nus to Yo ung P13,400
4. Inc o m e Sum m a ry 150,000

Sno w , C a p ita l (P150,000 × 20%) 30,000
Wa ite , C a p ita l (P150,000 × 50%) 75,000
Yo ung , C a p ita l (P150,000 × 30%) 45,000
5. Sno w , C a p ita l* 118,960

Wa ite , C a p ita l (P18,960 × 50/ 80) 11,850

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Yo ung , C a p ita l (P18,960 × 30/ 80) 7,110

C a sh 40,000
No te Pa ya b le 60,000
*P102,000 - P7,680 - P5,360 + P30,000 = P118,960
Pro b le m XIV
1. c
No te : A p a rtne rship is no t d isso lve d whe n a p a rtne r a ssig ns his o r he r inte re st in the p a rtne rship to a third p a rty
b e c a use suc h a n a ssig nme nt d o e s no t in itse lf c ha ng e the re la tio ns a mo ng p a rtne rs. Suc h a ssig nme nt o nly
e ntitle s the a ssig ne e to re c e ive the a ssig ning inte re st p a rtne r’ s inte re st in future p a rtne rship p ro fits a nd in
p a rtne rship a sse ts in the e ve nt o f liq uid a tio n. The a ssig ne e d o e s no t b e c o me a p a rtne r, ho we ve r, a nd d o e s no t
o b ta in the rig ht to sha re in ma na g e me nt o f the p a rtne rship . If the a ssig ne e d o e s no t b e c o me a p a rtne r, the
o nly c ha ng e re q uire d o n the p a rtne rship b o o ks is fo r tra nsfe r o f the c a p ita l inte re st o f the a ssig no r p a rtne r to the
a ssig ne e . The a ssig nme nt b y A to D o f his 50% inte re st in the BIG Ente rta inme nt C o mp a ny is re c o rd e d a re
fo llo ws:
A, C a p ita l (P168,000 x 1/ 4)................................................................. 42,000

D, C a p ita l.............................................................................. 42,000
The a mo unt o f the c a p ita l tra nsfe r is e q ua l to the re c o rd e d a mo unt o f A’ s c a p ita l a t the time o f the
a ssig nme nt, a nd it is ind e p e nd e nt o f the c o nsid e ra tio n re c e ive d b y A fo r his 1/ 4 inte re st. If the re c o rd e d
a mo unt o f A’ s is P42,000, the n the a mo unt o f the tra nsfe r e ntry is P42,000, re g a rd le ss o f whe the r D p a y A P42,000
o r so me a mo unt. The re fo re , the c a p ita l o f the p a rtne rship a fte r the a ssig nme nt o f inte re st re ma ins the sa me a t
P480,000.
2. c
Am o unt p a id ……………………………………………………………………………….P 200,000
Le ss: Bo o k va lue o f inte re st a c q uire d : (P100,000 + P200,000 + P300,000) x 25%.. 150,000
Exc e ss – p a rtia l g o o d w ill…………………………………………………………………P 50,000
Divid e d b y: c a p ita liza tio n ra te b a se d o n inte re st a c q uire d …………………....... 25%
G o o d w ill o r re va lua tio n o f a sse t up w a rd …………………………………………….P 200,000
Je thro : [P200,000 + (P200,000 x 30%)] x 75% = P195,000
3. b
Am o unt p a id P40,000
Le ss: Bo o k va lue o f inte re st a c q uire d :
(P140,000 x ¼) 35,000
Exc e ss P 5,000
C a p ita lize d a t: P&L o f W 1/ 4
G o o d w ill/ re va lua tio n P20,000
E: [P80,000 + (P20,000 x 60%)] x 3/ 4 = P69,000

G : [P40,000 + (P20,000 x 30%)] x 3/ 4 = P34,500
D: [P20,000 + (P20,000 x 10%)] x 3/ 4 = P16,500
4. a
Am o unt p a id ………………………………………………………………………………P 60,000
Le ss: Bo o k va lue o f inte re st a c q uire d : P120,000 x 40%…………………................ 48,000
Diffe re nc e …………..……………………………………………………………………...P 12,000
Divid e d b y: C a p ita l Inte re st…………………………………………………………....... 40%

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G o o d w ill…………………………………………………………………………………….P 30,000
LL: P50,000 + (P30,000 x ½) = P65,000 – (P60,000 x ½) = P35,000

Q Q : P70,000 + (P30,000 x ½) = P85,000 – (P60,000 x ½) = P55,000
DD: Sinc e the re is a n a d justm e nt, the c a p ita l o f the ne w p a rtne r w ill a lw a ys b e the sa m e w ith the
a m o unt p a id , P60,000.
5. d - The a m o unt tha t Ric ha rd w ill p a y Ra y d e p e nd s o n m a ny fa c to rs a nd c a nno t b e d e te rm ine d fro m

the info rm a tio n p ro vid e d he re .
6. b
Le ss: Bo o k va lue o f inte re st a c q uire d
(P444,000 x 1/ 5) 88,800
G a in- p e rso na l (to N, S & J) P 43,200
7. c
To ta l a g re e d c a p ita l* (P74,000 + P130,000 + P96,000)/ 80% ............ P375,000
Le ss: To ta l c o ntrib ute d c a p ita l *...............…………………………..... 375,000
Diffe re nc e .......................................………………..………………….. ..P 0
*sinc e no g o o d w ill o r re va lua tio n is a llo w e d to ta l a g re e d c a p ita l is the sa me w ith to ta l c o ntrib ute d
c a p ita l.
The c o ntrib ute d c a p ita l o r inve stm e nt o f the ne w p a rtne r w ill b e c o m p ute d b a se d o n to ta l
a g re e d c a p ita l.
To ta l c o ntrib ute d c a p ita l………………………………………….. . P375,000
Le ss: To ta l c o ntrib ute d c a p ita l o f o ld p a rtne rs............................ 300,000
Inve stm e nt o r c o ntrib utio n o f ne w p a rtne r..................................P 75,000
o r,
To ta l c o ntrib ute d c a p ita l………………………………………….. . P375,000
Multip lie d b y: C a p ita l inte re st o f Jo ne s (ne w p a rtne r)………... 20%
Inve stm e nt o r c o ntrib utio n o f ne w p a rtne r..................................P 75,000
8. b
To ta l Ag re e d C a p ita l P180,000
Multip lie d b y: Inte re st a c q uire d b y K 1/ 3
Ag re e d c a p ita l o f K P 60,000
C a sh inve stm e nt b y K 50,000
Bo nus to K P 10,000
The re fo re , E= P70,000 – (P10,000 x 70%) = P63,000
D= P60,000 – (P10,000 x 30%) = P57,000
J= P50,000
9. b - To ta l c a p ita l is P200,000 (P110,000 + P40,000 + P50,000) a fte r the ne w inve stm e nt. As Ka nsa s's
p o rtio n is to b e 30 p e rc e nt, the c a p ita l b a la nc e w o uld b e P60,000 (P200,000 × 30%). Sinc e o nly
P50,000 w a s p a id , a b o nus o f P10,000 m ust b e ta ke n fro m the tw o o rig ina l p a rtne rs b a se d o n
the ir p ro fit a nd lo ss ra tio : Bo lc a r –P7,000 (70%) a nd Ne a ry – P3,000 (30%). The re d uc tio n d ro p s
Ne a ry's c a p ita l b a la nc e fro m P40,000 to P37,000.
10. d
To ta l o f o ld p a rtne rs' c a p ita l P 80,000
Inve stm e nt b y ne w p a rtne r 15,000

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To ta l o f ne w p a rtne rship c a p ita l P 95,000

C a p ita l a m o unt c re d ite d to Jo hnso n
(P95,000 x .20) P 19,000
11. b
LL inve sts P40,000 a nd to ta l c a p ita l sp e c ifie d a s P150,000:
Inve stm e nt in p a rtne rship P 40,000
Ne w p a rtne r's p ro p o rtio na te b o o k va lue
[(P110,000 + P40,000) x 1/ 3] (50,000)
Diffe re nc e (inve stm e nt < b o o k va lue ) P (10,000)
Me tho d : Bo nus o r g o o d w ill to ne w p a rtne r
Sp e c ifie d to ta l re sulting c a p ita l P 150,000

To ta l ne t a sse ts no t inc lud ing g o o d w ill
(P110,000 + P40,000) (150,000)
Estim a te d g o o d w ill P -0-
The re fo re , b o nus o f P10,000 to ne w p a rtne r

Bo ris' c a p ita l = P54,000 = P60,000 - (P10,000 x 6/ 10)
12. a – “ p re fe rab le ac c o unting m e tho d” re fe rs to b o nus m e tho d

To ta l a g re e d c a p ita l = To ta l c o ntrib ute d c a p ita l (und e r the b o nus m e tho d )
(P70,000 + P30,000 + P40,000).......................................................................... P 140,000
Multip lie d b y: inte re st a c q uire d b y ne w p a rtne r.............................................. 20%
C a p ita l o f ne w p a rtne r C ha p m a n...................................................................... P 28,000
Le ss: Inve stm e nt b y C ha p m a n............................................................................. 40,000
Bo nus to o ld p a rtne rs to b e a llo c a te d e q ua lly to o ld p a rtne rs –
Ad a m s a nd Bye ......................................................................................... P 12,000
13. c - [P120,000 - (P170,000 + P260,000 + P120,000)(.25)]
14. c
Sc o tt inve sts P36,000 fo r a 1/ 5 inte re st:
[(P120,000 + P36,000) x .20] (31,200)
Diffe re nc e (inve stm e nt > b o o k va lue ) P 4,800
Me tho d : G o o d w ill to p rio r p a rtne rs

1/ 5 e stim a te d to ta l re sulting c a p ita l P 36,000
Estim a te d to ta l re sulting c a p ita l
(P36,000 / .20) P 180,000
Estim a te d to ta l re sulting c a p ita l P 180,000

To ta l ne t a sse ts no t inc lud ing g o o d w ill
(P120,000 + P36,000) (156,000)
Estim a te d g o o d w ill/ a d justm e nt to p rio r p a rtne rs P 24,000
(Use the sam e pro c e dure in No s. 9 and 10)
15. b - To ta l c a p ita l is P270,000 (P120,000 + P90,000 + P60,000) a fte r the ne w inve stm e nt. Ho w e ve r, the
im p lie d va lue o f the b usine ss b a se d o n the ne w inve stm e nt is P300,000 (P60,000/ 20%). Thus,

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g o o d w ill o f P30,000 m ust b e re c o g nize d w ith the o ffse tting a llo c a tio n to the o rig ina l p a rtne rs
b a se d o n the ir p ro fit a nd lo ss ra tio : Bisho p – P18,000 (60%) a nd C o tto n P12,000 (40%). The
inc re a se ra ise s C o tto n's c a p ita l fro m P90,000 to P102,000.
16. c
To ta l a g re e d c a p ita l* P120,000 / 60% ............................................. P300,000
Multip lie d b y: C a p ita l inte re st o f Jo ne s (ne w p a rtne r)………...... 60%
Ag re e d c a p ita l o f R.............................................................................P180,000
No te : The inve stme nt o f D is use d a s the b a sis to d e te rmine to ta l a g re e d c a p ita l,
o the rwise using the c a p ita l b a la nc e o f D will le a d to a “ ne g a tive ” g o o d will o r
re va lua tio n d o wnwa rd .
17. c
To ta l a g re e d c a p ita l* (P250,000/ 20%)....................................... P 1,250,000
Le ss: To ta l c o ntrib ute d c a p ita l o f R a nd S:
(P500,000 + P400,000 + P40,000) + P250,000................. 1,190,000
G o o d w ill o r re va lua tio n to o ld p a rtne rs................................... P 60,000
Rile y: P500,000 + (P40,000 x 60%) + (P60,000 x 60%) = P560,000
o r,
C o ntrib ute d Ag re e d
C a p ita l C a p ita l G o o d w ill
Rile y [P500,000 + (P40,000 x 60%)] P 524,000 P 560,000 P 36,000 60%
Sm ith [P400,000 + (P40,000 x 40%)] 416,000 24,000 40%
P 940,000 P1,000,000 P 60,000
Tyle r 250,000 250,000 / 20% -0-
To ta l P 1,190,000 P1,250,000 100% P 60,000
18. c
To ta l a g re e d c a p ita l* ................................................................. P 260,000
Le ss: To ta l c o ntrib ute d c a p ita l o f L, M, a nd N
(P120,000 + P70,000 – P30,000 + P60,000) + P40,000.... 260,000
Diffe re nc e ..................................................................................... P 0
To ta l a g re e d c a p ita l P 260,000
Multip lie d b y: Inte re st a c q uire d 20%
C a p ita l c re d ite d to O le P 52,000
o r,
C o ntrib ute d Ag re e d
C a p ita l C a p ita l
O ld Pa rtne rs: (P120,000+P70,00
- P30,000 + P60,000) P 220,000
Ne w Pa rtne r: O le __40,000 P 52,000 20%*
P 260,000 P 260,000 P -0-
* P52,000 is d e rive d fro m m ultip lying P260,000 b y 20%.
No te s:
1. The p a rtne rs a g re e d tha t a sse ts sho uld re va lue d using fa ir va lue .
2. Sinc e p ro b le m is sile nt, b o nus m e tho d is use d .

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19. a - Ad m issio n b y p urc ha se . The im p lie d va lue o f the c o m p a ny is P900,000 (P270,000/ 30%). Sinc e the
m o ne y is g o ing to the p a rtne rs ra the r tha n into the b usine ss, the c a p ita l to ta l is P490,000 b e fo re
re a lig ning the b a la nc e s. He nc e , g o o d w ill o f P410,000 m ust b e re c o g nize d b a se d o n the im p lie d
va lue (P900,000 – P490,000). This g o o d w ill is a ssum e d to re p re se nt unre a lize d b usine ss g a ins a nd is
a ttrib ute d to the o rig ina l p a rtne rs a c c o rd ing to the ir p ro fit a nd lo ss ra tio . The y w ill the n e a c h
c o nve y 30 p e rc e nt o w ne rship o f the P900,000 p a rtne rship to Da rro w fo r a c a p ita l b a la nc e o f
P270,000.
Fo rm a l p re se nta tio n:
Am o unt p a id ………………………….………….. P 270,000 / 30% P900,000 (100%)
(P220,000 + P160,000 + P110,000) x 30%….... 147,000 490,000 (100%)
Exc e ss……………………………………………….. P123,000
Divid e d b y: Inte re st a c q uire d ………………….. 20%
G o o d w ill o r re va lua tio n o f Asse t …………….. P410,000 P410,000 (100%)
The e ntry w o uld b e a s fo llo w s;

G o o d w ill/ Asse t 410,000
Willia m s (40%) 164,000
Je nning s (40%) 164,000
Brya n (20%) 82,000
Willia m s [P220,000 + (P410,000 x 40%)] x 30% 115,200

Je nning s [P160,000 + (P410,000 x 40%)] x 30% 97,200
Brya n [P110,000 + (P410,000 x 20%)] x 30% 57,600
Da rro w 270,000
20. d - Ad m issio n b y inve stm e nt. Sinc e the m o ne y g o e s into the b usine ss, to ta l c a p ita l b e c o m e s
P740,000 (P490,000 + P250,000). Da rro w is a llo tte d 30 p e rc e nt o f this to ta l o r P222,000. Be c a use
Da rro w inve ste d P250,000, the e xtra P28,000 is a ssum e d to b e a b o nus to the o rig ina l p a rtne rs.
Je nning s w ill b e a ssig ne d 40 p e rc e nt o f this e xtra a m o unt o r P11,200. This b o nus inc re a se s
Je nning s’ c a p ita l fro m P160,000 to P171,200.
Fo rm a l p re se nta tio n:
To ta l a g re e d c a p ita l* (sa m e w ith to ta l c o ntrib ute d c a p ita l)…... P740,000
Le ss: To ta l c o ntrib ute d c a p ita l (P220,000 + P160,000 +
P110,000 + P250,000)..............…………………………....... 740,000
Diffe re nc e .......................................………………..………………… ..P 0
*sinc e no g o o d w ill o r re va lua tio n is a llo w e d to ta l a g re e d is the sa me w ith to ta l c o ntrib ute d c a p ita l.
The ne w p a rtne r’ s c o ntrib ute d c a p ita l is e q ua l to the a g re e d c a p ita l, the d iffe re nc e o f P3,600 in
(a ) is a ttrib uta b le to re va lua tio n (g o o d w ill) to o ld p a rtne rs:
Da rro w ’ s c o ntrib ute d c a p ita l………………………………………… P250,000
Da rro w ’ s a g re e d c a p ita l: (P740,000 x 30%)……………………....... 222,000
Bo nus to o ld p a rtne rs ........................………………………………… P 28,000
Je nning s: [P160,000 + (P28,000 x 40%)] = P171,200

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o r, a lte rna tive ly

C o ntrib ute d C a p ita l (C C ) Ag re e d C a p ita l (AC )
W 220,000 11,200 40%
J 160,000 171,200 11,200 40%
B 110,000 _______ 5,600 20%
490,000 518,000 28,000
D 250,000 222,000 30% 28,000
To ta l 740,000 740,000 0
21. d As sp e c ifie d no b o nus o r g o o d w ill re c o g nize d .

5/ 6 e stim a te d to ta l re sulting c a p ita l P 150,000
Estim a te d to ta l re sulting c a p ita l (P150,000 / 5/ 6) 180,000
Re q uire d inve stm e nt (P180,000 x 1/ 6) P 30,000
22. d Dire c t p urc ha se ; re c la ssify C C s c a p ita l o nly (if sile nt – b o o k va lue ).
23. d
To ta l c o ntrib ute d c a p ita l*
(P140,000 + P40,000) / 4/ 5 ............................................. P225,000
Le ss: To ta l c o ntrib ute d c a p ita l o f Alle n a nd Da vid ................ 180,000
Inve stm e nt b y Da vid ......................................................................P 45,000
*sinc e no g o o d w ill o r re va lua tio n is a llo w e d to ta l a g re e d c a p ita l is the sa m e w ith to ta l
c o ntrib ute d c a p ita l.
24. c
To ta l a g re e d c a p ita l (140,000 + 40,000) / 3/ 4.............................P240,000
(P140,000 + P40,000 + P50,000)......................................... 230,000
G o o d w ill/ re va lua tio n...........................………………..…………..P 10,000
No te : sinc e the p ro b le m ind ic a te s tha t the re is g o o d w ill/ re va lua tio n o f a sse t d o w nw a rd , to ta l
a g re e d c a p ita l sho uld b e hig he r c o m p a re d to to ta l c o ntrib ute d c a p ita l (to a c hie ve this
o b je c tive the c a p ita l o f o ld p a rtne rs sho uld b e use d a s a b a sis)
C a sh 50,000
G o o d w ill/ a sse ts 10,000
Da vid , c a p ita l (1/ 4 x P240,000) 60,000
25. b
To ta l a g re e d c a p ita l (P40,000) / 1/ 5............................................P200,000
(P140,000 + P40,000 + P40,000)......................................... 220,000
Re va lua tio n o f a sse t / inve nto ry d e c re a se d ……..…………....P( 20,000)
No te : sinc e the p ro b le m ind ic a te s tha t the re is re va lua tio n o f a sse t d o w nw a rd , to ta l a g re e d
c a p ita l sho uld b e lo w e r c o mp a re d to to ta l c o ntrib ute d c a p ita l.
26. b – re fe r to No . 25 fo r c o m p uta tio n

Alle n: P140,000 – (P20,000 x 3/ 4) = P125,000
Da nie l: P40,000 – (P20,000 x 1/ 4) = P35,000

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27. d
Am o unt p a id (P34,000 + P10,000) P 44,000
Le ss: Bo o k va lue o f Alle n a nd Da nie l (1/ 5) x P180,000 ) 36,000
Pa rtia l g o o d w ill/ re va lua tio n a d justm e nt P 8,000
C a p ita lize d a t 1/ 5
Re va lua tio n o f la nd P 40,000
28. a .
Alle n: [P140,000 + (P40,000 x 3/ 4)] x 4/ 5 = P136,000
Da nie l: [P40,000 + (P40,000 x 1/ 4)] x 4/ 5 = P40,000
29. b
To ta l a g re e d c a p ita l (g ive n)........................................................P220,000
(P140,000 + P40,000 + P40,000)......................................... 220,000
Diffe re nc e ..............................................………………..…………..P 0
No te : Sinc e to ta l a g re e d a nd to ta l c o ntrib ute d a re the sa me , the re fo re is no g o o d will o r
re va lua tio n.
To ta l Ag re e d C a p ita l P220,000
Multip lie d b y: Inte re st a c q uire d b y Da vid 1/ 5
Ag re e d c a p ita l o f Da vid P 44,000
C a sh inve stm e nt b y Da vid 40,000
Bo nus to Da vid P 4,000
C a sh 40,000
Alle n (P4,000 x 3/ 4) 3,000
Da nie l (P4,000 x 1/ 4) 1,000
Da vid 44,000
30. d – re fe r to No . 29
Alle n = P140,000 – (P10,000 x 3/ 4) = P137,000
Da nie l = P40,000 – (P10,000 x 1/ 4) = P39,000
31. a
To ta l a g re e d c a p ita l (P50,000) / 1/ 5............................................P250,000
(P140,000 + P40,000 + P50,000)......................................... 230,000
G o o d w ill/ re va lua tio n...........................………………..…………..P 20,000
No te : sinc e the p ro b le m ind ic a te s tha t the re is g o o d w ill/ re va lua tio n o f a sse t d o w nw a rd , to ta l
a g re e d c a p ita l sho uld b e hig he r c o m p a re d to to ta l c o ntrib ute d c a p ita l (to a c hie ve this
o b je c tive the c a p ita l o f the ne w p a rtne rs sho uld b e use d a s a b a sis)
32. a - A P10,000 b o nus is p a id to C o ste llo (P100,000 is p a id ra the r tha n the P90,000 c a p ita l b a la nc e ).
This b o nus is d e d uc te d fro m the tw o re m a ining p a rtne rs a c c o rd ing to the ir p ro fit a nd lo ss ra tio
(2:3). A re d uc tio n o f 60 p e rc e nt (3/ 5) is a ssig ne d to Burns o r a d e c re a se o f P6,000 w hic h d ro p s
tha t p a rtne r’ s c a p ita l b a la nc e fro m P30,000 to P24,000.
33. a - (P121,000 − P100,000) x 35/ 60 = P12,250]
34. c - (P39,000 + P7,200 − P750 = P45,450)

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35. b
Am o unt p a id P 102,000
Le ss: Bo o k va lue o f Willia m s
P70,000 + (P360,000 – P300,000) x 20% 82,000
C a p ita lize d a t P&L o f Dixo n 20%
Bro w n: P65,000 + (P60,000 x 20%) + (P100,000 x 20%) P 97,000

Lo w e : P150,000 + (P60,000 x 60%) + (P100,000 x 60%) P246,000
36. a
Le ss: Bo o k va lue o f Dixo n (20%): (P210,000 – P160,000) 50,000
C a p ita lize d a t P&L o f Dixo n 20%
37. b
Am o unt p a id ……………………………………………………………………………P 80,000
Le ss: Bo o k va lue o f Inte re st o f Bo lg e r
P60,000 + [(P170,000 + P210,000 + P100,000) – (P180,000 +
P200,000 + P75,000)] x 35%........................................................................ 68,750
Pa rtia l G o o d w ill (to re tiring p a rtne r)……………………………………………….P 11,250
Inc id e nta lly, the e ntry fo r the re tire m e nt (p a ym e nt to Bo lg e r) w o uld b e :

Bo lg e r, c a p ita l……………………………………………… 68,750
G o o d w ill……………………………………………………… 11,250
C a sh……………………………………………….. 80,000
The re fo re , the c a p ita l o f G ro ssm a n a fte r the re tire m e nt o f Bo lg e r w o uld b e , P66,250 [P55,000 +
(45% x P25,000)].
38. c – no g o o d w ill o r re va lua tio n the re fo re , b o nus.

Tiffa ny 50,000
Ro n (P10,000 x3/ 5) 6,000
Ste lla (P10,000 x 2/ 5) 4,000
C a sh 60,000
39. a – re fe r to No . 38 (P80,000 – P6,000 = P74,000)
40. d
Le ss: Bo o k va lue o f Tiffa ny (1/ 6) ) 50,000
C a p ita lize d a t 1/ 6 G o o d w ill/ re va lua tio n
P 36,000
41. c - Ro b e rts re c e ive s a n a d d itio na l P60,000 a b o ve he r c a p ita l b a la nc e .

Le ss: Bo o k va lue o f Ro b e rt (40%) 100,000
C a p ita lize d a t 40% G o o d w ill/ re va lua tio n
P 150,000

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Pe te r (20%) 30,000
Ro b e rt (40%) 60,000
Da na (40%) 60,000
Ro b e rt (P100,000 + P60,000) 160,000

C a sh 160,000
The re fo re : Pe te r: P80,000 + P30,000 = P110,000
42. d – re fe r to No . 41
Da na : P60,000 + P60,000 = P120,000
43. e – re fe r to No . 41
To ta l Asse ts b e fo re re tire m e nt (P80,000 + P100,000 + P60,000) P240,000
Ad d : G o o d w ill/ re va lua tio n o f a sse t 150,000
Le ss: C a sh p a id 160,000
To ta l a sse ts a fte r re tire m e nt P230,000
44. e – sa m e w ith No . 43
45. c
To ta l C a p ita l o f L (whe re in g o o d will sho uld b e g e ne ra te d )
To ta l a sse ts, fa ir va lue (P40,000 + P52,000 + P94,000 +
P320,000 + P64,000) P 570,000
Le ss: To ta l lia b ilitie s ( P110,000 + P200,000) __310,000 P 260,000
Le ss; To ta l C a p ita l o f M
To ta l a sse ts, fa ir va lue (P30,000 + P56,000 + P114,000 +
P280,000 + P44,000) P 524,000
Le ss: To ta l lia b ilitie s ( P80,000 + P150,000) 230,000 294,000
G o o d will P 34,000
46. c
L, C a p ita l a nd M, C a p ita l a re e a c h $P94,000 if L's g o o d w ill is re c o g nize d . To ta l c a p ita l is P588,000,
a nd to ta l lia b ilitie s a nd c a p ita l a m o unt to P1,128,000.
47. d
(1) G o o d w ill (re va lua tio n) m e tho d :
Le ss: Bo o k va lue o f inte re st a c q uire d (P100,000 x 30%)) 30,000
C a p ita lize d a t 30%
G o o d w ill/ re va lua tio n P 20,000
The re fo re , the c a p ita l b a la nc e s a fte r the a d m issio n o f O O :

Ad a m s: [P60,000 + (P20,000 x 60%)] x 70%………………………P 72,000
Bro w n: [P40,000 + (P20,000 x 40%)] x 70%...…………………….. 48,000
C a ll.............................................……………………………………. __36,000
To ta l c a p ita l a fte r a d m issio n…………………………………….. .P156,000
(2) If Bo o k (o r b o nus) m e tho d is use d , the c a p ita l b a la nc e s w o uld b e :

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Ad a m s...............................................................……………………P 60,000
Bro w n..............................................................…………………….. 40,000
C a ll: (P60,000 + P40,000) x 30%…………………………………. ..__ 30,000
To ta l c a p ita l a fte r a d m issio n…………………………………….. .P130,000
Fo r p urp o se s o f c o m p a ring b o nus a nd g o o d w ill, the re a re tw o a lte rna tive s p re se nte d :

Alte rna tive 1: If g o o d w ill is fo und to e xist:
Ad a m s Bro w n C a ll
G o o d w ill Me tho d is use d …………………. P72,000 P48,000 P36,000
BV/ Bo nus Me tho d is use d ………………… P60,000 P40,000 P30,000
Ad d : G o o d w ill *……................................... 8,400 5,600 6,000
P68,400 P45,600 P36,000
(G a in) lo ss – BV/ b o nus m e tho d …………. P 3,600 P 2,400 P 0
Ad a m s: 70% x 6/ 10 = 42%
Bro w n: 70% x 4/ 10 = 28%
C a ll 30%
Alte rna tive 2: If g o o d w ill is no t re a lize d a nd w ritte n-o ff a s a lo ss:

Ad a m s Bro w n C a ll
G o o d w ill Me tho d is use d …………………. P 72,000 P48,000 P36,000
Le ss: Write -o ff o f g o o d w ill *………………. 8,400 5,600 6,000
P63,600 P42,400 P30,000
BV/ Bo nus Me tho d is use d ………………… P60,000 P40,000 P30,000
(G a in) lo ss – b o nus m e tho d ………………. P 3,600 P 2,400 P 0
No te : The b o nus me tho d a d he re s to the histo ric a l c o st c o nc e p t a nd it is o fte n use d in a c c o unting p ra c tic e . It is
o b je c tive tha t is e sta b lishe s to ta l c a p ita l o f the ne w p a rtne rship a t a n a mo unt b a se d o n a c tua l c o nsid e ra tio n
re c e ive d fro m the ne w p a rtne r. The b o nus me tho d ind ire c tly a c kno wle d g e s the e xiste nc e o f g o o d will b y g iving a
b o nus to e ithe r o ld o r ne w p a rtne rs.
The g o o d will me tho d re sults in the re c o g nitio n o f a n a sse t imp lie d b y a tra nsa c tio n ra the r tha n re c o g nizing a n a sse t
a c tua lly p urc ha se d . Histo ric a lly, g o o d will ha s b e e n re c o g nize d o nly whe n p urc ha se d so tha t a mo re o b je c tive
me a sure o f its va lue is e sta b lishe d . The re fo re , o p p o ne nts o f the g o o d will me tho d c o nte nd tha t g o o d will is no t
d e te rmine d o b je c tive ly a nd o the r fa c to rs ma y ha ve influe nc e d the a mo unt o f inve stme nt re q uire d fro m the ne w
p a rtne rs.
Altho ug h e ithe r me tho d c a n b e use d in a c hie ving the re q uire d inte re st fo r the ne w p a rtne r, the two me tho d s o ffe r
the sa me ultima te re sults o nly:
1. Whe n the inc o ming p a rtne r’ s p e rc e nta g e sha re o f p ro fit a nd lo ss a nd p e rc e nta g e inte re st in a sse ts up o n
a d missio n a re e q ua l, a nd
2. Whe n the fo rme r p a rtne rs c o ntinue to sha re p ro fits a nd lo sse s b e twe e n the mse lve s in the o rig ina l ra tio .
If the se c o nd itio ns a re no t fully me t, ho we ve r, re sults will b e d iffe re nt.
48. d – re fe r to No . 47 fo r No te .
(1) G o o d w ill m e tho d : Using the c a p ita l b a la nc e o f ne w p a rtne r a s a b a sis o f c o m p uting to ta l
a g re e d c a p ita l,:
To ta l a g re e d c a p ita l (P5,000/ 25%)……………………………………. P20,000

Le ss: To ta l c o ntrib ute d c a p ita l (P6,000/ P4,800+P5,000)…………… 15,800
G o o d w ill to o ld p a rtne rs…………………………………………………. P 4,200

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The re fo re , the c a p ita l b a la nc e s a fte r the a d m issio n o f O O :

MM: [P6,000+(P4,200x3/ 5)]…………………………………………………. P 8,520
NN: [P4,800+(P4,200x2/ 5)]………………………………………………….. 6,480
O O ………………………………………………………………………………. 5,000
To ta l a g re e d c a p ita l………………………………………………………… P20,000
(2) If b o nus m e tho d is use d , the c a p ita l b a la nc e s w o uld b e :

To ta l a g re e d c a p ita l (P6,000+P4,800+P5,000)………………………….......... P 15,800
Multip lie d b y: O O ’ s c a p ita l inte re st…………………………………………..... 25%
Ag re e d c a p ita l to b e c re d ite d to O O ………………………………………... P 3,950
C o ntrib ute d / Inve ste d c a p ita l o f O O …………………………………….......... 5,000
Bo nus to MM a nd NN (o ld p a rtne r)………………………………………......... P 1,050
The b o nus w o uld b e a d d e d to MM a nd NN:
MM: [P60,000+(1,050,000x3/ 5)]……………………………………………. P 6.630

NN: [P4,800+(P1,050x2/ 5)]………………………………………………….. 5,220
O O ……………………………………………………………………………… 3,950
To ta l a g re e d c a p ita l……………………………………………………….. P 15,800
Fo r p urp o se s o f c o m p a ring b o nus a nd g o o d w ill, the re a re tw o a lte rna tive s p re se nte d :

Alte rna tive 1: If g o o d w ill is fo und to e xist:
MM NN OO
Bo nus Me tho d is use d ……………………... P6,630 P5,220 P3,950
Ad d : G o o d w ill (a llo c a te d e q ua lly)…….. 1,400 1,400 1,400
P8,030 P6,620 P5,350
(G a in) lo ss – b o nus m e tho d ………………. P 490 P (140) P 350 (d )
MM NN OO
Le ss: Write -o ff o f g o o d w ill
(a llo c a te d e q ua lly)…………………. 1,400 1,400 1,400
P7,120 P5,080 P3,600
(G a in) lo ss – b o nus m e tho d ………………. P 490 P (140) P 350 (d )
49. a – re fe r to No . 47 fo r No te .
G o o d w ill m e tho d : Using the c a p ita l b a la nc e o f ne w p a rtne r a s a b a sis o f c o m p uting to ta l a g re e d
c a p ita l.
To ta l a g re e d c a p ita l (P500,000/ 25%)……………………………………. P2,000,000

Le ss: To ta l c o ntrib ute d c a p ita l (P600,000/ P480,000+P500,000)…….. 1,580,000
G o o d w ill to o ld p a rtne rs…………………………………………………... P 420,000
The re fo re , the c a p ita l b a la nc e s a fte r the a d m issio n o f C C :

AA: [P600,000+(P420,000x3/ 5)]…………………………………………… P 852,000 (d )
BB: [P480,000+(P420,000x2/ 5)]……………………………………………. 648,000
C C ……………………………………………………………………………… 500,000

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To ta l a g re e d c a p ita l………………………………………………………….. P 2,000,000
Bo nus Me tho d :
To ta l a g re e d c a p ita l (P600,000+P480,000+P500,000)………………... P 1,580,000
Multip ly b y: C C ’ s c a p ita l inte re st………………………………………… 25%
Ag re e d c a p ita l to b e c re d ite d to C C ………………………………….. P 395,000
C o ntrib ute d / Inve ste d c a p ita l o f C C ……………………………………. 500,000
Bo nus to AA a nd BB (o ld p a rtne rs)………………………………………. P 105,000
The b o nus w o uld b e a d d e d to AA a nd BB:

AA: [P600,000+(1,050,000x3/ 5)]……………………………………………. P 663,000
BB: [P480,000+(P105,000x2/ 5)]……………………………………………… 522,000
C C ………………………………………………………………………………. 395,000
To ta l a g re e d c a p ita l………………………………………………………… P 1,580,000
Fo r p urp o se s o f c o m p a ring b o nus a nd g o o d w ill, a ssum e tha t g o o d w ill is no t re a lize d a nd it sho uld b e
w ritte n-o ff a s a lo ss:
AA BB CC
Ad d : G o o d w ill (a llo c a te d e q ua lly)…….. 140,000 140,000 140,000
P712,000 P508,000 P360,000
(G a in) lo ss – b o nus m e tho d ………………. P 49,000 P (14,000) P 35,000
50. b
To ta l Ro y G il
C a p ita l, b e fo re a d justm e nt………………… P309,000 P94,800 P214,200
Le ss: Ne t a d justm e nt*……………………….. 35,400 11,800 23,600
C a p ita l, a fte r a d justm e nt………………….. P273,600 P83,000 P190,600
Le ss: Po rtio n c o ve re d b y c o m m o n sto c k,
p a r P10 (720 sha re to e a c h p a rtne r).. 14,400 7,200 7,200
Po rtio n to b e c o ve re d b y p re fe rre d sto c k,
p a r P100…………………………………..... P259,200 P75,800 P183,400
Sha re s to b e issue d :
Pre fe rre d sto c k………………………. 2,592 758 1,834
C o m m o n sto c k……………………… 1,440 720 720
*FV, P40,000 + P68,000 + P180,600 – BV, P60,000 + 90,000 + P174,000.
51. d
Fa ir va lue o f the a sse ts (P200,000 + P24,000)……………………………. P224,000
Le ss: To ta l lia b ilitie s……………………………………………………………. 40,000
Fa ir va lue o f Ne t Asse ts……………………………………………………… P184,000
Le ss: C o m m o n sto c k a t P1 p a r (10,000 sha re s x 2 x 1 p a r)…………… 20,000
Ad d itio na l p a id -in c a p ita l………………………………………………… P164,000

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52. b
Una d juste d c a p ita l b a la nc e s (P140,000 + P120,000)…………………… P260,000
Allo w a nc e s fo r d o ub tful a c c o unts……………………………… (10000)
Re va lua tio n o f inve nto ry (P160,000 - P140,000)………………... 20,000
Ad d itio na l d e p re c ia tio n……………………………………………. (3,000)
Ad juste d c a p ita l b a la nc e s e q uiva le nt to the to ta l sha re s issue d ……P267,000
53. c
Una d juste d a sse ts (P10,500 + P15,900 + P42,000 + P60,000)……………. P128,400
Allo w a nc e s fo r d o ub tful a c c o unts……………………………… ( 1,200)
Sho rt-te rm p re p a ym e nts............................................................... 800
Re va lua tio n o f inve nto ry (P48,000 – P42,000)...………………... 6,000
Re va lua tio n o f e q uip m e nt (P72,000 – P60,000)………………... 12,000
Ad juste d a sse t b a la nc e ............................................................................. P146,000
54. c
Ad juste d a sse t b a la nc e ............................................................................. P146,000
Le ss: Lia b ilitie s (P16,400 + P750).................................................................. 17,150
Ad juste d ne t a sse ts..................................................................................... P128,850
Le ss: C o m m o n sto c k, P5 p a r x 10,000 sha re s.....................……………... 50,000
Ad d itio na l p a id -in c a p ita l…………………………………………………… P 78,850
Q uiz- III
1. a
2. d
3. a
4. b
5. c
6. d
7. c
8. a
9. d
Pro b le m s
1. P19,000
2.
PP inve sts P17,000; no g o o d w ill/ re va lua tio n re c o rd e d :
[(P60,000 + P17,000) x 1/ 5] (15,400)
Diffe re nc e (inve stm e nt > b o o k va lue ) P 1,600
Me tho d : Bo nus to p rio r/ o ld p a rtne rs

PP's c a p ita l c re d it = P77,000 x 1/ 5
= P15,400
3. Me ssa lina , P216,000; Ro m ulus, P144,000 a nd C la ud ius, P90,000

To ta l c a p ita l is P450,000 (P210,000 + P140,000 + P100,000) a fte r the ne w inve stm e nt. As C la ud ius's
p o rtio n is to b e 20 p e rc e nt, the ne w c a p ita l b a la nc e w o uld b e P90,000 (P450,000 × 20%). Sinc e
P100,000 w a s p a id , a b o nus o f P10,000 is b e ing g ive n to the tw o o rig ina l p a rtne rs b a se d o n the ir
p ro fit a nd lo ss ra tio : Me ssa lina – P6,000 (60%) a nd Ro m ulus – P4,000 (40%). The inc re a se ra ise s

lOMoARcPSD|10477308
Me ssa lina 's c a p ita l b a la nc e fro m P210,000 to P216,000 a nd Ro m ulus's c a p ita l b a la nc e fro m P140,000
to P144,000.
4. P107,500 = [(P70,000 + P120,000 + P90,000 + P150,000)/ .80](.20)

5. P337,500 = P250,000 + (P125,000 x .70)
6. P121,250 = [P120,000 - (P170,000 + P260,000 + P120,000)(.25)](.70)
7. Ab e le , P300,000; Bo ule , P480,000; Da nn, P420,000
8. Bro w n, P156,000; G re e n, P99,000; Re d , P45,000
9. Shre k, P195,000; Fio na , P123,750; Muffin, P56,250
10. To ta l p a rtne rship ne t a sse ts c a n lo g ic a lly b e re va lue d to P1,080,000 o n the b a sis o f the p ric e p a id b y
Ma ry Ann.
11. P180,000
12. Ne t a sse ts o f the p a rtne rship w ill inc re a se b y P190,000, inc lud ing Pro fe sso r’ s inte re st.
13. P120,000
14. b
15. c - (P150,000 + P200,000 + P120,000)(.20) = P94,000
16. P130,000
(P150,000 + P200,000 + P120,000)(.20) = P94,000, g o o d w ill to e xisting p a rtne rs
P120,000 + P0 = .2(P150,000 + $200,000 + P120,000 + g o o d w ill)
P120,000 = P94,000 + .2 g o o d w ill
P26,000 = .2 g o o d w ill
G o o d w ill = P130,000
17. b
(P250,000 + P300,000 + P225,000)(.25) = P193,750
18. P125,000
(P250,000 + P300,000 + P225,000)(.25) = P193,750, g o o d w ill to e xisting p a rtne rs
P225,000 + P0 = .25 (P250,000 + P300,000 + P225,000 + g o o d w ill)
P225,000 = P193,750 + .25 g o o d w ill
P31,250 = .25 g o o d w ill
G o o d w ill = P125,000
19. P145,000
C ra ig re c e ive s a n a d d itio na l P10,000. Sinc e C ra ig is a ssig ne d 20 p e rc e nt o f a ll p ro fits a nd lo sse s, this
a llo c a tio n ind ic a te s to ta l g o o d w ill o f P50,000.
20% o f G o o d w ill = P10,000

.20 G = P10,000
G = P10,000/ .20
G = P50,000
Mo nta na is a ssig ne d 30% o f a ll p ro fits a nd lo sse s a nd w o uld , the re fo re , re c o rd P15,000 o f this

g o o d w ill, a n e ntry tha t ra ise s this p a rtne r's c a p ita l b a la nc e fro m P130,000 to P145,000.
20. a – [(P80,000 − P60,000) ÷ 3 + P6,667]

21. Susa n’ s c a p ita l a c c o unt b a la nc e c a nno t b e d e te rm ine d fro m the info rm a tio n g ive n
22. P445,000 = P80,000 + P110,000 + P55,000 + P200,000

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23. P24,000 = (P250,000 - P210,000)(45/ 75)

24. P136,000 = P160,000 - (P250,000 - 210,000)(45/ 75)
25. P172,500 = P150,000 + (P75,000 x .3)
26. P257,250 = P135,000 + (P75,000 x .25) + [P150,000 + (P75,000 x .30)](.60)
27. Do na ld , P55,000; To d d , P60,000
Anne re c e ive s a n a d d itio na l P30,000 a b o ve he r c a p ita l b a la nc e . Sinc e she is a ssig ne d 40 p e rc e nt
o f a ll p ro fits a nd lo sse s, this e xtra a llo c a tio n ind ic a te s to ta l g o o d w ill o f P75,000, w hic h m ust b e sp lit
a m o ng a ll p a rtne rs. 40% o f G o o d w ill = P30,000
Le ss: Bo o k va lue o f Anne (40%) 50,000
C a p ita lize d a t 40% G o o d w ill/ re va lua tio n
P 75,000

Do na ld (20%) 15,000
Anne (40%) 30,000
To d d (40%) 30,000
Anne (P50,000 + P30,000) 80,000
C a sh 80,000
Do na ld : P40,000 + P15,000 = P55,000
To d d : PP30,000 + P30,000 = P60,000
28. Do na ld , P30,000; To d d , P10,000
The P30,000 b o nus is d e d uc te d fro m the re m a ining p a rtne rs a c c o rd ing to the ir re la tive p ro fit a nd lo ss
ra tio . Do na ld = 20% a nd To d d = 40% w hic h is a 1/ 3, 2/ 3 sp lit.
Anne 50,000
Do na ld (P30,000 x 2/ 6) 10,000
To d d (P30,000 x 4/ 6) 20,000
C a sh 80,000
The re fo re : Do na ld : P40,000 – P10,000 = P30,000; To d d : P30,000 – P20,000 = P10,000
29. P40,000 - re fe r to No . 28 (P30,000 + P10,000 = P40,000)
30. Pre fe r b o nus m e tho d d ue to ZZ’ s g a in o f P35,000

G o o d w ill m e tho d : Using the c a p ita l o f ne w p a rtne r a s a b a sis fo r c o m p uting to ta l a g re e d c a p ita l.
To ta l a g re e d c a p ita l (P500,000 ÷ 25%) P2,000,000
Le ss: To ta l c o ntrib ute d c a p ita l (P600,000 + P480,000 + P500,000) 1,580,000
G o o d w ill to o ld p a rtne rs P 420,000
The re fo re , the c a p ita l b a la nc e s a fte r a d m issio n o f ZZ:

XX: [P600,000 + (P420,000 x 3/ 5)] P852,000
YY: [P480,000 + (P420,000 x 2/ 5)] 648,000
ZZ: 500,000
To ta l a g re e d c a p ita l P2,000,000
Bo nus Me tho d :
To ta l a g re e d c a p ita l (P600,000 + P480,000)( P500,000) P 1,580,000
Multip lie d b y; ZZ’ s c a p ita l inte re st 25%
Ag re e d c a p ita l to b e c re d ite d to ZZ P 395,000

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C o ntrib ute d / inve ste d c a p ita l o f ZZ 500,000

Bo nus to XX a nd YY (o ld p a rtne rs) P 105,000
The b o nus w o uld b e a d d e d to XX a nd YY:

XX: [P600,000 + (P105,000 x 3/ 5)] P 663,000
YY: [P480,000 + (P105,000 x 2/ 5)] 522,000
ZZ 395,000
To ta l a g re e d c a p ita l P 1,580,000
Fo r the p urp o se s o f c o m p a ring b o nus a nd g o o d w ill, the re a re tw o a lte rna tive s p re se nte d :
Alte rna tive 1: if g o o d w ill is fo und to e xist:
XX YY ZZ
G o o d w ill Me tho d is use d P 852,000 P 648,000 P 500,000
Bo nus Me tho d is use d P 663,000 P 522,000 P 395,000
Ad d : G o o d w ill (a llo c a te d e q ua lly) 140,000 140,000 140,000
P803,000 P 662,000 P 535,000
(G a in) Lo ss – Bo nus m e tho d P 49,000 P (140,000) P 35,000

XX YY ZZ
Le ss: Write -o ff o f g o o d w ill (e q ua lly) 140,000 140,000 140,000
P 712,000 P 508,000 P 360,000
Bo nus Me tho d is use d 663,000 522,000 395,000
(G a in) Lo ss – Bo nus m e tho d P 49,000 P (140,000) P 35,000
No te : The b o nus me tho d a d he re s to the histo ric a l c o st c o nc e p t a nd it is o fte n use d in a c c o unting p ra c tic e . It is
o b je c tive tha t is e sta b lishe s to ta l c a p ita l o f the ne w p a rtne rship a t a n a mo unt b a se d o n a c tua l c o nsid e ra tio n
re c e ive d fro m the ne w p a rtne r. The b o nus me tho d ind ire c tly a c kno wle d g e s the e xiste nc e o f g o o d will b y g iving a
b o nus to e ithe r o ld o r ne w p a rtne rs.
The g o o d will me tho d re sults in the re c o g nitio n o f a n a sse t imp lie d b y a tra nsa c tio n ra the r tha n re c o g nizing a n a sse t
a c tua lly p urc ha se d . Histo ric a lly, g o o d will ha s b e e n re c o g nize d o nly whe n p urc ha se d so tha t a mo re o b je c tive
me a sure o f its va lue is e sta b lishe d . The re fo re , o p p o ne nts o f the g o o d will me tho d c o nte nd tha t g o o d will is no t
d e te rmine d o b je c tive ly a nd o the r fa c to rs ma y ha ve influe nc e d the a mo unt o f inve stme nt re q uire d fro m the ne w
p a rtne rs.
Altho ug h e ithe r me tho d c a n b e use d in a c hie ving the re q uire d inte re st fo r the ne w p a rtne r, the two me tho d s o ffe r
the sa me ultima te re sults o nly:
1. Whe n the inc o ming p a rtne r’ s p e rc e nta g e sha re o f p ro fit a nd lo ss a nd p e rc e nta g e inte re st in a sse ts up o n
a d missio n a re e q ua l, a nd
2. Whe n the fo rme r p a rtne rs c o ntinue to sha re p ro fits a nd lo sse s b e twe e n the mse lve s in the o rig ina l ra tio .
If the se c o nd itio ns a re no t fully me t, ho we ve r, re sults will b e d iffe re nt.
31. Be ind iffe re nt fo r the g o o d w ill (re va lua tio n) o r b o nus m e tho d s a re the sa m e .
G o o d w ill m e tho d : Using the c a p ita l o f ne w p a rtne r a s a b a sis fo r c o m p uting to ta l a g re e d c a p ita l.
To ta l a g re e d c a p ita l (P500,000 ÷ 25%) P2,000,000
Le ss: To ta l c o ntrib ute d c a p ita l (P600,000 + P480,000 + P500,000) 1,580,000
G o o d w ill to o ld p a rtne rs P 420,000
The re fo re , the c a p ita l b a la nc e s a fte r a d m issio n o f ZZ:

XX: [P600,000 + (P420,000 x 3/ 5)] P852,000

lOMoARcPSD|10477308
YY: [P480,000 + (P420,000 x 2/ 5)] 648,000

ZZ: 500,000
To ta l a g re e d c a p ita l P2,000,000
Bo nus Me tho d :
To ta l a g re e d c a p ita l (P600,000 + P480,000)( P500,000) P 1,580,000
Multip lie d b y; ZZ’ s c a p ita l inte re st 25%
Ag re e d c a p ita l to b e c re d ite d to ZZ P 395,000
C o ntrib ute d / inve ste d c a p ita l o f ZZ 500,000
Bo nus to XX a nd YY (o ld p a rtne rs) P 105,000
The b o nus w o uld b e a d d e d to XX a nd YY:

XX: [P600,000 + (P105,000 x 3/ 5)] P 663,000
YY: [P480,000 + (P105,000 x 2/ 5)] 522,000
ZZ 395,000
To ta l a g re e d c a p ita l P 1,580,000
Fo r the p urp o se s o f c o m p a ring b o nus a nd g o o d w ill, the re a re tw o a lte rna tive s p re se nte d :
Alte rna tive 1: if g o o d w ill is fo und to e xist:
XX YY ZZ
Bo nus Me tho d is use d P 663,000 P 522,000 P 395,000
Ad d : G o o d w ill* (45%: 30%:25%) 189,000 126,000 105,000
P852,000 P 648,000 P 500,000
(G a in) Lo ss – Bo nus m e tho d P 0 P 0 P 0
*XX: 75% x 3/ 5 = 45%; YY: 75% x 2/ 5 = 30%

XX YY ZZ
Le ss: Write -o ff o f g o o d w ill* 189,000 126,000 105,000
P 633,000 P 522,000 P 395,000
Bo nus Me tho d is use d 663,000 522,000 395,000
(G a in) Lo ss – Bo nus m e tho d P 0 P 0 P 0
32. Be ind iffe re nt fo r the g o o d w ill (re va lua tio n) o r b o nus m e tho d s a re the sa m e .
*G o o d w ill (re va lua tio n) m e tho d :
Le ss: Bo o k va lue o f inte re st – Ne a l (40%)) 250,000
C a p ita lize d a t 40%
Ne a l Pa lm e r Rup p e
C a p ita l b a la nc e s b e fo re w ithd ra w a l 250,000 150,000 100,000
Allo c a te g o o d w ill* 50,000 37,500 37,500
300,000 187,500 137,500
Withd ra w a l o f Ne a l (300,000) _______ _______
187,500 137,500
Write -o ff Im p a ire d G o o d w ill (125,000 × 0.50) _______ (62,500) (62,500)

lOMoARcPSD|10477308
0 125,000 75,000
C a p ita l b a la nc e s using the b o nus m e tho d ** 125,000 75,000
33. Pre fe r b o nus m e tho d d ue to Pa lm e r’ s g a in o f P12,500

Ne a l Pa lm e r Rup p e
C a p ita l b a la nc e s b e fo re w ithd ra w a l 250,000 150,000 100,000
Allo c a tio n o f g o o d w ill* 50,000 37,500 37,500
300,000 187,500 137,500
Withd ra w a l o f Ne a l (300,000) _______ _______
-0- 187,500 137,500
Write -o ff Im p a ire d G o o d w ill
125,000 × 0.60 (75,000)
125,000 × 0.40 ________ _______ (50,000)
-0- 112,500 87,500
C a p ita l b a la nc e s using the b o nus m e tho d ** 125,000 75,000
(G a in) Lo ss – Bo nus m e tho d 0 12,500 12,500
**The e xc e ss p a id to Ne a l o f P50,000 w o uld ha ve b e e n d ivid e d e q ua lly b e tw e e n Pa lm e r a nd Rup p e a s

fo llo w s:
Pa lm e r Rup p e
C a p ita l b a la nc e b e fo re w ithd ra w 150,000 100,000
Allo c a tio n o f e xc e ss p a id to Ne a l (25,000) (25,000)
C a p ita l b a la nc e using b o nus m e tho d 125,000 75,000
34. P82,000
C a rrying va lue o f ne t a sse ts (P100,000 – P20,000)………………………P 80,000
Ad d : Ad justm e nts to re fle c t fa ir va lue …………………………………… 12,000
Fa ir va lue o f ne t a sse ts………………………………………………………. P 92,000
Le ss: C o m m o n sto c k, P1 p a r (5,000 sha re s x 2 x P1……………………... 10,000
Ad d itio na l p a id -in c a p ita l…………………………………………………… P82,000
35. P54,350
C a rrying va lue o f ne t a sse ts (P25,110 + P20,000))……………………… P 45,110

Ad d : Ad justm e nts to re fle c t fa ir va lue
(P28,000 – P21,760) – P800 + [(P35,000 – (P32,400 – P11,200)]… 19,240
Fa ir va lue o f ne t a sse ts………………………………………………………. P 64,350
Le ss: C o m m o n sto c k, P1 p a r (10,000 sha re s x P1)……………………... 10,000
Ad d itio na l p a id -in c a p ita l…………………………………………………… P 54,350
No te : Re fe r to Pro b le m XII fo r jo urnal e ntrie s fo r furthe r analy sis
THEO RIES
True o r Fa lse
1. Fa lse 6. Fa lse 11. True 16. True 21. Fa lse 26. Fa lse 31. True
2. True 7. Fa lse 12. True 17. True 22. True 27. True 32. True
3. Fa lse 8. True 13. True 18. Fa lse 23. Fa lse 28. Fa lse
4. True 9. Fa lse 14. Fa lse 19. Fa lse 24. True 29. True
5. Fa lse 10. Fa lse 15, True 20. True 25. Fa lse 30. Fa lse

lOMoARcPSD|10477308

1. A d isso lutio n o c c urs e ve ry tim e the re is a c ha ng e in re la tio nship a m o ng the pa rtne rs. This c a n o c c ur whe n a
ne w p a rtne r e nte rs the p a rtne rship o r a n e xisting pa rtne r le a ve s the p a rtne rship . A d isso lutio n o c c urs whe n the
p a rtne rship is g o ing o ut o f b usine ss b ut the te rm ina tio n o f b usine ss is no t a re q uire m e nt fo r a d isso lutio n.
3. A ne w pa rtne r's lia b ility fo r a c tio ns tha t o c c urre d b e fo re jo ining the p a rtne rship is lim ite d to the a m o unt inve ste d
in the p a rtne rship .
5. Re g a rd le ss ho w a ne w p a rtne r e nte rs a pa rtne rship, the o the r p a rtne rs ha ve to a p p ro ve the a d m issio n b e c a use
the y m ust a c c e p t unlim ite d lia b ility d ue to a c tio ns o f the ne w p a rtne r ta ke n o n b e ha lf o f the p a rtne rship .
6. The re is no ne c e ssa ry re la tio nship b e twe e n the p e rc e nta g e o f e q uity a c q uire d a nd the a m o unt o f p ro fit o r lo ss
re c e ive d . The se a re se p a ra te c o ntra c tua l issue s.
7. The re a re thre e m e tho d s tha t m a y b e use d whe n a ne w p a rtne r is p a ying a n a m o unt m o re tha n b o o k va lue fo r
the inve stm e nt: re va lua tio n o f e xisting a sse ts, b o nus m e tho d , a nd g o o d will m e tho d . The p a rtne rs d o no t ha ve
to c ho o se o ne m e tho d . It wo uld no t b e inc o nsiste nt to re va lue the a sse ts a nd a p p ly e ithe r the b o nus o r the
g o o d will m e tho d to re c o rd the inve stm e nt.
9. Existing p a rtne rs sha re the d iffe re nc e b e twe e n m a rke t va lue a nd b o o k va lue e q ua lly if tha t is the m a nne r in
whic h p ro fits a nd lo sse s a re sha re d . If p ro fits a nd lo sse s a re sha re d in so m e o the r m a nne r, the n the d iffe re nc e
b e twe e n m a rke t a nd b o o k va lue s a re sha re d in tha t m a nne r.
10. While it is p o ssib le tha t a n e rro r ha s b e e n m a d e , it is m o re like ly tha t the e xisting p a rtne rs re c o g nize d a n
inc re a se in the ir c a p ita l a c c o unts via a b o nus. The d iffe re nc e b e twe e n the a m o unt c re d ite d to the ne w
p a rtne r’s c a p ita l a c c o unt a nd the a m o unt inve ste d is sha re d b y the e xisting p a rtne rs.
14. Ne w p a rtne rs m a y re c e ive a b o nus if the y b ring va lue to the p a rtne rship in e xc e ss o f the ta ng ib le a sse ts
inve ste d . This a d d itio na l a m o unt m a y b e fro m suc h thing s a s e xp e rtise , e xp e rie nc e , o r b usine ss c o nta c ts. The
b o nus a llo c a te d to the ne w p a rtne r is pa ym e nt fo r the se typ e s o f unid e ntifia b le a sse ts c o ntrib ute d to the
p a rtne rship .
18. G o o d will m a y b e re c o g nize d with re g a rd to the e xisting p a rtne rs b ut it m a y a lso b e re c o g nize d with re g a rd to
the ne w p a rtne r.
19. Whe n g o o d will is re c o g nize d with re g a rd to the ne w p a rtne r, the ne w p a rtne r’s c a p ita l a c c o unt will b e g re a te r
tha n the a m o unt inve ste d b y the re c o g nize d g o o d will.
21. The a rtic le s o f p a rtne rship m a y inc lud e a n a g re e m e nt o n the le ng th o f a d va nc e d no tic e a p a rtne r m ust g ive
b e fo re withd ra wing fro m a p a rtne rship . Fa ilure to p ro vid e the a g re e d no tic e m a y re sult in the withd ra wing
p a rtne r b e ing lia b le fo r d a m a g e s suffe re d b y the pa rtne rship .
23. If e xisting p a rtne rs a c q uire a withd ra wing p a rtne r’s e q uity, the y c a n d ivid e the p urc ha se o f tha t e q uity a m o ng
the m se lve s in a ny m a nne r the y c ho o se .
25. Pa rtne rship a sse ts m a y b e re va lue d b ut the y m a y a lso re m a in a t the ir c a rrying va lue .
26. The re va lua tio n o f the pa rtne rship ’s a sse ts is unre la te d to the p urc ha se o f the withd ra wing p a rtne rs o wne rship
inte re st in the p a rtne rship .
28. The re va lua tio n o f p a rtne rship a sse ts a t the tim e o f a p a rtne r’s withd ra wa l ha s no im p a c t o n the re c o g nitio n o f a
b o nus o r g o o d will.
30. While the p a rtne rs c a n re c o g nize e ithe r the withd ra wing p a rtne r’s g o o d will o r the e ntire p a rtne rship ’s g o o d will,
the re is no re q uire m e nt to re c o g nize a ny g o o d will whe n a p a rtne r withd ra ws fro m a p a rtne rship .
Multiple C ho ic e
33. b 38. e 43. c 47. a 53. c 58. a 63. c
34 d 39. e 44. c 48. c 54. c 59. c 64. d
35. d 40. d 45. d 50. c 55. c 60. b 65. c
36. d 41. d 46. c 51. a 56. b 61. b 66. d
37. d 42. b 47. b 52. d 57. b 62. b 67. d
68. a

lOMoARcPSD|10477308
C ha pte r 4
Pro b le m I
1: G a in o n Re a liza tio n Fully Allo c a te d to Pa rtne r’s C a pita l Ba la nc e s.
Q RS Pa rtne rship
Sta te m e nt o f Re a liza tio n a nd Liq uid a tio n
No ve m b e r 1 – 30, 20x4
No n- Q, R, S,
C a sh C a p ita l C a p ita l C a p ita l
C a sh Asse ts Lia b ilitie s Q , Lo a n 30%) (50%) (20%)
Ba la nc e s b e fo re liq uid a tio n 24,000 84,000 12,000 2,400 9,600 48,000 36,000
Re a liza tio n a nd d istrib utio n
o f g a in 96,000 (84,000) _____ ______ 3,600 6,000 2,400
Ba la nc e s a fte r re a liza tio n 120,000 12,000 2,400 13,200 54,000 38,400
Pa ym e nt o f lia b ilitie s (12,000) (12,000)
Ba la nc e s a fte r p a ym e nt o f
lia b ilitie s 108,000 2,400 13,200 54,000 38,400
Pa ym e nt to p a rtne rs - lo a n (2,400) (2,400) ______ ______ _______
Ba la nc e s a fte r p a yme nt o f
p a rtne rs’ lo a ns 105,600 13,200 54,000 38,400
Pa ym e nt to p a rtne rs -
c a p ita l (105,600) (13,200) (54,000) (38,400)
2: Lo ss o n Re a liza tio n C re a te s a De fic it Ba la nc e in Pa rtne r’s C a pita l Ac c o unt Re q uiring Tra nsfe r fro m
Pa rtne r’s Lo a n Ac c o unt (Rig ht o f O ffse t Exe rc ise d).
Q RS Pa rtne rship
No ve m b e r 1 – 30, 20x4
No n- Q, R, S,
C a sh c a p ita l C a p ita l C a p ita l
C a sh Asse ts Lia b ilitie s Q , Lo a n (30%) (50%) (20%)
o f lo ss 48,000 (84,000) _____ ______ (10,800) (18,000) (7,200)
Ba la nc e s a fte r re a liza tio n 72,000 12,000 2,400 (1,200) 30,000 28,800
lia b ilitie s 60,000 2,400 (1,200) 30,000 28,800
O ffse t d e fic it ve rsus lo a ns _______ (1,200) 1,200 _______ _______
Ba la nc e s a fte r o ffse tting 60,000 1,200 30,000 28,800
Pa ym e nt to p a rtne rs – lo a n (1,200) (1,200) _______ ______
p a rtne rs’ lo a ns 58,800 30,000 28,800
c a p ita l (58,800) (30,000) (28,800)

lOMoARcPSD|10477308
3: Lo ss o n Re a liza tio n C re a te s a De fic it Ba la nc e in Pa rtne r’s C a pita l Ac c o unt Re q uiring Tra nsfe r fro m
Pa rtne r’s Lo a n Ac c o unt (Rig ht o f O ffse t Exe rc ise d a nd Additio na l C a pita l Inve stm e nt is Re q uire d a nd
Ma de ).
Q RS Pa rtne rship
No ve m b e r 1 – 30, 20x4
No n- Q, R, S,
o f lo ss 36,000 (84,000) ________ ________ (14,400) (24,000) (9,600)
Ba la nc e s a fte r re a liza tio n 60,000 12,000 2,400 ( 4,800) 24,000 26,400
Pa ym e nt o f lia b ilitie s (12,000) (12,000) ________ _______ _______ _______
lia b ilitie s 48,000 2,400 ( 4,800) 24,000 26,400
O ffse t lo a n ve rsus d e fic it – _______ (2,400) 2,400 _______ _______
Ba la nc e s a fte r o ffse tting
p a rtne r’ s lo a n 48,000 (2,400) 24,000 26,400
Ad d itio na l inve stme nt b y Q __2,400 2,400 _______ _______
Ba la nc e s a fte r a d d itio na l
Inve stm e nt 50,400 24,000 26,400
c a p ita l (50,400) (24,000) (26,400)
4: Lo ss o n Re a liza tio n C re a te s a De fic it Ba la nc e in O ne Pa rtne r’s C a pita l Ac c o unt Re q uiring Tra nsfe r
Pa rtne r’s Lo a n Ac c o unt (Rig ht o f O ffse t Is Exe rc ise d) a nd Additio na l Inve stm e nt is Re q uire d b ut no t Ma de
(Pe rso na lly Inso lve nt).
Q RS Pa rtne rship
No ve m b e r 1 – 30, 20x4
No n- Q, R, S,
o f g a in 42,000 (84,000) _______ ________ (12,600) (21,000) (8,400)
Pa ym e nt o f lia b ilitie s (12,000) (12,000) _______ _______ _______ _______
lia b ilitie s 54,000 2,400 (3,000) 27,000 27,600
O ffse t lo a n ve rsus d e fic it _______ (2,400) 2,400 ______ ______
Ba la nc e s a fte r o ffse tting 54,000 ( 600) 27,000 27,600
Ad d itio na l lo ss d ue to
inso lve nc y o f Q _______ 600 ( 429) ( 171)
Ba la nc e s a fte r a d d itio na l ,
Lo ss 54,000 26,571 27,429
c a p ita l (54,000) (26,571) (27,429)

lOMoARcPSD|10477308
5: Lo ss o n Re a liza tio n C re a te s a De fic it Ba la nc e in O ne Pa rtne r’s C a pita l Ac c o unt Re q uiring Tra nsfe r
Pa rtne r’s Lo a n Ac c o unt (Rig ht o f O ffse t Is Exe rc ise d) a nd Additio na l Inve stm e nt is Re q uire d b ut no t Ma de
(Pe rso na lly Inso lve nt).
Q RS Pa rtne rship
Sta te me nt o f Re a liza tio n a nd Liq uid a tio n
No ve mb e r 1 – 30, 20x4
No n- Q, R, S,
o f g a in 24,000 (84,000) _______ _______ (18,000) (30,000) (12,000)
lia b ilitie s 36,000 2,400 ( 8,400) 18,000 24,000
O ffse t lo a n ve rsus d e fic it ______ (2,400) 2,400 ______ _______
Ba la nc e s a fte r o ffse tting 36,000 (6,000), 18,000 24,000
Ad d itio na l inve stme nt b y Q _3,600 _ 3,600 ______ _______
inve stme nt 39,600 (2,400) 18,000 24,000
Ad d itio na l lo ss d ue to
inso lve nc y o f Q ______ 2,400 (1,714) ( 686)
Lo ss 39,600 16,286 23,314
c a p ita l (39,600) (16,286) (23,314)
6: Lo ss o n Re a liza tio n C re a te s a De fic it Ba la nc e in Pa rtne r’s C a pita l A c c o unt Re q uiring Tra nsfe r Pa rtne r’s
Lo a n Ac c o unt (Rig ht o f O ffse t Is Exe rc ise d) a nd All Pa rtne rs a re Pe rso na lly So lve nt.
Q RS Pa rtne rship
No ve mb e r 1 – 30, 20x4
No n- Q, R, S,
Pa ym e nt o f liq uid a tio n
e xp e nse s (14,400) ______ ________ ________ (4,320) (7,200) (2,880)
liq uid a tio n e xp e nse s 9,600 84,000 12,000 2,400 5,280 40,800 33,120
Write -o ff g o o d w ill a nd
p re p a id e xp e nse s _______ (72,000) _______ ________ (21,600) (36,000) (14,400)
Ba la nc e s a fte r w rite -o ffs 9,600 12,000 12,000 2,400 (16,320) 4,800 18,720
o f lo ss 1,200 (12,000) _______ ________ ( 3,240) ( 5,400) ( 2,160)
Ba la nc e s a fte r re a liza tio n 10,800 12,000 2,400 ( 19,560) ( 600) 16,560
Pa ym e nt o f lia b ilitie s (10,800) (10,800) ________ _______ ________ _______
Lia b ilitie s -0- 1,200 2,400 (19,560) ( 600) 16,560
O ffse t lo a n ve rsus d e fic it ______ _______ (2,400) 2,400 _______ _______
Ba la nc e s a fte r o ffse tting -0- 1,200 (17,160) ( 600) 16,560
Ad d itio na l inve stme nt b y Q
a nd R 17,760 _______ 17,160 600 ______
Inve stme nt 17,760 1,200 16,560
Pa ym e nt o f lia b ilitie s (1,200) (1,200) _______
Lia b ilitie s 16,560 16,560
Pa ym e nt to p a rtne rs - C a p ita l (16,560) (16,560)

lOMoARcPSD|10477308
7: Lo ss o n Re a liza tio n C re a te s a De fic it Ba la nc e in Pa rtne r’s C a pita l A c c o unt Re q uiring Tra nsfe r Pa rtne r’s
Lo a n Ac c o unt (Rig ht o f O ffse t Is Exe rc ise d) with Re va lua tio n o f Asse ts.
Q RS Pa rtne rship
No ve mb e r 1 – 30, 20x4
No n- Q, R, S,
Inc re a se in e q uip me nt 1,200 360 600 240
De c re a se in furniture ______ (600) _______ ______ _(180) (300) (120)
Ba la nc e s a fte r re va lua tio n 24,000 84,600 12,000 2,400 9,780 48,300 36,120
Re fund o f p re p a id
e xp e nse s _6,960 (8,400) _______ ______ _(432) (720) (288)
Ba la nc e s a fte r re fund s 30,960 76,200 12,000 2,400 9,348 47,580 35,832
Re c e ive d no nc a sh a sse ts ______ (10,200) _______ ______ _____ (7,200) (3,000)
Ba la nc e s a fte r re c e ip t
o f no nc a sh a sse ts 30,960 66,000 12,000 2,400 9,348 40,380 32,832
Re a liza tio n a nd d istrib utio n (
o f lo ss 32,400 (66,000) _______ ______ 10,080) ( 16,800) ( 8,064)
Ba la nc e s a fte r re a liza tio n 63,360 12,000 2,400 ( 732) 23,580 26,112
lia b ilitie s 51,360 2,400 ( 732) 23,580 26,112
O ffse t lo a n ve rsus d e fic it _______ ( 732) 732 ______ ______
Ba la nc e s a fte r o ffse tting 51,360 1,668 23,580 26,112
lo a n (1,668) (1,668) ______ _______
Ba la nc e s a fte r p a ym e nt
o f lo a ns 49,692 23,580 26,112
Pa ym e nt to p a rtne rs-
c a p ita ls (49,692) (23,580) (26,112)
Pro b le m II
DISC O UNT PARTNERSHIP
Sc he d ule o f Pa rtne rship Liq uid a tio n
Ja nua ry 14, 20x4
C a p ita l Ba la nc e s
Exp la na tio n C a sh O the r Lia b ilitie s Da wso n Fe e ne y Ha rd in
Asse ts
Ba la nc e s b e fo re re a liza tio n P25,000 P120,000 P(40,000) P(31,000) P(65,000) P(9,000)
Sa le s o f no nc a sh a sse ts 60,000 (120,000) ______ 18,000 24,000 18,000

Ba la nc e s 85,000 0 (40,000) (13,000) (41,000) 9,000
Pa yme nt o f lia b ilitie s (40,000) __________ 40,000 ________ ________ ________

Ba la nc e s 45,000 0 0 (13,000) (41,000) 9,000
Allo c a tio n o f Ha rd in's d e b it
b a la nc e
______ __________ ______ 3,857 5,143 (9,000)
Ba la nc e s 45,000 0 0 (9,143) (35,857) 0
Distrib utio n o f c a sh to p a rtne rs (45,000) __________ ______ 9,143 35,857 ________

Ba la nc e s P 0 P 0 P 0 P 0 P 0 P 0

lOMoARcPSD|10477308
Pro b le m III
1.
C DG Pa rtne rship
Lump -sum Liq uid a tio n o n De c e m b e r 10, 20X6
No nc a sh C a rlo s Da n G a il
C a sh Asse ts Lia b ilitie s 20% 40% 40%
Pre liq uid a tio n b a la nc e s 25,000 475,000 (270,000) (120,000) (50,000) (60,000)
Sa le o f a sse ts a nd d istrib utio n

o f P215,000 lo ss 260,000 (475,000) 43,000 86,000 86,000
285,000 -0- (270,000) (77,000) 36,000 26,000
C a sh c o ntrib ute d b y G a il to
e xte nt o f p o sitive ne t wo rth 25,000 (25,000)
310,000 -0- (270,000) (77,000) 36,000 1,000
Distrib utio n o f d e fic it o f
inso lve nt p a rtne r: (1,000)
20/ 60(P1,000) 333
40/ 60(P1,000) 667
310,000 -0- (270,000) (76,667) 36,667 -0-
C o ntrib utio n b y Da n to 36,667 (36,667)

re me d y d e fic it
346,667 -0- (270,000) (76,667) -0- -0-
Pa yme nt to c re d ito rs (270,000) 270,000

76,667 -0- -0- (76,667) -0- -0-
Pa yme nt to p a rtne r (76,667) 76,667
Po st-liq uid a tio n b a la nc e s -0- -0- -0- -0- -0- -0-
2.
C DG Pa rtne rship
Ne t Wo rth o f Pa rtne rs
De c e mb e r 10, 20X6
C a rlo s Da n G a il
Pe rso na l a sse ts, e xc lud ing
p a rtne rship c a p ita l inte re sts 250,000 300,000 350,000
Pe rso na l lia b ilitie s (230,000) (240,000) (325,000)
Pe rso na l ne t wo rth, e xc lud ing
p a rtne rship c a p ita l inte re sts, De c . 1, 20X6 20,000 60,000 25,000
C o ntrib utio n to p a rtne rship (36,667) (25,000)
Liq uid a ting d istrib utio n fro m p a rtne rship 76,667 -0- -0-
Ne t wo rth, De c e mb e r 10, 20X6 96,667 23,333 -0-
This c o m p uta tio n a ssum e s tha t no o the r e ve nts o c c urre d in the 10-d a y p e rio d tha t c ha ng e d a ny o f the
p a rtne rs’ p e rso na l a sse ts a nd p e rso na l lia b ilitie s. In p ra c tic e , the a c c o unta nt m ust b e sure tha t a
c o m p uta tio n o f ne t w o rth is c urre nt a nd tim e ly.

lOMoARcPSD|10477308
The ta b le sho w s the e ffe c ts o f the tra nsa c tio ns b e tw e e n the p a rtne rship a nd e a c h p a rtne r. A
p re sum p tio n o f this ta b le is tha t the p e rso na l c re d ito rs o f Da n o r G a il w o uld no t se e k c o urt a c tio n to
b lo c k the se ttle m e nt tra nsa c tio ns w ith the p a rtne rship . Up o n w ind ing up a nd liq uid a tio n, the
p a rtne rship d o e s no t ha ve a ny p rio rity to the p a rtne r’ s p e rso na l a sse ts. Thus, the p e rso na l c re d ito rs m a y
se e k to b lo c k the tra nsa c tio ns w ith the p a rtne rship in o rd e r to p ro vid e m o re re so urc e s fro m w hic h the y
c a n b e p a id . A p a rtne r w ho fa ils to re m e d y his o r he r d e fic it c a n b e sue d b y the o the r p a rtne rs w ho
ha d to m a ke a d d itio na l c o ntrib utio ns o r e ve n b y a p a rtne rship c re d ito r if the fa ile d p a rtne r is lia b le to
the p a rtne rship c re d ito r. But tho se c la im s a re no t sup e rio r to the o the r c la im s to the p a rtne r’ s ind ivid ua l
a sse ts.
Whe n a c c o unta nts p ro vid e p ro fe ssio na l se rvic e s to p a rtne rship s a nd to its p a rtne rs, the a c c o unta nt
sho uld e xp e c t, a t so m e tim e , le g a l suits invo lving the p a rtne rship a nd / o r ind ivid ua l p a rtne rs. A stro ng
a nd tho ro ug h und e rsta nd ing o f the le g a l a nd a c c o unting fo und a tio ns o f p a rtne rship s w ill b e ve ry
im p o rta nt to tha t a c c o unta nt.
Pro b le m IV
No nc a sh C a p ita l a nd Lo a n Ba la nc e s
C a sh Asse ts Lia b ilitie s Me rz De c hte r Flo w e rs
Be g inning b a la nc e s P 25,000 P200,000 P165,000 P 40,000 P30,000 P(10,000)

Liq uid a tio n e xp e nse (20,000) (8,000) (8,000) (4,000)
Sa le o f no n-c a sh a sse ts 160,000 (200,000) (16,000) (16,000) (8,000)
C o ntrib utio n b y Flo w e rs 10,000 10,000
Allo c a tio n o f Flo w e r's (6,000) (6,000) 12,000
Distrib utio n to p a rtne rs (10,000) (10,000) 0 0
End ing b a la nc e s 0 0 0 0 0 0
Pro b le m V
C a sh Lia b ilitie s Ab le Bo w e r C ra m e r
Be g inning : P20,000 P(30,000) P(10,000) P5,000 P15,000
Pa ym e nt o f lia b ilitie s (20,000) 20,000
P 0 P(10,000) P(10,000) P5,000 P15,000
C ra m e r/ Bo w e r p a y in
fro m p e rso na l w o rth
to c o ve r
d e fic it b a la nc e s: 12,000 ________ ________ (2,000) (10,000)
P12,000 P(10,000) P(10,000) P3,000 P 5,000
Pa ym e nt o f lia b ilitie s (10,000) 10,000
P 2,000 P 0 P(10,000) P3,000 P 5,000
Allo c a tio n o f
d e fic it b a la nc e s: ______ ________ 8,000 (3,000) (5,000)
P 2,000 P 0 P (2,000) P 0 P 0
Ab le p a id : (2,000) 2,000
P 0 P 0 P 0 P 0 P 0

lOMoARcPSD|10477308
Pro b le m VI
Answ e r:
C a sh 70,000
Arthur, C a p ita l 6,000
Ba ke r, C a p ita l 15,000
C a se y, C a p ita l 9,000
O the r Asse ts 100,000
To re c o rd re a liza tio n o f a sse ts a t a lo ss o f $30,000, d ivid e d
a m o ng Arthur, Ba ke r, a nd C a se y in 2:5:3 ra tio , re sp e c tive ly.
Tra d e Ac c o unts Pa ya b le 65,000

C a sh 65,000
To re c o rd p a ym e nt o f lia b ilitie s.

Lo a n Re c e iva b le fro m Arthur 20,000
To o ffse t Arthur's lo a n a c c o unt a g a inst Arthur's c a p ita l
a c c o unt.

Lo a n Pa ya b le to Ba ke r 20,000
C a se y, C a p ita l 1,000
C a sh 35,000
To re c o rd p a ym e nts to p a rtne rs, c o m p ute d a s fo llo w s:
Arthur Ba ke r C a se y
C a p ita l a c c o unt b a la nc e s P70,000 P80,000 P55,000
Ad d : Lo a n p a ya b le to Ba ke r 30,000
Le ss: Lo a n re c e iva b le fro m Arthur (20,000)
Lo ss o n re a liza tio n o f a sse ts,
P30,000 (6,000) (15,000) (9,000)
Ba la nc e s P44,000 P95,000 P46,000
Ma xim um p o te ntia l a d d itio na l lo ss
o f P150,000 (P250,000 – P100,000 =
P150,000) d ivid e d in 2:5:3 ra tio (30,000) (75,000) (45,000)
C a sh p a ym e nts P14,000 P20,000 P 1,000
1. b - (P40,000 + P10,000 – P2,000 – P4,000 = P44,000)
2. d – P80,000 – (P150,000 – P50,00) x 50% = P30,000
3. c
4. a - Phil (P35,000 + P10,000); Ha rry P28,000; Bill (P27,000 - P5,000)
5. c - Ric k P46,000; Ma ry (P39,000 - P15,000); Fra n (P29,000 + P10,000)
6. d - P50,000 - (P15,000 - P9,500)(.25)
7. b - P45,000 - (P15,000 - P9,500)(.30)
8. a - P108,000 + [P10,000 - (P25,000 - P18,000)](.55)
9. c - P62,000 + [P10,000 - (P25,000 - P18,000)](.20)
10. b
11. c
12. d
13. c

lOMoARcPSD|10477308
Vulne ra b ility ra nks:

La ng e q uity (P70,000 - P40,000)/ .25 = P120,000 = 1
Ma a s e q uity (P80,000 + P50,0000/ .25 = P520,000 = 3
Ne a l e q uity (P150,000/ .5) = P300,000 = 2
Assum e d lo ss a b so rp tio n:
25% 25% 50%
La ng Ma a s Ne a l To ta l
Eq uitie s P 30,000 P 130,000 P 150,000 P 310,000
Lo ss to e lim ina te
La ng ( 30,000 ) ( 30,000 ) ( 60,000 ) ( 120,000 )
0 P 100,000 P 90,000 P 190,000
Lo ss to e lim ina te
Ne a l ( 45,000 ) ( 90,000 ) ( 135,000 )
P 55,000 P 0 P 55,000
14. c JJ CC TT To ta l
Pro fit ra tio 40% 50% 10% 100%
Prio r c a p ita l (160,000) (45,000) (55,000) (260,000)

Lo ss o n sa le
o f inve nto ry 24,000 30,000 6,000 60,000
(136,000) (15,000) (49,000) (200,000)
15. a Prio r c a p ita l (160,000) (45,000) (55,000) (260,000)

Lo ss o n sa le
o f inve nto ry 72,000 90,000 18,000 180,000
(88,000) 45,000 (37,000) (80,000)
Allo c a te C ha rle s'
c a p ita l d e fic it: (45,000)
JJ = .40/ .50 36,000
TT = .10/ .50 9,000
(52,000) -0- (28,000) (80,000)
16. c – (P234,000 – P434,000) x 20% = P40,000

17. b
T D H
C a p ita l b e fo re re a liza tio n 40,000 10,000 15,000
Lo ss o n sa le (85,000 – 33,000) (26,000) (15,600) (10,400)
14,000 ( 5,600) 4,600
Ad d itio na l lo ss (5:2) (4,000) 5,600 ( 1,600)
10,000 3,000

lOMoARcPSD|10477308
18. a
T D H
Lo ss o n sa le (85,000 – 21,100) (31,950) (19,170) (12,780)
8,050 ( 9,170) 2,220
Ad d itio na l lo ss (5:2) (6,550) 9,170 (2,620)
1,500 ( 400)
Ad d itio na l lo ss ( 400) 400
1,100
19. b
K L M
Liq uid a tio n e xp e nse s (2,000) ( 4,000) ( 4,000)
Lo ss o n sa le (300 - 180) (24,000) (48,000) ( 48,000)
34,000 (12,000) 28,000
Ad d itio na l lo ss (2:4) ( 4,000) 12,000 ( 8,000)
30,000 20,000
20. d
H I J To ta l
C a p ita l b e fo re re a liza tio n 80,000 110,000 140,000 330,000
Lo ss o n sa le (2:4:4) (61,000) (122,000) (122,000) (305,000)
19,000 (12,000) 18,000 25,000
Ad d itio na l lo ss (2:4) ( 4,000) 12,000 ( 8,000)
15,000 10,000
21. d – [(P240,000 – P96,000) / 30% = P480,000]
22. a
C a p ita l b e fo re re a liza tio n – C 130,000
Liq uid a tio n e xp e nse s (12,000 x 50%) (6,000)
Sha re o n lo ss o n re a liza tio n (132,000)
C a p ita l b a la nc e a fte r re a liza tio n ( 8,000)
To ta l lo ss o n re a liza tio n: P132,000/ 50% (264,000)

No n-c a sh a sse ts 434,000
Pro c e e d s 170,000
23. b
Ding La ure l Ezza rd Tillm a n To ta l
C a p ita l b e fo re re a liza tio n 60,000 67,000 17,000 96,000 240,000
Lo ss o n sa le (4:2:2:2) (52,800) ( 26,400) (26,400) (26,400) (132,000)
7,200 40,600 ( 9,400) 69,600 108,000
Po ssib le inso lve nc y lo ss (4:2:2) ( 4,700) ( 2,350) ( 9,400) ( 2,350) -0-
Sa fe p a ym e nts 2,500 38,250 0 67,250 108,000
24. e – re fe r to No . 23

lOMoARcPSD|10477308
25. b
G o nd a He rro n Mo rse To ta l
Lo ss o n sa le (30:45:25); [200 – 150] (15,000) ( 22,500) (12,500) (50,000)
45,000 47,500 27,500 120,000
26. c
S D F To ta l
C a p ita l 40,000 15,000 5,000 60,000
Lo a n ________ _______ 5,000 5,000
To ta l inte re sts 40,000 15,000 10,000 65,000
Lo ss o n sa le (5:3:2) - [90,000 – 26,000] (32,000) ( 19,200) (12,800) (64,000)
8,000 ( 4,200) ( 2,800) 1,000
Po ssib le inso lve nc y (5:3) (1,750) ( 1,050) 2,800 0
6,250 ( 5,250) 1,000
Ad d itio na l inve stm e nt _______ 5,250 5,250
6,250 6,250
27. b
28. a –
Sinc e the p a rtne rship c urre ntly ha s to ta l c a p ita l o f P350,000, the P150,000 tha t is a va ila b le w o uld
ind ic a te m a xim um p o te ntia l lo sse s o f P200,000 tha t is hyp o the tic a lly sp lit a m o ng the p a rtne rs.
White Sa nd s Luke To ta l
Lo ss o n sa le (30:20:50); [350 – 150] (60,000) ( 40,000) (100,000) (200,000)
(10,000) 60,000 100,000 150,000
Po ssib le inso lve nc y (2:5) 10,000 (2,857) (7,143) 0
Sa fe p a ym e nts 57,143 92,857 150,000
29. b - (P13,000 – P1,000 sha re o f g a in = P12,000, re fe r to e ntrie s b e lo w )

Re va lua tio n e ntry:
Ac c umula te d d e p re c ia tio n 3,000
G ym, c a p ita l 1,000
Ho b , c a p ita l 1,000
Ing , c a p ita l 1,000
Withd ra wa l o f e q uip me nt:

Ac c umula te d d e p re c ia tio n (8,000 – 3,000) 5,000
Ho b , c a p ita l 13,000
Eq uip me nt 18,000
30. b –
Ac c um ula te d d e p re c ia tio n 70,000
K, c a p ita l (P150,000 + P10,000 + P10,000 – P70,000) 100,000
Ma c hine ry, a t c o st 150,000
Ric e [P110,000 – (P150,000 – P70,000)] x 1/ 3 10,000
Lo ng [P110,000 – (P150,000 – P70,000)] x 1/ 3 10,000
31. c
X Y Z To ta l
Lo ss o n sa le (35%:35%:30%) (42,000) (42,000) (36,000) *(120,000)
48,000 18,000) ( 6,000) 60,000
*b a la nc ing fig ure – to ta l re duc tio n in c a p ita l

lOMoARcPSD|10477308
Q uiz - IV
1. Ze ro / nil
B P L S
Lo ss o n sa le (3:2:1:4)) (45,000) ( 30,000) (15,000) (60,000)
(20,000) 80,000 85,000 5,000
Ad d itio na l lo ss (2:1:4) (20,000) ( 5,714) ( 2,857) (11,429)
74,286 82,143 ( 6,429)
Ad d itio na l lo ss (2:1) ( 4,286) ( 2,143) 6,429
70,000 80,000
2. Ze ro / nil – re fe r to No . 1
3. Pa g e , P70,000 a nd La rry, P80,000 – re fe r to No . 1
4. P39,525 = P42,000 - (P15,000 - P9,500)(.45)
5. P56,750 = P56,000 + [P10,000 - (P25,000 - P18,000)](.25)
6. P(1,000) = P20,000 - [P30,000 + (P50,000 - P90,000)](.30)
7. P(1,500) = P30,000 - [P30,000 + (P50,000 - P90,000)](.45)
8. P(2,500) = P15,000 - [P30,000 + (P50,000 - P90,000)](.25)
9. P340,000 = (P147,000 + P28,000)/ .35
10. P1,040,000 = (P260,000 / .25)
11. Ab ra m s a nd C re ig hto n
A B C
Liq uid a tio n e xp e nse s (3,600) (2,400) (6,000)
Lo ss o n sa le (134 - 434) (90,000) (60,000) (300,000)
(13,600) 27,600 (176,000)
12. To m , P30,000; Dic k, P4,000 a nd ha rry, P11,000

T D H
Lo ss o n sa le (85,000 – 65,000) (10,000) (6,000) (4,000)
30,000 4,000 11,000
13. P34,000
K L M
Lo ss o n sa le (300 - 180) (24,000) (48,000) ( 48,000)
34,000 (12,000) 28,000
Ad d itio na l inve stme nt _____ 12,000 ______
34,000 28,000
14. P25,000
C a sh, b e g inning P90,000
Pa ym e nt o f liq uid a tio n e xp e nse s ( 5,000)
Pa ym e nt o f lia b ilitie s ( 60,000)
Pa ym e nt to p a rtne rs P25,000

lOMoARcPSD|10477308
15. P15,000
B P L S
Lo ss o n sa le (4:2:1:3) (60,000) ( 30,000) (15,000) (45,000)
(35,000) 80,000 85,000 20,000
Ad d itio na l lo ss (2:1:3) (35,000) (11,667) ( 5,833) (17,500)
15,000 68,333 79,167 2,500
16. P2,500 - re fe r to No . 15
17. Pa g e , P68,3333 a nd La rry, P79,167 – re fe r to No .15
18. Bo nd : P225,000; Ha m m : P115,000; Ze ll: P –0–
Bo nd ’ s c a p ita l b a la nc e ................................................................ P300,000
Le ss: Bo nd ’ s sha re o f P140,000 lo ss in liq uid a tio n
(P140,000 × 50%) ........................................................................... (70,000)
P230,000
Le ss: Bo nd ’ s sha re o f Ze ll’ s c a p ita l d e fic ie nc y o f
P8,000 (5/ 8 o f P8,000) ................................................................... ( 5,000)
P225,000
19. Ale xa : P25,000; Be ll: P75,000; G ra ha m : P–0–
20. Jo d y, P5,200; Ka ne , P64,800; La rk, P10,000

30% 45% 25%
Asse ts De b ts Jo d y Ka ne La rk
Ba la nc e , Ma y 1 250,000 88,000 32,000 90,000 40,000
Pla nt so ld 10,000 3,000 4,500 2,500
Inve nto ry so ld ( 6,000) ( 1,800 ) ( 2,700 ) ( 1,500 )
Ba la nc e s b e fo re
d istrib utio n 254,000 88,000 33,200 91,800 41,000
O ffse t lo a ns ( 26,000) ( 10,000 ) ( 16,000 )
Pa y c re d ito rs ( 88,000) ( 88,000 )
Pa rtne r e q uity 140,000 23,200 91,800 25,000
Po ssib le lo ss:
Pla nt a sse ts 60,000) ( 18,000 ) ( 27,000 ) ( 15,000 )
Distrib utio n 80,000 5,200 64,800 10,000
(C a sh Distrib utio n: P54,000 + P54,000 + P60,000 - P88,000 = P80,000)

Ma y 1 Inve nto ry Pla nt C re d ito rs Ma y 30
21. O a k, P0; Ne b e , P0; a nd Pa ng , P11,000

No n- First 30% 20% 50%
C a sh C a sh Ra nk Oak Ne b e Pa ng
Asse ts De b t Eq uity Eq uity Eq uity
Ja n 1 Ba la nc e 3,000 33,000 9,000 2,000 4,000 21,000
Sa le o f a sse ts 17,000 ( 15,000 ) 600 400 1,000
Sub to ta l 20,000 18,000 9,000 2,600 4,400 22,000
Sa fe Pa ym e nts Sc he d ule
Oak Ne b e Pa ng
Eq uity Eq uity Eq uity
Pa rtne rs’ p re -d istrib utio n b a la nc e s 2,600 4,400 22,000
Po ssib le lo sse s o n no n-c a sh a sse ts ( 5,400 ) ( 3,600 ) ( 9,000 )
( 2,800 ) 800 13,000
Write o ff O a k 2/ 7 a nd 5/ 7 2,800 ( 800 ) ( 2,000 )

lOMoARcPSD|10477308
C a sh d istrib utio n to p a rtne rs 0 0 11,000
C a sh d istrib utio n p la n o n O c to b e r 31:

First P9,000 g o e s to p rio rity c re d ito rs, a nd the n Pa ng re c e ive s P11,000.
22. Id e , P0; Ha nly, P0; Je n, P92,000

Id e Ha nly Je n
C a sh C a p ita l C a p ita l C a p ita l To ta l
Ba la nc e , Aug . 1 50,000 ( 60,000 ) 4,000 106,000 50,000
Id e ’ s p e rso na l
c o ntrib utio n 40,000 40,000 40,000
90,000 ( 20,000 ) 4,000 106,000 90,000
Write -o ff Id e 20,000 ( 7,500 ) ( 12,500 )
90,000 0 ( 3,500 ) 93,500 90,000
Ha nly’ s p e rso na l
c o ntrib utio n 2,000 2,000 2,000
92,000 ( 1,500 ) 93,500 92,000

Write -o ff Ha nly 1,500 ( 1,500 )
92,000 0 92,000 92,000
Distrib ute c a sh 92,000 ) ( 92,000 ) ( 92,000 )
0 0 0
The o rie s
C o m ple tio n Sta te m e nts

1. a . p a rtne rship c re d ito rs o the r tha n p a rtne rs
b . p a rtne rs’ lo a ns—if sub o rd ina te d
c . p a rtne rs’ c a p ita l
2. sta te m e nt o f re a liza tio n a nd liq uid a tio n
3. sc he d ule o f sa fe p a ym e nts
4. m a rsha lling o f a sse ts
5. rule o f se to ff
6. le g a l re c o urse a g a inst
7. b ring ing the c a p ita l b a la nc e s into the p ro fit a nd lo ss ra tio
True o r Fa lse
8. True 13. True 18. Fa lse 23. Fa lse 28. True 33. True
9. Fa lse 14. Fa lse 19. True 24. True 29. Fa lse 34. True
10. Fa lse 15. Fa lse 20. True 25. Fa lse 30. Fa lse 35. Fa lse
11. Fa lse 16. True 21. Fa lse 26. True 31. Fa lse
12. True 17. True 22. True 27. True 32. Fa lse

lOMoARcPSD|10477308

9. The ac c o untant is liab le if he / she fails to m e e t the fiduc iary re sp o nsib ility o f p ro te c ting the c re dito rs’ inte re st
during the liq uidatio n p ro c e ss.
10. The am o unt o f c ash distrib ute d to e ac h p artne r is a func tio n o f the c ap ital b alanc e s and the p ro fit and lo ss
ratio s. It is unlike ly that p artne rs will re c e ive the sam e am o unt o f c ash.
11. Partne rship c re dito rs have p rio rity c laim s ag ainst p artne rship asse ts and p artne r c re dito rs have p rio rity
c laim s ag ainst partne r asse ts.
14. Partne r c re dito rs have c laim s first ag ainst partne r asse ts. The y c an also have a c laim ag ainst partne rship
asse ts to the e xte nt o f the p artne r’s e q uity in the p artne rship .
15. The ac c o untant has a fiduc iary re sp o nsib ility to the p artne rship ’s c re dito rs to e nsure that suffic ie nt asse ts
e xist to p ay the c re dito rs. It do e s no t m e an that c re dito rs m ust b e fully p aid b e fo re any partne r distrib utio ns
o c c ur.
18. G ains and lo sse s re alize d during the liq uidatio n p ro c e ss are g e ne rally allo c ate d using the re sidual p ro fit
and lo ss ratio . O the r p ro fit and lo ss allo c atio n c o m po ne nts are no t c o nside re d b e c ause the se ite m s are
g e ne rally re le vant to the p artne rship ’s o p e ratio n and the c urre nt issue is the p artne rship ’s liq uidatio n.
21. This is c alle d an installm e nt liq uidatio n
23. This do c um e nt is c alle d a State m e nt o f Re alizatio n and Liq uidatio n.
25. The State m e nt o f Re alizatio n and Liq uidatio n do e s no t inc lude inc o m e state m e nt ac c o unts. All inc o m e
state m e nt am o unts are allo c ate d dire c tly to p artne rship e q uity .
Multiple C ho ic e The o rie s

36. A 41. b 46. c 51. b
37. A 42. d 47. a 52. a
38. C 43. b 48. c
39. D 44. d 49. d
40. C 45. b 50. b

lOMoARcPSD|10477308
C ha pte r 5
Pro b le m I
1.
A, B, C a nd D Pa rtne rship
Sta te m e nt o f Liq uid a tio n
Ja nua ry 1, 20x4 to Ma y 31, 20x4
No n- A, B, C, D,
C a sh A, c a p ita l c a p ita l c a p ita l c a p ita l
C a sh Asse ts Lia b ilitie s lo a n D, lo a n (40%) (20%) (20%) (20%)
Liq uid a tio n 181,800 84,000 6,000 3,000 26,400 25,800 20,400 16,200
Ja nua ry
- Re a liza tio n 72,000 (90,000) (7,200) (3,600) (3,600) (3,600)
- Pa yme nt o f
e xp e nse s (1,200) ( 480) ( 240) ( 240) ( 240)
- Pa yme nt
o f lia b ilitie s (66,000) ______ (66,000) _____ _____ ______ ______ ______ ______
Ba la nc e s a fte r Ja n 4,800 91,800 18,000 6,000 3,000 18,720 21,960 16,560 12,360
Fe b rua ry
- Re a liza tio n 21,600 (30,000) (3,360) (1,680) (1,680) (1,680)
- Pa yme nt o f
e xp e nse s (1,320) ( 528) ( 264)
- Pa yme nt ( 264) ( 264)
o f lia b ilitie s (18,000) _______ (18,000) ______ ______ ______ _______ ______ ______
p a yme nt to
p a rtne rs 7,080 61,800 6,000 3,000 14,832 20,016 14,616 10,416
Pa ym e nt to
Pa rtne rs (Sc h. 1) ( 5,280) ______ ______ _____ ______ (5,280) ______ _____
Ba la nc e s a fte r
Fe b rua ry 1,800 61,800 6,000 3,000 14,832 14,736 14,616 10,416
Ma rc h
- Re a liza tio n 19,200 (24,000) (1,920) ( 960) ( 960) ( 960)
- Pa yme nt o f
e xp e nse s ( 1,440) ______ ______ _____ ( 576) ( 288) ( 288) ( 288)
p a yme nt to
p a rtne rs 19,560 31,500 6,000 3,000 12,336 13,488 13,368 9,168
Pa ym e nt to
Pa rtne rs (Sc h. 2) (18,360) ______ (2,736) (3,000) (5,688) (5,568) (1,368)
Ma rc h 1,200 37,800 3,264 12,336 7,800 7,800 7,800
Ap ril
- Re a liza tio n 6,000 (19,800) (5,520) (2, 760) (2,760) (2,760)
- Pa yme nt o f
e xp e nse s (4,800) ______ (1,920) ( 960) ( 960) ( 960)
p a yme nt to
p a rtne rs 2,000 15,000 3,264 4,896 4,080 4,080 4,080
Pa ym e nt to
Pa rtne rs (No te 1) (1,500) ______ ( 720) ( 360) ( 360) ( 360)
Ap ril 500 18,000 2,554 4,896 3,720 3,720 3,720
Ma y
- Re a liza tio n 2,400 (18,000) (6,240) (3,120) (3,120) (3,120)
- Pa yme nt o f
e xp e nse s ( 960) _____ ( 384) ( 192) ( 192) ( 192)
O ffse tting 1,440 2,554 ( 1,728) 408 408 408
O ffse t d e fic it vs.
Lo a n ______ (1,728) 1,728 _____ ______ _____
p a yme nt 2,040 816 408 408 408

lOMoARcPSD|10477308
Pa ym e nt to
Pa rtne rs (No te 2) (2,040) (816) (408) (408) (408)
2.
A, B, C a nd D Pa rtne rship
Sc he d ule o f Sa fe Pa ym e nts
Sc he d ule 1 – Fe b rua ry 28, 20x4
C o m p uta tio n o f Distrib utio n o f C a sh o n Fe b rua ry 28, 20x4
A, B, C, D,
c a p ita l c a p ita l c a p ita l c a p ita l
(40%) (20%) (20%) (20%)
Ba la nc e s b e fo re p a yme nt to p a rtne rs:
Lo a ns 6,000 3,000
C a p ita l 14,832 20,016 14,616 10,416
To ta l Inte re st 20,832 20,016 14,616 13,416
Re stric te d inte re st fo r p o ssib le lo sse s:
Unre a lize d no n-c a sh a sse ts P 61,800
C a sh w ithhe ld 1,800
P 63,600 (25,440) (12,720) (12,720) (12,720)
( 4,608) 7,296 1,896 696
Re stric te d fo r p o ssib le inso lve nc y o f A (2:2:2) 4,608 (1,536) (1,536) (1,536)
5,760 360 ( 840)
Re stric te d fo r p o ssib le inso lve nc y o f D (2:2) ( 420) ( 420) 840
5,340 ( 60)
Re stric te d fo r p o ssib le inso lve nc y o f C ( 60) 60
Pa ym e nt to p a rtne r (s) 5,280
Ap p lie d to :
Lo a ns -0-
C a p ita l 5,280
5,280
Sc he d ule 2 – Ma rc h 31, 20x4

C o m p uta tio n o f Distrib utio n o f C a sh o n Ma rc h 31, 20x4
A, B, C, D,
c a p ita l c a p ita l c a p ita l c a p ita l
(40%) (20%) (20%) (20%)
Ba la nc e s b e fo re p a yme nt to p a rtne rs:
Lo a ns 6,000 3,000
C a p ita l 12,336 13,488 13,488 9,168
To ta l Inte re st 18,336 13,488 13,488 12,168
Re stric te d inte re st fo r p o ssib le lo sse s:
Unre a lize d no n-c a sh a sse ts P 37,800
C a sh w ithhe ld 1,200
P 39,000 (15,600) ( 7,800) ( 7,800) ( 7,800)
2,736 5,688 5,568 4,368
Ap p lie d to :
Lo a ns 2,736 -0- -0- 3,000
C a p ita l ___-0- 5,688 5,568 1,368
2,736 5,688 5,568 4,368

lOMoARcPSD|10477308
3.
T, U, V a nd W Pa rtne rship
C a sh Pa ym e nt Prio rity Pro g ra m *
Ja nua ry 31, 20x4
Inte re sts Pa ym e nts
T, U, V, W, T, U, V, W,
c a p ita l c a p ita l c a p ita l c a p ita l c a p ita l c a p ita l c a p ita l c a p ita l
(40%) (20%) (20%) (20%) (40%) (20%) (20%) (20%) To ta l
liq uid a tio n:
Lo a ns 6,000 3,000
C a p ita l 26,400 25,800 20,400 16,200
To ta l Inte re sts 32,400 25,800 20,400 19,200
Divid e d b y: P & L % __40% ___20% __20% __20%
Lo ss Ab so rp tio n
Ab ilitie s 81,000 129,000 102,000 96,000
Prio rity I ______ (27,000) _______ _______ 5,400 5,400
81,000 102,000 102,000 96,000
Prio rity II ______ ( 6,000) ( 6,000) _______ 1,200 1,200 2,400
81,000 96,000 96,000 96,000
Prio rity III ______ (15,000) (15,000) (15,000) _______ 3,000 3,000 3,000 9,000
81,000 81,000 81,000 81,000 ____-0- 9,600 4,200 3,000 16,800
*a lso kno w n a s Sc he d ule o f C a sh Distrib utio n Pla n / Pre -d istrib utio n Pla n.
4.
T, c a p ita l U, c a p ita l V, c a p ita l W, c a p ita l
(40%) (20%) (20%) (20%)
To ta l Inte re sts P 32,400 P 25,800 P 20,400 P 19,200
Divid e d b y: P & L % ____40% ____20% ____20% ____20%
Lo ss Ab so rp tio n
Ab ilitie s P 81,000 P129,000 P 102,000 P 96,000
O rd e r o f C a sh Distrib utio n (4) (1) (2) (3)
Vulne ra b ility Ra nking s (1
Is m o st vulne ra b le ) (1) (4) (3) (2)
The vulne ra b ility ra nks ind ic a te tha t p a rtne r T is m o st vulne ra b le to lo sse s b e c a use his e q uity w e re
re d uc e d to ze ro w ith a p a rtne rship liq uid a tio n lo ss o f P81,000. Pa rtne r U is le a st vulne ra b le b e c a use
his e q uity is suffic ie nt to a b so rb his sha re o f liq uid a tio n lo sse s up to P129,000. This inte rp re ta tio n he lp s
e xp la in w hy p a rtne r U re c e ive d a ll the c a sh d istrib ute d to p a rtne r o n the first insta llm e nt d istrib utio n
(Aug ust 20x4).
Inc id e nta lly, the c a sh p rio rity p ro g ra m d e ve lo p e d w ill yie ld the sa m e c a sh p a ym e nt a s the p ro c e ss
o f c o m p uting sa fe p a ym e nts e a c h tim e c a sh is a va ila b le . The c a sh d istrib utio n und e r the c a sh
p rio rity p ro g ra m is a s fo llo w s:
O rd e r o f C a sh Distrib utio n C re d ito rs T U V W

1. First P70,000 100%
2. Ne xt P 4,500 100%
3. Ne xt P2,000 50% 50%
4. Ne xt P7,500 33 1/ 3% 33 1/ 3% 33 1/ 3%
5. Re m a ind e r 40% 20% 20% 20%
The first P84,000 a va ila b le is, o f c o urse p a id to the c re d ito rs. C a sh m a y b e he ld b a c k fro m
d istrib utio n if it is a ntic ip a te d tha t a d d itio na l e xp e nse s w ill b e inc urre d a nd unre c o rd e d lia b ilitie s will

lOMoARcPSD|10477308
b e d isc o ve re d . The d istrib utio n o f c a sh in e xc e ss o f the re se rve a m o unt p ro c e e d s a s d e te rm ine d .

Pa rtne r U will re c e ive a ll o f a n a d d itio na l a sh up to P5,400. Ad d itio na l c a sh in e xc e ss o f P5,400 a nd
up to P7,800 is d istrib ute d 50:50 to p a rtne rs U a nd V. Any a m o unt in e xc e ss o f P7,800up to P16,800 is
d istrib ute d 1: 1: 1 to p a rtne rs U, V, a nd W, re sp e c tive ly. Afte r P16,800 (P5,400 + P2,400 + P9,000) ha s
b e e n d istrib ute d to the p a rtne rs, the c a p ita l a c c o unts a re in the d e sire d p ro fit a nd lo ss ra tio o f
4:2:2:2. Any furthe r d istrib utio ns to the p a rtne rs a re m a d e in a c c o rd a nc e w ith the p ro fit a nd lo ss
ra tio .
Eve n tho ug h b o th m e tho d s p ro d uc e the sa m e re sults, the c a sh p a ym e nt p rio rity p ro g ra m is m o re

info rm a tive to b o th p e rso na l a nd p a rtne rship c re d ito rs, a nd to the p a rtne rs. Inte re ste d p a rtie s no w
kno w the o rd e r in w hic h the ind ivid ua l p a rtne rs w ill re c e ive c a sh a nd the a m o unts tha t e a c h m a y
re c e ive a t e a c h p e rio d o f the d istrib utio n p ro c e ss.
O ne re q uire m e nt tha t m ust b e sa tisfie d in the d e ve lo p m e nt o f the a d va nc e p la n is tha t the

p a rtne rs m ust sha re inc o m e in the sa m e ra tio tha t the y sha re lo sse s. If this w e re no t the c a se the
p o te ntia l a m o unt o f a ne w lo ss w o uld ne e d to b e c o m p ute d a fte r e ve ry a llo c a tio n to the p a rtne rs’
c a p ita l a c c o unts. This o c c urs b e c a use the a llo c a tio n o f liq uid a tio n g a in a lte rs the o rd e r o f c a sh
d istrib utio n c o m p ute d in the p rio rity p ro g ra m .

lOMoARcPSD|10477308
Pro b le m II
ABC Pa rtne rship
Sta te me nt o f Pa rtne rship Re a liza tio n a nd Liq uid a tio n
Fo r the p e rio d fro m Ja nua ry 1, 20x4, thro ug h Ma rc h 31, 20x4
O the r Ac c o unts AA BB CC
C a sh Asse ts Pa ya b le 50% 30% 20%
Ba la nc e s b e fo re Liq uid a tio n, 18,000 307,000 (53,000) (88,000) (110,000) (74,000)
Ja nua ry 1,20x4
Ja nua ry tra nsa c tio ns:
1. C o lle c tio n o f a c c o unts
re c e iva b le a t a lo ss
o f P15,000 51,000 (66,000) 7,500 4,500 3,000
2. Sa le o f inve nto ry a t a lo ss 38,000 (52,000) 7,000 4,200 2,800
o f P14,000
3. Liq uid a tio n e xp e nse s p a id (2,000) 1,000 600 400
4. Sha re o f c re d it me mo ra nd um 3,000 (1,500) (900) (600)
5. Pa yme nts to c re d ito rs (50,000) 50,000
55,000 189,000 -0- (74,000) (101,600) (68,400)
Sa fe p a yme nts to p a rtne rs
(Sc he d ule 1) (45,000) __ 26,600 18,400
10,000 189,000 -0- (74,000) (75,000) (50,000)
Fe b rua ry tra nsa c tio ns:
6. Liq uid a tio n e xp e nse s p a id
(4,000) __ 2,000 1,200 800
6,000 189,000 -0- (72,000) (73,800) (49,200)
(Sc he d ule 2) -0- __ ___ -0- -0- -0-
6,000 189,000 -0- (72,000) (73,800) (49,200)
Ma rc h tra nsa c tio ns:
8. Sa le o f M&Eq . a t a lo ss o f 146,000 (189,000) 21,500 12,900 8,600
P43,000
9. Liq uid a tio n e xp e nse s p a id
(5,000) 2,500 1,500 1,000
147,000 -0- -0- (48,000) (59,400) (39,600)
10. Pa yme nts to p a rtne rs (147,000) 48,000 59,400 39,600
Ba la nc e s at e nd of
liq uid a tio n, Ma rc h 31, 20x4 -0- -0- -0- -0- -0- -0-

lOMoARcPSD|10477308
ABC Pa rtne rship

Sc he d ule s o f Sa fe Pa yme nts to Pa rtne rs
AA BB CC
Sc he d ule 1: Ja nua ry 31, 20x4 50% 30% 20%
C a p ita l b a la nc e s (74,000) (101,600) (68,400)
Po ssib le lo ss:
O the r a sse ts (P189,000) a nd p o ssib le
liq uid a tio n c o sts (P10,000) 99,500 59,700 39,800
25,500 (41,900) (28,600)
Ab so rp tio n o f AA’ s p o te ntia l d e fic it b a la nc e (25,500)
BB: (P25,500 x 3/ 5 = P15,300) 15,300
C C : (P25,500 x 2/ 5 = P10,200) 10,200
Sa fe p a yme nt, Ja nua ry 31, 20x4 -0- (26,600) (18,400)
Sc he d ule 2: Fe b rua ry 27, 20x4

Po ssib le lo ss:
O the r a sse ts (P189,000) a nd p o ssib le
liq uid a tio n c o sts (P6,000) 97,500 58,500 39,000
25,500 (15,300) (10,200)
Ab so rp tio n o f AA’ s p o te ntia l d e fic it b a la nc e : (25,500)
BB: (P25,500 x 3/ 5 = P15,300) 15,300
C C : (P25,500 x 2/ 5 = P10,200) 10,200
Sa fe p a yme nt, Fe b rua ry 27, 20x4 -0- -0- -0-
No te tha t the c o mp uta tio n o f sa fe p a yme nts o n Fe b rua ry 27, 20x4, re sulte d in no p a yme nts to p a rtne rs. This is
d ue to the la rg e b o o k va lue o f O the r Asse ts still unre a lize d a nd the re se rva tio n o f the $6,000 c a sh o n ha nd fo r
p o ssib le future liq uid a tio n e xp e nse s.
Pro b le m III: C a sh Distrib utio n Pla n

PET Pa rtne rship
C a sh Distrib utio n Pla n
June 30, 20x4
Lo ss Ab so rp tio n Po we r C a p ita l Ac c o unts
PP EE TT PP EE TT
Pro fit a nd lo ss
p e rc e nta g e s 50% 30% 20%
Pre liq uid a tio n

c a p ita l b a la nc e s (55,000) (45,000) (24,000)
Lo ss a b so rp tio n
Po we r (C a p ita l
b a la nc e s /
Lo ss p e rc e nt) (110,000) (150,000) (120,000)
De c re a se hig he st LAP
to ne xt hig he st:
EE
(P30,000 x .30) 30,000 9,000
(110,000) (120,000) (120,000) (55,000) (36,000) (24,000)

lOMoARcPSD|10477308
De c re a se LAPs
to ne xt hig he st:
EE
(P10,000 x .30) 10,000 3,000
TT
(P10,000 x .20) 10,000 2,000
(110,000) (110,000) (110,000) (55,000) (33,000) (22,000)
Summa ry o f C a sh Distrib utio n

(If O ffe r o f P100,000 is Ac c e p te d )
Ac c o unts PP EE TT
Pa ya b le 50% 30% 20%
C a sh a va ila b le P106,000
First (17,000) P17,000
Ne xt (9,000) P 9,000
Ne xt (5,000) 3,000 P 2,000
Ad d itio na l p a id
in P&L ra tio (75,000) ______ P37,500 22,500 15,000
P -0- P17,000 P37,500 P34,500 P17,000
Pro b le m IV
PET Pa rtne rship
Sta te m e nt o f Pa rtne rship Liq uid a tio n a nd Re a liza tio n
Fro m July 1, 20x4, thro ug h Se p te m b e r 30, 20x4
C a p ita l
No nc a sh Ac c o unts PP EE TT
C a sh Asse ts Pa ya b le 50% 30% 20%
Pre liq uid a tio n b a la nc e s 6,000 135,000 (17,000) (55,000) (45,000) (24,000)
July:
Asse ts Re a lize d 26,500 (36,000) 4,750 2,850 1,900
Pa id liq uid a tio n c o sts (1,000) 500 300 200
Pa id c re d ito rs (17,000) 17,000
14,500 99,000 -0- (49,750) (41,850) (21,900)
Sa fe Pa yme nts (Sc h. 1) (6,500) 6,500
8,000 99,000 -0- (49,750) (35,350) (21,900)
Aug ust:
Eq uip me nt withd ra wn (4,000) (3,000) (1,800) 8,800
(a llo c a te P6,000 g a in)
6,500 95,000 -0- (52,000) (36,700) (12,800)
Sa fe Pa yme nts (Sc h. 2) (4,000) 4,000
2,500 95,000 -0- (52,000) (32,700) (12,800)
Se p te mb e r:
Asse ts Re a lize d 75,000 (95.000) 10,000 6,000 4,000
76,500 -0- -0- (41,500) (26,400) (8.600)
Pa yme nts to p a rtne rs (76,500) 41,500 26,400 8,600
Po stliq uid a tio n b a la nc e s -0- -0- -0- -0- -0- -0-

lOMoARcPSD|10477308
PET Pa rtne rship

Sc he d ule s o f Sa fe Pa yme nts to Pa rtne rs
PP EE TT
Sc he d ule 1: July 31, 20x4 50% 30% 20%
Po ssib le lo ss o n no nc a sh a sse ts (P99,000) 49,500 29,700 19,800
C a sh re ta ine d (P8,000) 4,000 2,400 1,600
3,750 (9,750) (500)
Ab so rp tio n o f Pe n's p o te ntia l d e fic it (3,750)
EE: P3,750 x .30/ .50 2,250
TT: P3,750 x .20/ .50 1,500
-0- (7,500) 1,000
Ab so rp tio n o f TT’ s p o te ntia l d e fic it (1,000)
EE P1,000 x .30/ .30 1,000
Sa fe p a yme nt -0- (6,500) -0-
Sc he d ule 2: Aug ust 31, 20x4

Po ssib le lo ss o n no nc a sh a sse ts (P95,000) 47,500 28,500 19,000
C a sh re ta ine d (P2,500) 1,250 750 500
(3,250) (7,450) 6,700
Ab so rp tio n o f TTs’ p o te ntia l d e fic it (6,700)
PP: P6,700 x .50/ .80 4,188
EE: P6,700 x .30/ .80 2,512
938 (4,938) -0-
Ab so rp tio n o f PPs p o te ntia l d e fic it (938)
EE: P938 x .30/ .30 938
Sa fe p a yme nt -0- (4,000) -0-
Pro b le m V
DSV Pa rtne rship
Sta te me nt o f Pa rtne rship Re a liza tio n a nd Liq uid a tio n — Insta llme nt Liq uid a tio n
Fro m July 1, 20x4, thro ug h Se p te mb e r 30, 20x4
No nc a sh D S V
C a sh Asse ts Lia b ilitie s 50% 30% 20%
Pre liq uid a tio n b a la nc e s, 6/ 30 50,000 670,000 (405,000) (100,000) (140,000) (75,000)
July, 20x4: Sa le o f a sse ts a nd

d istrib utio n o f P120,000 lo ss (510,000) 60,000 36,000 24,000
390,000
440,000 160,000 (405,000) (40,000) (104,000) (51,000)
Liq uid a tio n e xp e nse s (2,500) 1,250 750 500
437,500 160,000 (405,000) (38,750) (103,250) (50,500)
Pa yme nt to c re d ito rs (405,000) 405,000
32,500 160,000 -0- (38,750) (103,250) (50,500)
Pa yme nts to p a rtne rs (Sc h. 1) (22,500) 22,500
10,000 160,000 -0- (38,750) (80,750) (50,500)
Aug ust, 20x4: Sa le o f a sse ts &
d istrib utio n o f P13,000 lo ss 22,000 (35,000) 6,500 3,900 2,600
32,000 125,000 -0- (32,250) (76,850) (47,900)
Liq uid a tio n e xp e nse s (2,500) 1,250 750 500
29,500 125,000 -0- (31,000) (76,100) (47,400)
Pa yme nts to p a rtne rs (Sc h. 2) (19,500) 13,700 5,800
10,000 125,000 -0- (31,000) (62,400) (41,600)

lOMoARcPSD|10477308
Se p te mb e r, 20x4: Sa le o f
a sse ts
d istrib utio n o f P70,000 lo ss 55,000 (125,000) 35,000 21,000 14,000
65,000 -0- -0- 4,000 (41,400) (27,600)
Allo c a te D's d e fic it to S a nd V (4,000) 2,400 1,600
65,000 -0- -0- -0- (39,000) (26,000)
Liq uid a tio n e xp e nse s (2,500) 1,500 1,000
62,500 -0- -0- -0- (37,500) (25,000)
Pa yme nts to p a rtne rs (62,500) -0- 37,500 25,000
Po stliq uid a tio n b a la nc e s -0- -0- -0- -0- -0- -0-
DSV Pa rtne rship

Sc he d ule o f Sa fe Pa yme nts to Pa rtne rs
D S V
Sc he d ule 1, July 31, 20x4: 50% 30% 20%
C a p ita l b a la nc e s, July 31,
Be fo re c a sh d istrib utio n (38,750) (103,250) (50,500)
Assume full lo ss o f P160,000 o n
re ma ining no nc a sh a sse ts a nd
P10,000 in p o ssib le future
liq uid a tio n e xp e nse s 85,000 51,000 34,000
46,250 (52,250) (16,500)
Assume D's p o te ntia l d e fic it
must b e a b so rb e d b y S a nd V: (46,250)
30/ 50 x P46,250 27,750
20/ 50 x P46,250 18,500
-0- (24,500) 2,000
Assume V's p o te ntia l d e fic it
must b e a b so rb e d b y S c o mp le te ly 2,000 (2,000)
o n July 31, 20x4 -0- (22,500) -0-
Sc he d ule 2, Aug ust 31, 20x4:

C a p ita l b a la nc e s, Aug ust 31,
b e fo re c a sh d istrib utio n (31,000) (76,100) (47,400)
Assume full lo ss o f P125,000 o n
re ma ining no nc a sh a sse ts a nd
P10,000 in p o ssib le liq uid a tio n
Exp e nse s 67,500 40,500 27,000
36,500 (35,600) (20,400)
Assume D's p o te ntia l d e fic it
must b e a b so rb e d b y S a nd V: (36,500)
30/ 50 x P36,500 21,900
20/ 50 x P36,500 14,600
Sa fe p a yme nts to p a rtne rs -0- (13,700) (5,800)

lOMoARcPSD|10477308
Pro b le m VI: C a sh Distrib utio n Pla n (o r b e tte r use the fo rm a t pre se nte d in the disc ussio n)
DSV Pa rtne rship
C a sh Distrib utio n Pla n
June 30, 20x4
Lo ss Ab so rp tio n Po we r C a p ita l Ac c o unts
D S V D S V
Pro fit a nd lo ss sha ring ra tio 50% 30% 20%

Pre liq uid a tio n c a p ita l b a la nc e s (100,000) (140,000) (75,000)
Lo ss a b so rp tio n p o we r (LAP)
c a p ita l a c c o unts /
lo ss sha ring p e rc e nta g e (200,000) (466,667) (375,000)
De c re a se hig he st LAP to ne xt
hig he st LAP:
De c re a se S b y P91,667 91,667
(C a sh d istrib utio n: P91,667 x .30) 27,500
(200,000) (375,000) (375,000) (100,000) (112,500) (75,000)
De c re a se LAP to ne xt hig he st
le ve l:
De c re a se S b y P175,000 175,000
C a sh d istrib utio n: P175,000 x .30) 52,500
De c re a se V b y P175,000 175,000
C a sh d istrib utio n: P175,000 x .20) 35,000
(200,000) (200,000) (200,000) (100,000) (60,000) (40,000)

De c re a se LAPs b y d istrib uting
c a sh in the P/ L sha ring ra tio 50% 30% 20%
Summa ry o f C a sh Distrib utio n Pla n

(Estima te d o n June 30, 20x4)
Liq uid a tio n
C re d ito rs Exp e nse s D S V
1. First P405,000 100%
2. Ne xt P10,000 100%
3. Ne xt P27,500 100%
4. Ne xt P87,500 60% 40%
5. Any a d d itio na l d istrib utio ns
in the p a rtne rs' p ro fit
a nd lo ss ra tio 50% 30% 20%

lOMoARcPSD|10477308
b . C o nfirma tio n o f c a sh d istrib utio n p la n
DSV Pa rtne rship

C a p ita l Ac c o unt Ba la nc e s
June 30, 20x4, thro ug h Se p te mb e r 30, 20x4
D S V
Pro fit a nd lo ss ra tio 50% 30% 20%
Pre liq uid a tio n b a la nc e s, June 30 (100,000) (140,000) (75,000)
July lo ss o f P120,000 o n d isp o sa l o f a sse ts
a nd P2,500 p a id in liq uid a tio n c o sts 61,250 36,750 24,500
(38,750) (103,250) (50,500)
July 31 d istrib utio n o f P22,500 o f
a va ila b le c a sh to p a rtne rs (Sc h. 1)
First P22,500 o f P27,500 la ye r:
100% to S 22,500
(38,750) (80,750) (50,500)
Aug ust lo ss o f P13,000 o n d isp o sa l o f
a sse ts a nd P2,500 p a id in
liq uid a tio n c o sts 7,750 4,650 3,100
(31,000) (76,100) (47,400)
Aug ust 31 d istrib utio n o f P19,500 o f
Re ma ining P5,000 o f P27,500 la ye r
o f whic h P22,500 p a id o n July 31:
100% to S 5,000
Ne xt $14,500 o f P87,500 la ye r:
60% to S 8,700
40% to V 5,800
(31,000) (62,400) (41,600)
Se p te mb e r lo ss o f P70,000 o n d isp o sa l o f
a sse ts a nd P2,500 p a id in liq uid a tio n
C o sts 36,250 21,750 14,500
5,250 (40,650) (27,100)
Distrib utio n o f D's d e fic it (5,250) 3,150 2,100
-0- (37,500) (25,000)
Se p te mb e r 30 d istrib utio n o f P62,500 o f
Ne xt P62,500 o f P87,500 la ye r o f whic h
P14,500 p a id o n Aug ust 31:
60% to S 37,500
40% to V 25,000
Po stliq uid a tio n b a la nc e s -0- -0- -0-
Sc he d ule 1, July 31, 20x4: C o mp uta tio n o f P22,500 o f c a sh a va ila b le to b e d istrib ute d to p a rtne rs o n
July 31, 20x4:
C a sh b a la nc e , July 1, 20x4 P 50,000
C a sh fro m sa le o f no nc a sh a sse ts 390,000
Le ss: Pa yme nt o f a c tua l liq uid a tio n e xp e nse s (2,500)
Le ss: Pa yme nts to c re d ito rs (405,000)
Le ss: Amo unt he ld fo r p o ssib le
future liq uid a tio n e xp e nse s (10,000)
C a sh a va ila b le to p a rtne rs, July 31, 20x4 P 22,500

lOMoARcPSD|10477308
Sc he d ule 2, Aug ust 31, 20x4: C o mp uta tio n o f P19,500 o f c a sh a va ila b le to b e d istrib ute d to p a rtne rs
o n Aug ust 31, 20x4:
C a sh b a la nc e , Aug ust 1, 20x4 P10,000

C a sh fro m sa le o f no nc a sh a sse ts 22,000
Le ss: Amo unt he ld fo r p o ssib le
future liq uid a tio n e xp e nse s (10,000)
C a sh a va ila b le to p a rtne rs, Aug ust 31, 20x4 P 19,500
Sc he d ule 3, Se p te mb e r 30, 20x4: C o mp uta tio n o f P62,500 o f c a sh a va ila b le to b e d istrib ute d to

p a rtne rs o n Se p te mb e r 30, 20x4:
C a sh b a la nc e , Se p te mb e r 1, 20x4 P10,000
C a sh re c e ive d fro m sa le o f no nc a sh a sse ts 55,000
C a sh a va ila b le to p a rtne rs, Se p te mb e r 30, 20x4 P62,500
Pro b le m VII
C a sh d istrib utio n p ro g ra m:
C re dito rs Am e s Be a rd C ra ig
First P 50,000 100%
Ne xt 34,000 100%
Ne xt 48,000 33 1/ 3% 66 2/ 3%
All o ve r P132,000 40% 20% 40%
Wo rking p a p e r fo r c a sh d istrib utio ns to p a rtne rs d uring liq uid a tio n (no t re q uire d ):
Am e s Be a rd C ra ig
C a p ita l b a la nc e s b e fo re liq uid a tio n P60,000 P80,000 P92,000
Inc o me -sha ring ra tio 4 4 2
C a p ita l p e r unit o f inc o me sha ring P15,000 P40,000 P23,000
Re d uc e Be a rd 's c a p ita l to ne xt hig he st c a p ita l fo r C ra ig ______ (17,000) ______
Re d uc e Be a rd 's a nd C ra ig 's c a p ita l to Ame s's c a p ita l ______ (8,000) (8,000)
Pro b le m VIII
C a sh 60,000
Q ua nto , C a p ita l 5,000
Ro llo , C a p ita l 3,000
Sim m s, C a p ita l 2,000
Asse ts 70,000
To re c o rd re a liza tio n o f a sse ts a t a lo ss o f $10,000, d ivid e d
a m o unt Q ua nto , Ro llo , a nd Sim m s in 5:3:2 ra tio , re sp e c tive ly.
Lia b ilitie s 30,000

C a sh 30,000
To re c o rd p a ym e nt to c re d ito rs.
Lo a n Pa ya b le to Q ua nto 9,500
Ro llo , C a p ita l 10,500
Sim m s, C a p ita l 5,000
C a sh 25,000

lOMoARcPSD|10477308
To re c o rd p a ym e nt to p a rtne rs, c o m p ute d a s fo llo w s:
Q ua nto Ro llo Sim m s

C a p ita l (inc lud ing Q ua nto 's
lo a n o f P10,000)
b e fo re liq uid a tio n P42,000 P30,000 P18,000
Lo ss o n re a liza tio n o f a sse ts (5,000) (3,000) (2,000)
Ba la nc e s P37,000 P27,000 P16,000
Ma xim um p o te ntia l
a d d itio na l
lo ss (P5,000 +
P50,000 = P55,000)
d ivid e d in 5:3:2 ra tio (27,500) (16,500) (11,000)
C a sh p a ym e nts P 9,500 P10,500 P 5,000
1. c
JJ CC TT To ta l
Pro fit ra tio 40% 50% 10% 100%
Prio r c a p ita l (160,000) (45,000) (55,000) (260,000)

Lo ss o n sa le
o f inve nto ry 24,000 30,000 6,000 60,000
(136,000) (15,000) (49,000) (200,000)
2. a
Pe te r Pa ul Ma ry To ta l
C a p ita l b a la nc e s 300,000 350,000 400,000 1,050,000
Lo ss o n sa le o f a sse ts
(475,000 – 600,000) – 4:4:2 ( 50,000) (50,000) (25,000) (125,000)
250,000 300,000 375,000 925,000
Po ssib le lo ss fo r unre a lize d a sse ts
P1,000,000 – P600,000 = 400,000 160,000 160,000 80,000 400,000
(90,000 140,000 295,000 525,000
3. d
4. d AA BB CC
C a p ita l b a la nc e s 37,000 65,000 48,000
Divid e d b y: Pro fit a nd lo ss ra tio 40% 40% 20%
Lo ss a b so rp tio n p o w e r 92,500 162,500 240,000
Lo ss to re d uc e C C to BB:
(77,500 x .20 = 15,500) 77,500
Ba la nc e s 92,500 162,500 162,500
Lo ss to re d uc e BB & C C to AA:
(B:70,000 x .40 = 28,000) 70,000
(C :70,000 x .20 = 14,000) 70,000
Ba la nc e s 92,500 92,500 92,500
C a sh o f P20,000 a fte r se ttle m e nt o f lia b ilitie s: C C re c e ive s first P15,500;

re m a ining P4,500 sp lit 2/ 3 to BB a nd 1/ 3 to C C

lOMoARcPSD|10477308
5. d C a sh o f P17,000: C C re c e ive s first P15,500; re m a ining P1,500 sp lit 2/ 3 to BB a nd

1/ 3 to C C .
6. a If a ll p a rtne rs re c e ive d c a sh a fte r the se c o nd sa le , the n the re m a ining 12,000 is

d istrib ute d in the lo ss ra tio .
7. b
A B C To ta l
Lo ss o n sa le (2:2:1); [90 – 50] (16,000) ( 16,000) ( 8,000) (40,000)
21,000 49,000 40,000 110,000
Po ssib le lo ss P90,000, unre a lize d NC A (36,000) (36,000) (18,000) 90,000
(15,000) 13,000 22,000 20,000
Po ssib le inso lve nc y lo ss (2:1) 15,000 (10,000) ( 5,000) 0
3,000 17,000
8. b
A B C To ta l
Lo ss o n sa le (2:2:1); [90 – 50] (16,000) ( 16,000) ( 8,000) (40,000)
21,000 49,000 40,000 110,000
Po ssib le lo ss P90,000, unre a lize d NC A
p lus P3,000 = P93,000 (37,200) (37,200) (18,600) 93,000
(16,200) 11,800 21,400 17,000
Po ssib le inso lve nc y lo ss (2:1) 16,200 (10,800) ( 5,400) 0
1,000 16,000 17,000
9. a AE BT KT
Pro fit a nd lo ss ra tio 40% 30% 30%
Lo ss o f P100,000 40,000 30,000 30,000
Re m a ining e q uitie s -0- (150,000) -0-
AE w ill re c e ive no thing ; the e ntire P150,000 w ill b e p a id to BT.
10. c
11. d
12. d
13. c
14. a
CC DD EE To ta l
Pro fit a nd lo ss ra tio 5/ 10 3/ 10 2/ 10 10/ 10
Be g inning c a p ita l 80,000 90,000 70,000 240,000
Ac tua l lo ss o n a sse ts (5:3:2) (15,000) (9,000) (6,000) ( 30,000)
65,000 81,000 64,000 210,000
Po ssib le lo ss – unre a lize d NC A ( 50,000) (30,000) (20,000) ( 20,000)
Sa fe p a ym e nts 15,000 51,000 44,000 190,000

lOMoARcPSD|10477308
15. c
X Y Z
Divid e d b y: 50% 30% 20%
Lo ss a b so rp tio n a b ilitie s 260,000 260,000 500,000
16. a
The lo a n p a ya b le to AA ha s the sa m e le g a l sta tus a s the p a rtne rship ’ s o the r
lia b ilitie s. Afte r p a ym e nt o f the lo a n, the n a ny a va ila b le c a sh c a n b e
d istrib ute d to the p a rtne rs using the sa fe p a ym e nts c o m p uta tio ns.
17. a
D R N J
C a p ita l b a la nc e s 72,000 32,000 52,000 24,000
Divid e d b y: Pro fit a nd lo ss ra tio 40% 20% 20% 20%
Lo ss a b so rp tio n p o w e r 180,000 160,000 260,000 120,000
Lo ss to re d uc e N to D:
(80,000 x .20 = 16,000) 80,000 ____0
18. d – Ha rd ing , P6,107; Jo ne s, P12,275

H J S To ta l
C a p ita l b a la nc e s 20,000 22,000 (10,000) 32,000
Po te ntia l lo ss fro m Sa nd y d e fic it (5,882) (4,118) 10,000 0
14,118 17,882 0 32,000
Lo ss to re d uc e H a nd J:
(50:35) (8,011) (5,607) (13,618)
Ba la nc e s 6,107 12,275 13,382
No te :
1. Re g a rd le ss the re is a fo rthc o ming c o ntrib utio n to b e m a d e b y Sa nd y, it is a ssum e d tha t the P10,000 d e fic it ma y
no t b e re c o ve re d fo r p urp o se s o f d istrib utio n o f c a sh.
2. The P13,382 c a nno t b e d istrib ute d in a c c o rd a nc e w ith p ro fit a nd lo ss ra tio fo r re a so n tha t the c a p ita l b a la nc e s o f Ha rd ing
a nd Jo ne s is no t the sa me w ith the P&L ra tio (H: 20/ 42 =48%; J: 22/ 42 = 52%)
o r, a lte rna tive ly: Using C a sh Pa ym e nt Prio rity Pro g ra m

H J S
C a p ita l b a la nc e s 20,000 22,000 (10,000)
Ad d itio na l c o ntrib utio n 0 0 10,000
C a p ita l b a la nc e s 20,000 22,000
Divid e d b y: Pro fit a nd lo ss ra tio 50/ 85 35/ 85
Lo ss a b so rp tio n p o w e r 34,000 53,429
Lo ss to re d uc e JJ to HH:
(19,428 x 35/ 85 = 8,000) 19,428
Ba la nc e s 34,000 34,000
Le ss: Prio rity I to Jo ne s (P19,428 x 35/ 85) 8,000 P 8,000
P10,382
Le ss: P& L (50:35) (10,382) P 6,107 4,275
P6,107 P 12,275
19. c
20. b

lOMoARcPSD|10477308
21. c
A B C To ta l
Lo a n 20,000 ______ ______ 20,000
To ta l inte re sts 90,000 30,000 50,000 170,000
Lo ss o n sa le (240,000 – 195,000) (15,000) ( 15,000) (15,000) (45,000)
75,000 15,000 35,000 125,000
22. b –lia b ilitie s sho uld b e p a id first, the n the b a la nc e o f P30,000 sho uld b e g ive n to Ab le sinc e he is the
o ne e ntitle d to the first p rio rity.
INTERESTS PAYMENTS______
A B C A B C To ta l
Ba la nc e s b e fo re re a liza tio n
Lo a ns………………….. P 20,000
C a p ita l………………... 70,000 P 30,000 P 50,000
To ta l inte re sts………... P 90,000 P 30,000 P 50,000
Divid e d b y: P&L ra tio ………… 1/ 3 1/ 3 1/ 3
Lo ss a b so rp tio n a b ility……….. P270,000 P 90,000 P150,000
Prio rity I…………………………. 120,000 - _______ P40,000 P40,000
P150,000 P90,000 P150,000
Prio rity II………………………… 60,000 0 60,000 20,000 0 P20,000 40,000
P 90,000 P90,000 P 90,000 P60,000 P 0 P20,000 P80,000
23. d
A B C To ta l
Lo a n 20,000 ______ ______ 20,000
To ta l inte re sts 90,000 30,000 50,000 170,000
Lo ss o n sa le (240,000 – 195,000) (15,000) ( 15,000) (15,000) (45,000)
75,000 15,000 35,000 125,000
Pa ym e nt o f lo a ns to p a rtne r (20,000) ______ _____ (20,000)
55,000 15,000 35,000 105,000
Asse t re c e ive d ______ ______ (30,000) (30,000)
Pa ym e nt to p a rtne rs a fte r p a ym e nt o f lo a n 55,000 15,000 5,000 75,000
No te : The re q uire me nt is p a yme nt to p a rtne rs a fte r o utside c re dito rs a nd lo a ns to p a rtne rs ha d b e e n p a id, the re fo re , the
p a yme nt to p a rtne rs is in so fa r a s c a p ita l is c o nc e rne d.
24. a
D E F
Le ss: Ma c hine , a t fa ir va lue ______ (35,000) ______
Divid e d b y: Pro fit a nd lo ss ra tio 1/ 3 1/ 3 1/ 3
Lo ss a b so rp tio n p o w e r 120,000 165,000 90,000
Lo ss to re d uc e E to D:
(45,000 x 1/ 3 = 15,000) (45,000) ____0
Ba la nc e s 120,000 120,000 90,000

lOMoARcPSD|10477308
25. c
K M B J
(170,000 x .10 = 17,000) 170,000 ____0
Ba la nc e s 147,500 130,000 170,000 170,000
26. c
C P H M
(15,000 x .20 = 3,000) 15,000 ____0
Ba la nc e s 150,000 90,000 200,000 200,000
27. c - the P16,000 a va ila b le c a sh c a n b e d istrib ute d b ut sho uld b e d o ne und e r the a ssum p tio n tha t a ll
d e fic it b a la nc e s w ill b e to ta l lo sse s. Afte r o ffse tting JJ lo a n, the tw o d e fic its to ta l P4,000. FF a nd RR, the
tw o p a rtne rs w ith p o sitive c a p ita l b a la nc e s, sha re p ro fits in a 30:20 re la tio nship (the e q uiva le nt o f a
60%:40% ra tio ). FF w o uld a b so rb P2,400 o f the p o te ntia l lo ss w ith RR b e ing a llo c a te d P1,600. The
re m a ining c a p ita l b a la nc e s (P10,600 a nd P5,400) a re sa fe c a p ita l b a la nc e s a nd tho se a m o unts c a n
b e im m e d ia te ly d istrib ute d .
o r, a lte rna tive ly:

W J F R
C a p ita l b a la nc e s (2,000) (5,000) 13,000 7,000
Lo a n ______ 3,000 _______ __
To ta l inte re sts (2,000) (2,000) 13,000 7,000
Po te ntia l inso lve nc y lo ss (3:2) 2,000 2,000 ( 2,400) (1,600)
10,600 5,400
28. b
A B C To ta l
C a p ita l b a la nc e s (5,000) 18,000 6,000 19,000
Po te ntia l lo ss fro m A d e fic it (5:3) 5,000 (3,125) (1,875) 0
14,875 4,125 19,000
Lo ss to re d uc e H a nd J:
(5:3) (8,750) (5,250) (14,000)
6,125 (1,125) 5,000
Po ssib le inso lve nc y lo ss (1,125) 1,125 0
5,000

lOMoARcPSD|10477308
29. a – insta llm e nt liq uid a tio n (re fe r fo r m o re p ro b le m s in C ha p te r 5)

INTERESTS PAYMENTS ___
P Q R P Q R To ta l
To ta ll inte re sts………... P 70,000 P 50,000 P100,000
Divid e d b y: P&L ra tio ………… 20% 40% 40%
Lo ss a b so rp tio n a b ilitie s……….. P350,000 P125,000 P250,000
Prio rity I…………………………. (100,000) 0 P20,000 P20,000
P250,000 P125,000 P250,000
Prio rity II………………………… (125,000) (125,000) 25,000 P50,000 75,000
P125,000 P125,000 P125,000 P75,000 P 4,500 P50,000 P95,000
C a sh, b e g inning P 90,000

Ad d (d e d uc t):
Liq uid a tio n e xp e nse s p a id ( 8,000)
Pa ym e nt o f lia b ilitie s (170,000)
Pro c e e d s fro m sa le o f a sse ts (? ) 108,000
Pa ym e nt to p a rtne r b e fo re p a ym e nt to Re nq uist (p rio rity I o nly) P 20,000
30. d – Justic e P15,533

J Z D To ta l
C a p ita l b a la nc e s 23,000 22,000 (14,000) 31,000
Po te ntia l lo ss fro m Do ug la ss (40:35) (7,467) (6,533) 14,000 0
15,533 15,467 0 31,000
No te :
1. Re g a rd le ss the re is a fo rthc o ming c o ntrib utio n to b e m a d e b y Do ug la ss, it is a ssum e d tha t the P14,000 d e fic it
m a y no t b e re c o ve re d fo r p urp o se s o f d istrib utio n o f c a sh.
2. The P31,000 c a nno t b e d istrib ute d in a c c o rd a nc e w ith p ro fit a nd lo ss ra tio fo r re a so n tha t the c a p ita l b a la nc e s o f Justic e
a nd Zo b a rt is no t the sa m e w ith the P&L ra tio (H: 20/ 42 =48%; J: 22/ 42 = 52%)
o r, a lte rna tive ly: Using C a sh Pa ym e nt Prio rity Pro g ra m (re fe r to C ha p te r 5)

J Z D
C a p ita l b a la nc e s 23,000 22,000 (14,000)
Ad d itio na l c o ntrib utio n 0 0 14,000
C a p ita l b a la nc e s 23,000 22,000
Divid e d b y: Pro fit a nd lo ss ra tio 40/ 75 35/ 75
Lo ss a b so rp tio n p o w e r 43,125 47,143
Lo ss to re d uc e Z to D:
(4,018 x 35/ 55 = 1,875) 4,018
Ba la nc e s 43,125 43,125
Le ss: Prio rity I to Do ug la ss (P4,018 x 35/ 75) 1,875 P 1,875
P29,125
Le ss: P& L (40:35) (29,125) P15,533 13,592
P15,533 P15,467

lOMoARcPSD|10477308
31. d
D K R D K R To ta l
Lo a ns………………….. P 0 P 10,000 P(20,000)
C a p ita l………………... 170,000 170,000 100,000
To ta l inte re sts………... P170,000 P180,000 P 80,000
Divid e d b y: P&L ra tio ………… 50% 30% 20%
Lo ss a b so rp tio n a b ilitie s……….. P340,000 P600,000 P400,000
Prio rity I…………………………. - (200,000) 0 P60,000 P60,000
P340,000 P400,000 P400,000
Prio rity II………………………… - (60,000) (60,000) 18,000 18,000 36,000
P340,000 P340,000 P340,000 P – P 78,000 P18,000 P 96,000
C a sh re c e ive d b y the p a rtne r Ke m p P 60,000

Ad d (d e d uc t):
Lia b ilitie s p a id 250,000
Exp e nse s p a id 5,000
C o nting e nc y 10,000
C a sh, b e g inning (120,000)
Pro c e e d s fro m sa le o f o the r a sse ts P205,000
32. b
T N D T N D To ta l
Lo a ns………………….. P 0 P 0 P 0
C a p ita l………………... 22,000 15,500 14,000
To ta l inte re sts………... P 22,000 P15,500 P 14,000
Lo ss a b so rp tio n a b ilitie s……….. P 44,000 P62,000 P 56,000
Prio rity I………………………… - ( 6,000) 0 P 1,500 P1,500
P 44,000 P56,000 P56,000
Prio rity II………………………… - (12,000) (12,000) __ 3,000 P 3,000 6,000
P 44,000 P44,000 P44,000 P – P 4,500 P 3,000 P 7,500
C a sh re c e ive d b y Tre e P 6,250

Divid e d b y: P & L ra tio 2/ 4
Am o unt in e xc e ss o f P7,500 P 12,500
To ta l c a sh p a ym e nts – re fe r to p ro g ra m 7,500
Pa ym e nt to p a rtne rs P 20,000
33. d
C a sh, b e g inning P 12,000
Ad d (d e d uc t):
Pro c e e d s fro m sa le o f c e rta in a sse ts 32,000
Liq uid a tio n e xp e nse s p a id ( 1,000)
Pa ym e nt o f lia b ilitie s ( 5,400)
Pa ym e nt to p a rtne rs (re fe r to No . 30) ( 20,000)
C a sh w ithhe ld P 17,600

lOMoARcPSD|10477308
34. d
Prio rity
C re d ito rs Ma tte w s No re ll Re a m s To ta l
First P300,000………. P300,000 P300,000
Ne xt P80,000 (7:3)… P56,000 P24,000 80,000
Ne xt P70,000 (3:4)… 30,000 P40,000 70,000
Re m a ind e r*……….. 22,000 34,000 44,000 100,000
P300,000 P108,000 P58,000 P84,000 P550,000 (d )
*P550,000 – P300,000 – P80,000 – P70,000 = P100,000
INTERESTS PAYMENTS______
P Q R P Q R To ta l
Lo a ns………………….. P 6,000 P(10,000)
C a p ita l………………... 24,000 P36,000 60,000
To ta l inte re sts………... P30,000 P36,000 P50,000
Lo ss a b so rp tio n a b ilitie s…….. P100,000 P120,000 P125,000
Prio rity I…………………………. - - (5,000) P 2,000 P 2,000
P100,000 P120,000 P120,000
Prio rity II………………………… - (20,000) (20,000) P6,000 8,000 14,000 (d )
P100,000 P100,000 P100,000 P – P6,000 P10,000 P16,000
35. d
Prio rity
C re d ito rs Ma tte w s No re ll Re a m s To ta l
First P300,000………. P300,000 P300,000
Ne xt P80,000 (7:3)… P56,000 P24,000 80,000
Ne xt P70,000 (3:4)… 30,000 P40,000 70,000
Re m a ind e r*……….. 22,000 34,000 44,000 100,000
P300,000 P108,000 P58,000 P84,000 P550,000 (d )
*P550,000 – P300,000 – P80,000 – P70,000 = P100,000
Q uiz - V
1. M= 0, K= 25,000, C = 0 - this p ro b le m is m o re o n insta llm e nt liq uid a tio n p rinc ip le s.
M K C To ta l
Lo ss o n sa le (50%:30%:20%) (162,500) (97,500) (65,000) *(325,000)
( 62,500) 77,500 10,000 **25,000
Ad d itio na l lo ss (3:2) 62,500 (37,500) (25,000) ______-
40,000 (15,000) 25,000
Ad d itio na l lo ss (15,000) 15,000 -0-
25,000
*b a la nc ing fig ure – to ta l re duc tio n in c a p ita l
Pa ym e nt to p a rtne rs: P200,000 – P25,000 – P150,000 = P25,000**
2. Ho m e r, P54,000; Ma rg e , P84,000; Ba rt, P177,000.
3. P150,000

lOMoARcPSD|10477308
4. Sta n, P0; Ke nne y, P10,000; C a rtm a n, P0
5. P500,000 = (P147,000 + P28,000)/ .35

6. P1,040,000 = (P260,000 / .25)
7. P675,000 = (P285,000 - P15,000)/ .40
8. a
9. Pe rry: P15,000; Q uinc y: P51,000; Ed d y: P44,000
10.
11. b
12. P33,000
First a llo c a tio n (H) (P400,000 - P380,000) (.30) P 6,000
Se c o nd a llo c a tio n (H) (P380,000 - P300,000) (.30) P24,000
(F) (P380,000 - P300,000) (.25) 20,000 44,000
Third a llo c a tio n, sha re b a se d o n p ro fit a nd lo ss ra tio s 10,000
Ha ro ld : P6,000 + P24,000 + (P10,000 x .30)
13. P2,500
(F) (P380,000 - P300,000) (.25) 20,000 44,000
She ld o n: (P10,000 x .25)
14. P24,500
(F) (P380,000 - P300,000) (.25) 20,000 44,000
Fre d : P20,000 + (P10,000 x .45)
15. P147,000
Lo sse s 40% 30% 30%
Ha ra Ive s Ja c k
Eq uitie s 135,000 216,000 49,000
Po ssib le lo ss o n
re m a ining a sse ts 200,000 ( 80,000 ) ( 60,000 ) ( 60,000 )
C o nting e nc ie s 10,000 ( 4,000 ) ( 3,000 ) ( 3,000 )
Sub to ta ls 51,000 153,000 ( 14,000 )
Elim ina te Ja c k’ s
d e b it b a la nc e ( 8,000 ) ( 6,000 ) 14,000
Sa fe p a ym e nts 43,000 147,000 0
16. P495,000 = (P162,000 + P36,000) / .40

lOMoARcPSD|10477308
17. c
P Q R
68,400 46,800 96,800
Divid e d b y: 20% 40% 40%
Lo ss a b so rp tio n a b ilitie s 342,000 117,000 242,000
Se lling Pric e 183,000

Bo o k va lue 300,000
Lo ss (117,000)
o r,
Q uinc y c a p ita l b e fo re liq uid a tio n………………………………………………..P 50,000
Le ss: Sha re in liq uid a tio n e xp e nse s (P8,000 x 40%)………………………….… 3,200
Q uinc y c a p ita l b e fo re re a liza tio n o f no n-c a sh a sse ts……………………….P 46,800
Le ss: C a sh re c e ive d b y Q uinc y (m inim um )……………………………………. 0
Sha re in the lo ss o n re a liza tio n……………………………………………………P 46,800
Divid e d b y: Pro fit a nd lo ss ra tio ………………………………………………….. 40%
Lo ss o n re a liza tio n…………………………………………………………………..P117,000
Le ss; No n-c a sh a sse ts………………………………………………...................... 300,000
Pro c e e d s fro m sa le …………………………………………………………………P183,000
18. P29,000
(P14,000 Wa rle c a p ita l + P10,000 Xin c a p ita l +
P6,000 Ya te s c a p ita l + P5,000 Lo a n fro m Xin -
P6,000 Lo a n to Wa rle )
19. P2,000
(P4,000 b e g inning b a la nc e + P3,000 c a sh c o lle c te d + P4,000 fo r inve nto ry
so ld - P7,000 o f a c c o unts p a ya b le - P2,000 fo r e xp e nse s)
20. P2,000
Wa rle Xin Ya te s To ta l
Eq uitie s,Jun 30 8,000 15,000 6,000 29,000
Inve nto ry lo ss ( 2,000 ) ( 3,000 ) ( 5,000 ) ( 10,000 )
C o nting e nc y fund ( 400 ) ( 600 ) ( 1,000 ) ( 2,000 )
Sub to ta ls 5,600 11,400 0 17,000
Po ssib le lo sse s o n
re m a ining a sse ts ( 3,000 ) ( 4,500 ) ( 7,500 ) ( 15,000 )
Sub to ta ls 2,600 6,900 ( 7,500 ) 2,000
Elim ina te Ya te s’ s
De fic it ( 3,000 ) ( 4,500 ) 7,500
Sub to ta ls ( 400 ) 2,400 0 2,000
Elim ina te Wa rle ’ s

De fic it 400 ( 400 )
C a sh d istrib utio n 0 2,000 0 2,000

lOMoARcPSD|10477308
THEO RIES
True o r Fa lse
1. Fa lse 6. True 11. Fa lse 16. Fa lse
2. True 7. True 12. True 17. True
3. Fa lse 8. Fa lse 13. Fa lse
4. Fa lse 9. True 14. True
5. True 10. True 15, True
1. An installm e nt liq uidatio n o c c urs o ve r an e xte nde d p e rio d o f tim e and p artne rs g e ne rally re c e ive inte rim
(installm e nt) distrib utio ns.
3. The ac c o untant m ust e nsure that the p artne rship will have suffic ie nt c ash to p ay c urre nt and p ro sp e c tive
c re dito rs b e fo re distrib utio ns are m ade to p artne rs.
4. It m ay no t b e p rude nt fo r the ac c o untant to p ay c re dito rs as q uic kly as p o ssib le . Ho we ve r, funds sho uld b e
se t aside so that c re dito rs c an b e paid in a tim e ly m anne r.
8. The size o f the c ap ital ac c o unt m ust b e e valuate d in c o njunc tio n with the re sidual p ro fit and lo ss ratio to
de te rm ine whic h p artne r is le ast like ly to have a de fic it o c c ur during the p artne rship liq uidatio n.
11. The c ash distrib utio n p lan indic ate s ho w a distrib utio n will b e allo c ate d am o ng the p artne rs b ut it do e s no t
g uarante e that a distrib utio n will b e m ade .
13. The lo ss ab so rp tio n p o we r indic ate s the am o unt o f lo ss the p artne rship wo uld have to o c c ur b e fo re that
p artne r’s c ap ital ac c o unt b alanc e is re duc e d to ze ro .
16. The sc he dule o f safe p ay m e nts c an b e use d fo r any partne rship liq uidatio n b ut it p ro vide s the sam e
distrib utio n as the c ash distrib utio n p lan unde r m o st c irc um stanc e s.
Multiple C ho ic e
18. b 23. a 28. b 33. b 38. c 43. d
19. b 24. d 29. e 34. d 39. d 44. b
20. a 25. d 30. a 35. b 40. b 45. c
21. a 26. a 31. a 36. a 41. a 46. d
22. d 27. d 32. c 37. b 42. b

lOMoARcPSD|10477308
C ha pte r 6
Pro b le m I
1. Sta te m e nt o f Affa irs - Fo rm a l
MINER C O MPANY
Sta te m e nt o f Affa irs
Ma y 31, 2012
Bo o k Va lue Re a liza b le
Asse ts Va lue
Asse ts Ple d g e d w ith Fully Se c ure d C re d ito rs:
P 50,000 No te s Re c e iva b le P39,800
1,200 Ac c rue d Inte re st Re c . 1,000 P 40,800
No te s Pa ya b le 40,000
Ac c rue d Inte re st Pa y. 800 40,800
119,000 Build ing 75,000

Ac c rue d Inte re st Pa y. 800 20,800 P 54,200
Asse ts Ple d g e d w ith Pa rtia lly Se c ure d C re d ito rs:

13,200 Eq uip m e nt 4,200
Fre e Asse ts
6,000 C a sh 6,000
61,000 Ac c o unts Re c e iva b le 50,000
60,000 Inve nto ry 30,000
1,100 Pre p a id Insura nc e 400
8,500 G o o d w ill 0
To ta l Ne t Re a liza b le Va lue 140,600
Lia b ilitie s ha ving Prio rity – Wa g e s 6,000
Ta xe s 2,400 8,400
Ne t Fre e Asse ts 132,200
Estim a te d De fic ie nc y to Unse c ure d C re d ito rs 53,600

P 320,000 P 185,800
Bo o k
Va lue Eq uitie s Unse c ure d
Lia b ilitie s Ha ving Prio rity:
P 6,000 Ac c rue d Wa g e s P 6,000
2,400 Ta xe s Pa ya b le 2,400 P 8,400
Fully Se c ure d C re d ito rs:

60,000 No te s Pa ya b le 60,000
1,600 Ac c rue d Inte re st Pa ya b le 1,600 61,600
Pa rtia lly Se c ure d C re d ito rs:

10,000 No te Pa ya b le 10,000
Eq uip m e nt 4,200 P 5,800

lOMoARcPSD|10477308
Unse c ure d C re d ito rs:

170,000 Ac c o unts Pa ya b le 170,000
10,000 No te s Pa ya b le 10,000
Sto c kho ld e rs’ Eq uity

110,000 C o m m o n Sto c k
( 50,000) Re ta ine d Ea rning s (De fic it)
P 320,000 P 185,800
2. De fic ie nc y Sta te m e nt to d e te rm ine e stim a te d d e fic ie nc y to unse c ure d c re d ito rs:
De fic ie nc y Ac c o unt
Ma y 31, 2012
Estim a te d Lo sse s: Estim a te d G a ins:
Ac c o unts Re c e iva b le P 11,000 C o m m o n Sto c k P 110,000
No te s Re c e iva b le 10,400 Re ta ine d Ea rning s (50,000)
Inve nto ry 30,000 Estim a te d De fic ie nc y to
Build ing s 44,000 Unse c ure d C re d ito rs 53,600
Eq uip m e nt 9,000
Pre p a id Insura nc e 700
G o o d w ill 8,500
P113,600 P 113,600
Estim a te d fina l d ivid e nd ra te to unse c ure d c re d ito rs is: P132,200/ P185,800 = 71.15%
Pro b le m II
1. Fo rm a l
Do wn Do g C o rp o ra tio n
Sta te me nt o f Affa irs
June 30, 2014
De fic ie nc y
Ac c o unt
Bo o k Va lue Asse ts Re a liza b le Va lue (Lo ss/ G a in)
Ple dg e d with partially se c ure d c re dito rs
P165,000 Eq uip me nt-ne t P87,000 (78,000)
Le ss: No te p a ya b le a nd a c c rue d inte re st (96,000) P 0
Unse c ure d a mo unt (Se e b e lo w) (9,000)
Fre e Asse ts
3,000 C a sh 3,000
72,000 Ac c o unts re c e iva b le -ne t 48,000 (24,000)
60,000 Inve nto rie s 72,000 12,000
To ta l ne t re a liza b le va lue 123,000
Le ss: Prio rity lia b ilitie s – wa g e s p a ya b le (45,000)
To ta l a va ila b le fo r unse c ure d c re d ito rs 78,000
______ Estima te d d e fic ie nc y to unse c ure d c re d ito rs 30,000 ______
P300,000 P108,000 (90,000)

lOMoARcPSD|10477308
Unse c ure d
Bo o k Va lue Eq uitie s Lia b ilitie s
Prio rity liab ilitie s

P 45,000 Wa g e s p a ya b le (a ssume d und e r
P4,650 p e r e mp lo ye e ) P 45,000
Partially se c ure d c re dito rs

96,000 No te p a ya b le a nd a c c rue d inte re st P 96,000
Le ss: Eq uip me nt p le d g e d a s se c urity (87,000) P 9,000
Unse c ure d c re dito rs

72,000 Ac c o unts p a ya b le 72,000
27,000 Re nt p a ya b le 27,000
Sto c kho lde rs’ e q uity

180,000 C a p ita l sto c k 180,000
(120,000) Re ta ine d e a rning s (d e fic it) ______ (120,000)
P300,000 P108,000 P 60,000
Estima te d De fic ie nc y P(30,000)
2. Estim a te d p a ym e nts p e r d o lla r fo r unse c ure d c re d ito rs

Distrib utio n to p a rtia lly se c ure d a nd unse c ure d p rio rity c re d ito rs:
No te p a ya b le a nd inte re st P87,000
Ad m inistra tive e xp e nse s 24,000
Wa g e s p a ya b le 45,000 (156,000)
Ava ila b le to unse c ure d no np rio rity c re d ito rs P 54,000
No te p a ya b le a nd inte re st (unse c ure d p o rtio n) P 9,000

Ac c o unts p a ya b le 72,000
Re nt p a ya b le 27,000
Unse c ure d no np rio rity c la im s P108,000
(P54,000 / P108,000 = P0.50 p e r p e so )
Expe c te d re c o ve ry fo r e a c h c la ss o f c la im s
Partially se c ure d
No te p a ya b le a nd inte re st
Se c ure d p o rtio n P87,000
Unse c ure d p o rtio n (P9,000 × 0.50) 4,500 P91,500
Unse c ure d p rio rity

Ad m inistra tive e xp e nse s P24,000
Wa g e s p a ya b le 45,000 69,000
Unse c ure d no np rio rity

Ac c o unts p a ya b le (P72,000 × 0.50 P36,000
Re nt p a ya b le (P27,000 × 0.50) 13,500 49,500
To ta l p a ym e nts P210,000

lOMoARcPSD|10477308
Pro b le m III
Re a liza b le va lue o f a ll a sse ts (P635,000 + P300,000 + P340,000) P1,275,000
Allo c a te d to :
Fully se c ure d c re d ito rs (316,000)
Pa rtia lly se c ure d c re d ito rs (300,000)
Unse c ure d c re d ito rs w ith p rio rity (100,000)
Re m a ind e r a va ila b le to g e ne ra l unse c ure d c re d ito rs P559,000
Pa ym e nt ra te to g e ne ra l unse c ure d c re d ito rs

(Inc lud ing b a la nc e d ue to p a rtia lly se c ure d c re d ito rs)
P559,000 / (P1,165,000 + (P400,000 - P300,000)) 44.2%
Re a liza b le va lue o f a sse ts:

Asse ts p le d g e d to fully se c ure d c re d ito rs P635,000
Asse ts p le d g e d to p a rtia lly se c ure d c re d ito rs 300,000
Fre e a sse ts 340,000
To ta l re a liza b le va lue P1,275,000
Am o unts to b e p a id to :
Fully se c ure d c re d ito rs P316,000
Pa rtia lly se c ure d c re d ito rs [P300,000 + (0.442 × P100,000)] 344,200
Unse c ure d c re d ito rs w ith p rio rity 100,000
G e ne ra l unse c ure d c re d ito rs (0.442 × P1,165,000) 514,800*
To ta l P1,275,000
*Ro und e d P130
Pro b le m IV
Fre e Asse ts:
C urre nt Asse ts ................................................................................. P 35,000
Build ing s a nd Eq uip m e nt .............................................................. 110,000
To ta l ........................................................................................ P145,000
Lia b ilitie s with Prio rity:

Ad m inistra tive Exp e nse s ................................................................ P 20,000
Sa la rie s Pa ya b le (o nly P3,000 p e r e m p lo ye e ) ........................... 6,000
Inc o m e Ta xe s ................................................................................. 8,000
To ta l ........................................................................................ P 34,000
Fre e Asse ts Afte r Pa ym e nt o f Lia b ilitie s w ith Prio rity

(P145,000 – P34,000) ...................................................................... P111,000
Unse c ure d Lia b ilitie s

No te s Pa ya b le (in e xc e ss o f va lue o f se c urity) ......................... P 30,000
Ac c o unts Pa ya b le .......................................................................... 85,000
Bo nd s Pa ya b le ................................................................................ 70,000
To ta l ........................................................................................ P185,000
Pe rc e nta g e o f Unse c ure d Lia b ilitie s To Be Pa id : P111,000/ P185,000 = 60 %

lOMoARcPSD|10477308
Pa ym e nt O n No te s Pa ya b le :
Va lue o f Se c urity (la nd ) ................................................................ P 90,000
60% o f Re m a ining P30,000 ............................................................ 18,000
To ta l C o lle c te d b y ho ld e rs ........................................................... P108,000
Pro b le m V
Fre e Asse ts:
C a sh ........................................................................................ P30,000
Re c e iva b le s (30 p e rc e nt c o lle c tib le ) .......................................... 15,000
Inve nto ry ........................................................................................ 39,000
La nd (va lue in e xc e ss o f se c ure d no te :
P120,000 – P110,000) ................................................................ 10,000
To ta l ........................................................................................ P94,000
Le ss: Lia b ilitie s w ith p rio rity

Sa la ry p a ya b le (b e lo w m a xim um )........................................ (10,000)
Fre e a sse ts a va ila b le ................................................................ P84,000
Unse c ure d Lia b ilitie s:

Ac c o unts p a ya b le .......................................................................... P90,000
Bo nd s p a ya b le (le ss se c ure d inte re st in
b uild ing : P300,000 – P180,000) ................................................ 120,000
Unse c ure d lia b ilitie s .................................................................. P210,000
Pe rc e nta g e o f unse c ure d lia b ilitie s to b e p a id : P84,000/ P210,000 = 40%
Am o unts to b e p a id fo r:
Sa la ry p a ya b le (lia b ility w ith p rio rity to b e p a id
in full) ........................................................................................ P10,000
Ac c o unts p a ya b le (unse c ure d —w ill c o lle c t 40%
o f d e b ts o f P90,000) .................................................................. P36,000
No te p a ya b le (fully se c ure d b y la nd —w ill c o lle c t
e ntire b a la nc e ) ........................................................................ P110,000
Bo nd s p a ya b le (p a rtia lly se c ure d —w ill c o lle c t
P180,000 fro m b uild ing a nd 40 p e rc e nt o f the
re m a ining P120,000) ................................................................. P228,000
Pro b le m VI
To ta l % o f To ta l
Am o unts C la im s
Expe c te d to Expe c te d to
To ta l C re dito r’s be be
C la ss o f C re dito rs C la im s Re c o ve re d Re c o ve re d
Fully se c ure d lia b ilitie s 183,600 183,600 100.0
Pa rtia lly se c ure d lia b ilitie s 54,600 51,720 94.7
Unse c ure d lia b ilitie s w ith p rio rity 30,810 30,810 100.0
Unse c ure d lia b ilitie s w itho ut 182,500 116,800 64.0
p rio rity

lOMoARcPSD|10477308
Pro b le m VII
1. To ta l e stim a te d p ro c e e d s P910,000
Le ss a sse t p ro c e e d s c la im e d b y se c ure d
c re d ito rs:
No te s p a ya b le a nd inte re st (fro m
p ro c e e d s o f re c e iva b le s a nd inve nto ry) P150,000
Mo rtg a g e p a ya b le a nd inte re st (fro m
p ro c e e d s o f la nd a nd b uild ing ) 320,000 470,000
To ta l a va ila b le to unse c ure d c la im a nts. P440,000
Le ss d istrib utio ns to unse c ure d c la im s
w ith p rio rity:
Wa g e s p a ya b le P 10,000
Ta xe s p a ya b le 20,000 30,000
Am o unt a va ila b le fo r unse c ure d c la im s P410,000
2. Unse c ure d p o rtio n o f no te s p a ya b le a nd

inte re st (P500,000 + P30,000 – P150,000) P380,000
To ta l c la im s o funse c ure d c re d ito rs P640,000
Divid e nd to Unse c ure d C re d ito rs
P410,000 ÷ P640,000 = 64.1%

Inte re st P380,000
Divid e nd o n unse c ure d a m o unt ฀ 64.1%
Am o unt re c e ive d o n unse c ure d p o rtio n P243,580
Pro c e e d s fro m re c e iva b le s a nd inve nto ry 150,000
To ta l Re c e ive d P393,580
Divid e nd to no te ho ld e rs: P393,580 ÷ P530,000 = 74.3%

lOMoARcPSD|10477308
Pro b le m VIII
1.
WILBUR C O RPO RATIO N
STATEMENT O F AFFAIRS
DEC EMBER 31, 20x4
Asse ts
Estim a te d
Am o unt Estim a te d
Estim a te d Ava ila b le to G a in
C urre nt Unse c ure d (Lo ss) o n
Bo o k Va lue Va lue s C la im s Re a liza tio n
(1) Asse ts p le d g e d w ith fully se c ure d
c re d ito rs:
P 40,000 Ac c o unts re c e iva b le (ne t) P 40,000
Le ss: 10% no te p a ya b le a nd
inte re st 38,500 P 1,500
50,000 La nd P 65,000 P 15,000

110,000 Pla nt a nd e q uip m e nt (ne t) 100,000 (10,000)
P165,000
Le ss: Mo rtg a g e s p a ya b le a nd
inte re st (157,500) 7,500
(2) Asse ts p le d g e d w ith p a rtia lly

se c ure d c re d ito rs:
20,000 Ma rke ta b le se c uritie s P 16,000 (4,000)
Le ss: 10% no te p a ya b le a nd
inte re st (20,800)
35,000 Inve nto ry P 32,000 (3,000)

Le ss: Ac c o unts p a ya b le (60,000)
(3) Fre e a sse ts:

4,000 C a sh P 4,000 4,000
35,000 Ac c o unts re c e iva b le (ne t) 35,000 35,000
55,000 Inve nto ry 50,000 50,000 (5,000)
6,000 Pre p a id insura nc e 1,000 1,000 (5,000)
140,000 Pla nt a nd e q uip m e nt (ne t) 60,000 60,000 (80,000)
48,000 Fra nc hise s 15,000 15,000 (33,000)
Estim a te d a m o unt a va ila b le P 174,000

Le ss: C re d ito rs w ith p rio rity (43,000)
Ne t a va ila b le to unse c ure d c re d ito rs P 131,000
Estim a te d d e fic ie nc y 45,000
P 543,000 (P 125,000)
To ta l unse c ure d d e b t P 176,000
2. Pe rc e nta g e to unse c ure d c re d ito rs: P131,000/ P176,000 = 74.43%

lOMoARcPSD|10477308
Pro b le m IX
Sm ith C o m p a ny
Sta te m e nt o f Re a liza tio n a nd Liq uida tio n
Asse ts
Asse ts to b e re a lize d Asse ts Re a lize d
O ld Re c e ive b le s, ne t P 50,000 O ld Re c e ivb le s P 28,000

Ma rke ta b le Se c uritie s 20,000 Ne w Re c e ivb le s 65,000
O ld Inve nto ry 72,000 Ma rke ta b le Se c uritie s 15,000
De p re c ia b le Asse ts, ne t 120,000 Sa le s o f Inve nto ry 100,000
Asse ts Ac q uire d Asse ts No t Re a lize d
Ne w Re c e iva b le s 100,000 O ld Re c e iva b le s, ne t 22,000

Ne w Re c e iva b le s, ne t 35,000
De p re c ia b le Asse ts 96,000
Supple m e nta ry Ite m s

Sup p le m e nta ry C ha rg e s Sup p le m e nta ry C re d its
O ld C urre nt Pa ya b le s P 31,000 Ne t Lo ss P 7,000
Lia b ilitie s
Lia b ilitie s Liq uid a te d Lia b ilitie s to b e Liq uid a te d
O ld C urre nt Pa ya b le s P 31,000 O ld C urre nt Pa ya b le s P 65,000
Lia b ilitie s No t Liq uid a te d Lia b ilitie s Inc urre d
O ld C urre nt Pa ya b le s P 34,000 ________

P433,000 P 433,000
Pro b le m X
Ma llo ry C o rp o ra tio n
Fo r the Thre e Mo nths End e d July 31, 20x5
Asse ts
Asse ts C a sh No n-C a sh
Be g inning b a la nc e s a ssig ne d 5/ 1/ x5 P 4,000 P720,000
C a sh Re c e ip ts:
C o lle c tio n o f Ac c o unts Re c e iva b le 60,000 (70,000)
Sa le o f inve nto ry 170,000 (200,000)
Sa le o f la nd a nd b uild ing 20,000 (340,000)
Sa le o f m a c hine ry 70,000 (100,000)
C a sh Disb urse m e nts:
Pa ym e nt o f sa la rie s p a ya b le (60,000)
Pa rtia l p a ym e nt o f a c c o unts p a y. (170,000)
Pa rtia l p a ym e nt o f b a nk lo a n (70,000)
End ing b a la nc e P24,000 P10,000

lOMoARcPSD|10477308
Lia b ilitie s
Unse c ure d
Fully Pa rtia lly With Witho ut O w ne r's
Asse ts Se c ure d Se c ure d Prio rity Prio rity Eq uity
Be g inning b a la nc e s a ssig ne d P240,000 P270,000 P94,000 P0 P120,000
C a sh Re c e ip ts:
C o lle c tio n o f Ac c o unts (10,000)
Sa le o f inve nto ry (30,000)
Sa le o f la nd a nd b uild ing (240,000) (80,000)
Sa le o f m a c hine ry (30,000)
Pa ym e nt o f sa la rie s p a ya b le (60,000)
Pa rtia l p a ym e nt o f a c c o unts (180,000) 10,000
Pa rtia l p a ym e nt o f b a nk lo a n ________ (90,000) ________ 20,000 ________
End ing b a la nc e P 0 P 0 P34,000 P30,000 P (30,000)
1. d – sinc e the re is p a re nt a nd sub sid ia ry re la tio nship , a ny inte rc o m p a ny a c c o unts a re e lim ina te d fro m
c o nso lid a te d p o int o f vie w .
2. a - [P90,000 + P36,000 + P10,000 – P45,000 = P91,000 to ta l e stim a te d a m o unt a va ila b le ; P91,000 –

(P4,500 + P10,000) = P76,500 e stim a te d a m o unt a va ila b le fo r unse c ure d , no n-p rio rity c re d ito rs;
P76,500 ÷ P90,000 = 0.85]
3. c – it is a p a rtia lly se c ure d lia b ility
4. d – [(P1,110,000 – P780,000) + P960,000] – P210,000 = P1,080,000
5. b – P25,000 + [.30 x (P75,000 – P25,000)] = P40,000
6. d – (P555,000 – P390,000) + P480,000 = P645,000 – P105,000 = P540,000
7. b – P30,000 + [.30 x (P90,000 – P30,000)] = P48,000
8. c – [ P110,000 + (P150,000 – P110,000) x 40%] = P128,000
9. d
10. c – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000
11. b - P20,000 + P80,000 + [P170,000 – (P150,000 + P7,000)] = P113,000 – (P10,000 + P10,000)

= P93,000
12. c – P93,000/ P121,000 = 77% ro und e d .
13. a
Ne t Fre e Asse ts:
(P700,000 – P300,000) + P70,000 + P230,000 = P700,000 – P140,000 = P560,000
To ta l Unse c ure d C re d ito rs w itho ut p rio rity:
(P400,000 – P300,000) + P600,000 = P700,000

lOMoARcPSD|10477308
14. c - Pe nsio n P10,000 + Sa la rie s P35,000 (= P10,600 + P10,950 + P10,950 + P2,500) + Ta xe s P80,000 + Liq .
e xp e nse s P40,000 = P165,000.
15. c
Asse ts to b e Re a lize d …………. P 1,375,000 Asse ts Re a lize d …………………..P 1,200,000

Asse ts Ac q uire d ……………….. 750,000 Asse ts No t Re a lize d …………… 1,375,000
Lia b ilitie s Liq uid a te d …………. 1,875,000 Lia b ilitie s to b e Liq uid a te d …. 2,250,000
Lia b ilitie s No t Liq uid a te d ……. 1,700,000 Lia b ilitie s Assume d ………….. 1,625,000
Sup p le me nta ry c ha rg e s/ Sup p le me nta ry c re d its……… 2,800,000
d e b its……………………… 3,125,000
P 8,825,000 P 9,250,000
Ne t G a in……………………….. P 425,000
16. No re q uire m e nt
17. c
To ta l Lia b ilitie s (re fe r to Lia b ilitie s no t liq uid a te d –No . 14)…………………… P1,700,000
+: Sto c kho ld e rs’ Eq uity (P1,500,000 – P500,000)………………………………… 1,000,000
To ta l LSHE = To ta l Asse ts…………………………………………………………… P 2,700,000
-: No nc a sh a sse ts (re fe r to Asse ts no t re a lize d -No . 14)……….……………… 1,375,000
C a sh b a la nc e , e nd ing ………………………………………………………………P1,325,000
18. P440,000
To ta l Fre e Asse ts:
Fully se c ure d :
La nd a nd b uild ing : P650,000 – (P300,000 + P20,000) = P 330,000
Fre e a sse ts:
C a sh 10,000
Eq uip m e nt 100,000 P440,000
O r,
To ta l e stim a te d p ro c e e d s P910,000
c re d ito rs:
To ta l a va ila b le to unse c ure d c la im a nts/ to ta l fre e P440,000
19. P410,000
To ta l a va ila b le to unse c ure d c la im a nts/ to ta l fre e P440,000
w ith p rio rity:
Ta xe s p a ya b le 20,000 30,000
Am o unt a va ila b le fo r unse c ure d
c la im s/ ne t fre e a sse ts P410,000

lOMoARcPSD|10477308
20. P640,000 = P260,000 + [(P50,000 + P100,000) – (P500,000 + 30,000), o r

Unse c ure d p o rtio n o f no te s p a ya b le a nd
inte re st (P500,000 + P30,000 – P150,000) P380,000
To ta l c la im s o f unse c ure d c re d ito rs P640,000
21. 64.1%
Divid e nd to unse c ure d c re d ito rs
P410,000 ÷ P640,000 = 64.1%
22. P320,000 = P300,000 + P20,000
23. P393,580
inte re st P380,000
Divid e nd o n unse c ure d a m o unt x 64.1%
24. P30,000
25. P166,666 = P260,000 x 64.1
26. P910,247 = P320,000 + P393,580 + P30,000 + P166,666 (d isc re p a nc y o f P247 d ue to ro und ing -o ff)
27. P230,000
Ne t fre e a sse ts (No . 19) P410,000
Le ss: Unse c ure d c re d ito rs w itho ut p rio rity (No . 20) 640,000
P230,000
28. P340,000 = P910,000 – P1,250,000
29. P340,000, sa m e w ith No . 28, sinc e the re a re no unre c o rd e d e xp e nse s lia b ilitie s)
30. P60,675 – yo u m a y the sa m e p ro c e d ure in No s. 18 to 29 to so lve this p ro b le m , the fo llo w ing is the
fo rm a l p re se nta tio n o f sta te m e nt o f a ffa irs

lOMoARcPSD|10477308
Estima te d Estima te d Amt Estima te d

Ne t Ava il fo r G a in o r
Bo o k Asse ts Re a liza b le Unse c ure d (Lo ss)o n
Va lue Va lue C re d ito rs Liq uid a tio n
Asse ts p le d g e d with fully se c ure d
c re d ito rs:
98,500 La nd a nd Bld g 92,800 22,200 (5,700)
5,800 Inve stme nt in C a la nd ir 15,000 4,625 9,200
To ta l 107,800
Asse ts p le d g e d with p a rtia lly
se c ure d c re d ito rs:
41,000 Inve nto ry 20,000 (21,000)
43,000 Eq uip me nt 8,000 (35,000)
Fre e Asse ts:
1,850 C a sh 1,850 1,850 0
21,200 Ac c o unts Re c 17,000 17,000 (4,200)
15,000 No te Re c 15,000 15,000 0
Estima te d Amo unt Ava il fo r unse c ure d c re d ito rs
with a nd witho ut p rio rity 60,675
Le ss unse c ure d c re d ito rs with p rio rity (3,775)
Estima te d a mo unts fo r unse c ure d c re d ito rs
witho ut p rio rity (Ne t Fre e Asse ts):
Ne t Re a liza b le Amo unt Ava il 56,900
_______ De fic ie nc y _______ 15,725 _______
226,350 169,650 72,625 (56,700)
Estima te d Estima te d Unse c ure d Amo unt

Bo o k Lia b ilitie s Se c ure d With Witho ut
Va lue a nd O wne rs Eq uity Amo unt Prio rity Prio rity
Fully Se c ure d C re d ito rs:
600 Ac c rue d Mtg Inte re st 600
70,000 Mo rtg a g e Pa ya b le 70,000
375 Ac c rue d N/ P Inte re st 375
10,000 No te Pa ya b le 10,000
To ta l 80,975
Pa rtia lly Se c ure d
C re d ito rs:
50,000 Ac c o unts Pa ya b le 28,000 22,000
Unse c ure d C re d ito rs with
Prio rity:
3,775 Ac c rue d Pa yro ll 3,775
Unse c ure d c re d ito rs witho ut
Prio rity:
40,625 Ac c o unts Pa ya b le 40,625
10,000 O the r Ac c rue d Lia b ilitie s _______ 10,000
185,375 To ta ls 108,975 3,775 72,625
40,975 O wne r Eq uity
226,350
31. P56,900 – re fe r to No . 30 fo r c o m p uta tio n

32. P72,625 – re fe r to No . fo r c o m p uta tio n
33. Divid e nd - P56,900/ P72,625 = P.78 – re fe r to No . 30 fo r furthe r c o m p uta tio n
34. P80,975 – re fe r to No . 30 fo r c o m p uta tio n
35. P45,160 = P28,000 + (P22,000 x 78%)
36. P3,775

lOMoARcPSD|10477308
37. P39,487.50 = 78% x (P40,625 + P10,000)

38. P169,397.50
No . 34……………..P 80.975
No . 35…………….. 45,160
No . 36…………….. 3,775
No . 37…………….. 39,487.50
P169,397.50 (d isc re p a nc y a ro und P250 p lus d ue to ro und ing -o ff)
39. P15,725 – re fe r to No . 30 o r P56,700, e stim a te d ne t lo ss – P40,975, o w ne rs’ e q uity

40. P56,700 – re fe r to No . 30 o r P169,650 – P226,350
41. P56,700 (sa m e w ith No . 40 sinc e the re a re no unre c o rd e d e xp e nse s lia b ilitie s)
42. P22,475
Lia b ilitie s
Unse c ure d
Asse ts Fully Pa rtia l With Witho ut O w ne rs'
C a sh No nc a sh Se c ure d Se c ure d Prio rity Prio rity Eq uity
6/ 1/ x5 Ba la nc e s:
1,850 224,500 80,975 50,000 3,775 50,625 40,975
C a sh
Re c e ip ts:
Se c uritie s Sa le 16,000 (5,800) 10,200
N/ R C o lle c te d 15,000 (15,000) 0
Eq uip m e nt 7,000 (43,000) (36,000)
Sa le
Inve nto ry Sa le 22,000 (41,000) (19,000)
Ba nk Lo a n (10,375) (10,375)
Pa rt Pyt-A/ P (29,000) ---------- --------- (50,000) ------- 21,000 ----------
6/ 30 Ba la nc e 22,475 119,700 70,600 0 3,775 71,625 (3,825)
43. P119,700 – re fe r to No . 42
44. P70,600 – re fe r to No . 42
45. No ne – re fe r to No . 42
46. P3,775 – re fe r to No . 42
47. P71,625 – re fe r to No . 42
48. (P3,825) d e fic it – re fe r to No . 42

lOMoARcPSD|10477308
49. P150,900
Estima te d
Estima te d Amo unt Estima te d
Ne t Ava ila b le fo r G a in o r
Bo o k Re a liza b le Unse c ure d (Lo ss) o n
Va lue Asse ts Va lue C re d ito r Liq uid a tio n
Asse ts p le d g e d with fully se c ure d c re d ito rs:
57,000 Ac c o unts re c e iva b le (ne t) 45,000 12,600 (12,000)
174,000 La nd , p la nt a nd e q uip me nt (ne t) 150,000 77,400 (24,000)
To ta l 195,000
Fre e a sse ts:
6,000 No te s re c e iva b le 6,000 6,000 0
900 Ac c rue d inte re st re c e iva b le 900 900 0
90,000 Inve nto rie s (90,000 x 60%) 54,000 54,000 (36,000)
Estima te d a mo unt a va ila b le fo r
unse c ure d c re d ito rs with a nd
witho ut p rio rity 150,900
Le ss unse c ure d c re d ito rs with p rio rity (26,900)
Estima te d a mo unts fo r unse c ure d
c re d ito rs witho ut p rio rity:
Ne t re a liza b le a mo unt a va ila b le 124,000
De fic ie nc y 26,000
327,900 To ta ls 255,900 150,000 (72,000)
Estima te d Estima te d Unse c ure d

Se c ure d Amo unt
Amo unt
Bo o k Witho ut
Va lue Lia b ilitie s a nd O wne rs' Eq uity With Prio rity Prio rity
Fully se c ure d c re d ito rs:
3,600 Ac c rue d inte re st 3,600
69,000 No te p a ya b le 69,000
2,400 Ac c rue d inte re st 2,400
30,000 No te p a ya b le 30,000
To ta l 105,000
Unse c ure d c re d ito rs with p rio rity:
24,900 Wa g e s p a ya b le 24,900
Ad ministra tio n fe e s – a c c o unta nt’ s
0 fe e 2,000
Unse c ure d c re d ito rs witho ut p rio rity:
0 Ac c rue d inte re st 0
18,000 C a sh o ve rd ra ft 18,000
6,000 No te s p a ya b le 6,000
126,000 Ac c o unts p a ya b le -------- -------- 126,000
279,900 To ta ls 105,000 26,900 150,000
48,000 O wne rs' e q uity--se e No te A
327,900
No te A: Inc lud e s the e ffe c t o f the P2,000 p ro fe ssio na l fe e .
50. P124,000 – re fe r to No . 49
51. P150,000–
52. 82.67% = P124,000/ P150,000
53. P105,000
54. No ne
55. P26,900
56. P124,005 = P150,000 x 82.67%

lOMoARcPSD|10477308
57. P255,900 = P72,000 + P26,900 + P124,005 (d isc re p a nc y o f P5)

58. P26,000 = (P72,000 + P2,000 unre c o rd e d ) – P48,000 o r P150,000 – P124,000
59. P72,000 – re fe r to No . 49
60. P74,000 = P72,000, lo ss o f re a liza tio n o f a sse ts + P2,000 unre c o rd e d e xp e nse s
Q uiz - VI
1. P96,000
C la im s o f p artially se c ure d c re d ito rs ................................................................... P 120,000
C urre nt va lue o f a sse ts p le d g e d w ith the se c re d ito rs ...................................... (80,000)
De fic ie nc y tha t is unse c ure d ................................................................................. P 40,000
C la im s o f o the r unse c ure d c re d ito rs .................................................................... 360,000
To ta l unse c ure d c re d ito rs c la im s ........................................................................ P 400,000
Am o unt a va ila b le to unse c ure d c re d ito rs:

Exc e ss le ft o ve r a fte r p a ying fully se c ure d c re d ito rs
(P195,000 – P150,000) ........................................................................................... P 45,000
C urre nt va lue o f fre e a sse ts (ne t o f P45,000 to
c re dito rs with p rio rity ) ........................................................................................... 115,000
Am o unt a va ila b le to unse c ure d c re d ito rs........................................................ P160,000
Se ttle m e nt to unse c ure d c la im s p e r d o lla r (P160,000/ P400,000) ................... P .40
To ta l d istrib utio n to p artially se c ure d c re d ito rs:

C urre nt va lue o f a sse ts p le d g e d ........................................................................ P 80,000
De fic ie nc y o f P40,000 × P.40 ................................................................................ 16,000
P 96,000
2. P144,000 = P360,000 x 40%
3. P56,000
C la im s o f p artially se c ure d c re d ito rs ................................................................... P 90,000
C urre nt va lue o f a sse ts p le d g e d w ith the se c re d ito rs ...................................... (50,000)
De fic ie nc y tha t is unse c ure d ................................................................................. P 40,000
C la im s o f o the r unse c ure d c re d ito rs .................................................................... 200,000
To ta l unse c ure d c re d ito rs c la im s ........................................................................ P 240,000
Am o unt a va ila b le to unse c ure d c re d ito rs:

Exc e ss le ft o ve r a fte r p a ying fully se c ure d c re d ito rs
(P300,000 – P250,000) ........................................................................................... P 50,000
C urre nt va lue o f fre e a sse ts (ne t o f P60,000 to
c re dito rs with p rio rity ) ........................................................................................... (14,000)
Am o unt a va ila b le to unse c ure d c re d ito rs........................................................ P 36,000
Se ttle m e nt to unse c ure d c la im s p e r p e so (P36,000/ P240,000) ....................... P .15
To ta l d istrib utio n to p artially se c ure d c re d ito rs:

C urre nt va lue o f a sse ts p le d g e d ........................................................................ P 50,000
De fic ie nc y o f P40,000 × P.15 ................................................................................ 6,000
P 56,000
4. P30,000 = P200,000 x 15%
5. P35,000 = P20,000 + (P70,000 – P20,000) x 30%

lOMoARcPSD|10477308
6. P96,000 = Fre e a sse ts P220,000 - p rio rity c la im s P100,000 = P120,000

P120,000/ P300,000 unse c ure d = p a ym e nt o f 40% o n unse c ure d p e so
40% x P240,000 A/ P = P96,000
7. P474,000 = La nd a nd b uild ing so ld fo r P450,000 le a ve s P60,000 unse c ure d still o wing . 40% x
P60,000 = P24,000
8. P295,000 = P200,000 + P95,000
9. P42,950 - (P10,950 + P2,000 + P20,000 + P10,000)
10. P76,050 - Exc e ss o f sa la rie s, P1,050 + no te s p a y in e xc e ss o f se c urity P25,000 + a c c o unts p a y P50,000
11. P163,800
Fre e a sse ts:
O the r a sse ts P104,000
Exc e ss fro m a sse ts p le d g e d w ith se c ure d
(P150,800 – P91,000) 59,800
P163,800
12. P109,200
To ta l fre e a sse ts P163,800
Le ss: Lia b ilitie s w ith p rio rity 54,600
P109,200
13. P364,000
Unse c ure d c re d ito rs:
Exc e ss o f p a rtia lly se c ure d lia b ilitie s o ve r
Ple d g e d a sse ts (P169,000 – P65,000) P104,000
Unse c ure d c re d ito rs 260,000
P364,000
14. P96,200
Pa ym e nt o f p a rtia lly se c ure d d e b t:
Va lue o f p le d g e d a sse ts P 65,000
30%* o f re m a ining P104,000 31,200
P 96,200
*P109,200/ P364,000 = 30%
15. P78,000
C a sh P 65,000
Exc e ss o f p le d g e d w ith se c ure d lia b ilitie s
(P117,000 – P104,000) 13,000
P 78,000
16. P52,000
Fre e a sse ts a fte r o f lia b ilitie s w ith p rio rity:
To ta l fre e a sse ts P 78,000
Le ss: Lia b ilitie s w ith p rio rity 26,000
P 52,000
17. P260,000
Unse c ure d c re d ito rs:
Exc e ss o f p a rtia lly se c ure d lia b ilitie s o ve r
p le d g e d a sse ts (P195,000 – P169,000) P 26,000
P 260,000

lOMoARcPSD|10477308
18. P174,200
Pa ym e nt o n b o nd :
Va lue o f p le d g e d a sse ts P 169,000
20%* o f re m a ining P26,000 5,200
P 174,200
Fre e a fte r p rio rity: P52,000/ P260,000 = 20%
19. P247,000
Fre e a sse ts P390,000
Exc e ss fro m a sse ts p le d g e d w ith fully se c ure d
(P260,000 – P195,000) 65,000
Am o unt a va ila b le P455,000
Unse c ure d lia b ilitie s w ith p rio rity ( 208,000)
Ne t fre e a sse ts / a va ila b le fo r unse c ure d P247,000
20. P32,000
C a sh 120,000
Mo rtg a g e p a ya b le , p a id in full ( 60,000 )
60,000
No te p a ya b le to b a nk, se c ure d p o rtio n ( 30,000 )
30,000
Prio rity c la im s (P16,000 o f a d m inistra tive c o sts +
P2,000 o f c usto m e r d e p o sits + P4,000 p ro p e rty ta x) ( 22,000 )
Ava ila b le fo r unse c ure d no np rio rity c la im s 8,000
Unse c ure d , no np rio rity c la im s:
Unse c ure d p o rtio n o f no te p a ya b le to b a nk 10,000
To ta l unse c ure d , no np rio rity c la im s 40,000
P8,000 c a sh/ P40,000 c la im s = P.20 o n the d o lla r
Am o unt p a id to b a nk:
P30,000 fo r se c ure d p o rtio n + (P10,000 x .20) fo r unse c ure d
p o rtio n = 32,000
21. P15,400
Mo rtg a g e no te re c e iva b le 35,000
Le ss: Po rtio n se c ure d b y e q uip m e nt ( 7,000 )
Unse c ure d p o rtio n 28,000
Estim a te d re c o ve ry o n se c ure d p o rtio n 7,000
Estim a te d re c o ve ry o n unse c ure d p o rtio n
(P28,000 x P.30) = 8,400
Re c o ve ry o n m o rtg a g e no te re c e iva b le 15,400
22.
Mo rtg a g e no te re c e iva b le 80,000
Le ss: Po rtio n se c ure d b y m a rke ta b le se c uritie s ( 60,000 )
Unse c ure d p o rtio n 20,000
Estim a te d re c o ve ry o n se c ure d p o rtio n 60,000
Estim a te d re c o ve ry o n unse c ure d p o rtio n
(20,000 x P.25) = 5,000

lOMoARcPSD|10477308
Re c o ve ry o n m o rtg a g e no te re c e iva b le 65,000
23. P30,000
Bo o k va lue o f a sse ts P700,000
Ne t re a liza b le o f a sse ts 370,000
P330,000
Le ss sto c kho ld e rs' e q uity
(P700,000 – P400,000) 300,000
De fic ie nc y P 30,000
24. P.75 Divid e nd = P370,000 – P250,000 – P30,000 / P400,000 – P250,000 – P30,000

25. P8,500 = P7,000 + [(P9,000 – P7,000) x .75]
26. P410,000
To ta l e stim a te d p ro c e e d s P910,000
c re d ito rs:
To ta l a va ila b le to unse c ure d c la im a nts. P440,000
w ith p rio rity:
Ta xe s p a ya b le 20,000 30,000
Am o unt a va ila b le fo r unse c ure d c re d ito rs P410,000
27. 64.10%
inte re st (P500,000 + P30,000 – P150,000) P380,000
To ta l c la im s o f unse c ure d c re d ito rs P640,000
Divid e nd to unse c ure d c re d ito rs:

P410,000 ÷ P640,000 = 64.1%

Inte re st P380,000
Divid e nd o n unse c ure d a m o unt x 64.1%

lOMoARcPSD|10477308
THEO RIES
1. d e b to r
2. P5,000
3. ina b ility to p a y d e b ts a s the y m a ture
4. a . a d m inistra tive c o sts
b . c e rta in p o stfiling “ g a p ” c la im s in invo lunta ry filing s
c . w a g e s, sa la rie s, a nd c o m m issio ns
d . e m p lo ye e b e ne fit p la ns
e . d e p o sits b y ind ivid ua ls
f. ta xe s
5. infre q ue nt
6. tw o -third s, m o re tha n o ne -ha lf
7. fra ud ule nt, p re fe re ntia l
8. re a liza tio n a nd liq uid a tio n
9. Fa lse 14. Fa lse 19. Fa lse 24. c 29. b 34. b 39. b

10. Fa lse 15. True 20. Fa lse 25. a 30. b 35. d 40. c
11. Fa lse 16. True 21. c 26. d 31. b 36. b 41. b
12. True 17. True 22. a 27. c 32. a 37. c 42. a
13. Fa lse 18. True 23. a 28. e 33. c 38. a 43. c
44. a 49. c 54. d 59. a

45. c 50. d 55. c 60. c
46. c 51. a 56. d
47. a 52. d 57. b
48. b 53. b 58. a

lOMoARcPSD|10477308
C ha pte r 7
Pro b le m I
1. Entrie s in 20x4:
C a sh 3,500
Mo rtg a g e No te s Re c e iva b le 20,500
Re a l Esta te ………………………………… 9,000
G a in o n Sa le o f Re a l Esta te 15,000
C a sh 500
Mo rtg a g e No te s Re c e iva b le 500
Entry in 20x5:
Re a l Esta te ………………………………………………………… 16,500
Lo ss o n Re p o sse ssio n o f Re a l Esta te ……………………… 3,500
Mo rtg a g e No te s Re c e iva b le ……………………………… 20,000
2. Entrie s in 20x4
C a sh ………………………………………………………………………… 3, 500
Mo rtg a g e No te s Re c e iva b le ………………………………… 20,500
Re a l Esta te …………………………………………………………… 9,000
De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s ………… … 15,000
C a sh ………………………………………………………………………… 500
Mo rtg a g e No te s Re c e iva b le ……………………………… 500
Re c e ip t P500 c a sh in 20x4 a p p lic a b le to p rinc ip a l o f no te
De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s ……………… 2,500

Re a lize d G ro ss Pro fit o n Insta llm e nt Sa le s……………… 2,500
G ro ss Pro fit Pe rc e nta g e s

15,000/ 24,000, o r 62.5%
6.25% o f P4,000 (c o lle c tio ns in c o ntra c t in 20x4)
O r P2,500
Entry in 20x5
Re a l Esta te …………………………………………………………… 16,500

De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s ……………… 12,500
Mo rtg a g e No te s Re c e iva b le …………………………………… 20,000
G a in in Re p o sse ssio n o f Re a l Esta te ………………………… 9,000
Pro b le m II
1. 20x4: No Pro fit is re c o g nize d . P4,000 d o w n p a ym e nt is tre a te d a s a re turn o f inve stm e nt.
20x5 P750 is p ro fit. P250 is tre a te d a s a re turn o f inve stm e nt.
Fo llo w ing ye a rs: Ea c h a nnua l insta llm e nt f P1,000 is p ro fit.
2. 20x4: P4,000 is p ro fit.
20x5: P1,000 is p ro fit.
20x6: P750 is p ro fit, a nd P250 is tre a te d a s re turn o f inve stm e nt.
Fo llo w ing ye a rs: Ea c h a nnua l insta llm e nt is P1,000 is tre a te d a s a re turn o f inve stm e nt.
3. Pro fit Pe rc e nta g e is 5,750 / P10,000, o r 5.75% o f sa le s
20x4: P4,000 x 57.5%, o r P2,300, is p ro fit; P1,700 is tre a te d a s a re turn o f inve stm e nt.

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Fo llo w ing ye a rs: P1,000 x 57.5%, o r P575 p e r ye a r, is re g a rd e d a s p ro fit.

P425 p e r ye a r is tre a te d a s re turn o f inve stm e nt.
Pro b le m III
1.
a . Insta llm e nt C o ntra c ts Re c e iva b le 19X8………………… 250,000
Insta llm e nt Sa le s …………………………………………………… 250,000
b . C a sh ………………………………………………………………………… 120,000
Insta llm e nt C o ntra c ts Re c e iva b le 19X8 …………………… 120,000
c . C o st o f Insta llm e nt Sa le s ………………………………………… 200,000

Me rc ha nd ise Inve nto ry …………………………………… 200,000
d . Me rc ha nd ise Re p o sse ssio ns ………………………………… 14,500

De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s 19X8 ………… 4,000
Lo ss o n Re p o sse ssio n …………………………………… 1,500
Insta llm e nt C o ntra c ts Re c e iva b le , 19X8 ……………. 20,000
G ro ss Pro fit Pe rc e nta g e s: 50,000/ 250,000, o r 20%

De fe rre d G ro ss Pro fit o n Re p o sse ssio n: 20% o f P20,000 o r P4,000
Fa ir va lue o f re p o sse sse d m e rc ha nd ise .. P 14,500

Le ss: Unre c o ve re d c o st:
Unp a id b a la nc e …………………………P 20,000
Le ss: De fe rre d G ro ss Pro fit
20% x P20,000…………………… 4,000 16,000
Lo ss o n re p o sse ssio n……………………. P 1,500
e . Exp e nse s ……………………………………………………………………… 16,000

C a sh …………………………………………………………………. 16,000
2. Ad justm e nt to Re c o g nize G ro ss Pro fit o n Insta llme nts Sa le s:
a . To se t-up C o st o f Insta llm e nt Sa le s:

No e ntry (sinc e p e rp e tua l inve nto ry m e tho d is use d )
b . To se t-up De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s:

Insta llm e nt Sa le s ……………………………………………………… 250,000
C o st o f Insta llm e nt Sa le s …………………………………. 200,000
De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s-20x4.. ……… 50,000
c . Ad justm e nt to Re c o g nize G ro ss Pro fit o n Insta llm e nt Sa le s:
De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s – 20x4……… 24,000

Re a lize d G ro ss Pro fit o n Insta llm e nt Sa le s – 20x4 ………. 24,000
Re a lize d G ro ss Pro fit: 20% o f P120,000 (c o lle c tio ns),
o r P24,000

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d . C lo sing o f no m ina l a c c o unts.

Re a lize d G ro ss Pro fit o n Insta llm e nt Sa le s – 20x4………………… 24,000
Exp e nse s ………………………………………………………. 16,000
Lo ss o n Re p o sse ssio ns ………………………………………. 1,500
Inc o m e Sum m a ry ……………………………………………. 6,500
To c lo se the a c c o unts fo r 20x4.
Pro b le m IV
1.
Ja nua ry to De c e mb e r 31 20x4 20x5
(1) To re c o rd re g ula r sa le s:
Ac c o unts re c e iva b le 600,000 1,080,000
Sa le s 600,00 1,080,000
(2) To re c o rd insta llme nt sa le :

C a sh 60,000 144,000
Insta llme nt a c c o unts re c e iva b le 300,000 336,000
Insta llme nt Sa le s 360,000 480,000
(3) To re c o rd c o st o f sa le s:
Pe rio d ic Me tho d : No e ntry
Pe rp e tua l Me tho d :
Re g ula r Sa le s:
C o st o f Sa le s 480,000 864,000
Me rc ha nd ise inve nto ry 480,000 864,000
Insta llme nt Sa le s:
C o st o f insta llme nt sa le s 252,000 312,000
(4) To re c o rd c o lle c tio ns:

Re g ula r Sa le s:
C a sh 144,000 360,000
Ac c o unts re c e iva b le 144,000 360,000
Insta llme nt Sa le s:
C a sh 108,000 204,000
Insta llme nt Ac c o unts re c e iva b le –
20x2 72,000 72,000
Insta llme nt Ac c o unts re c e iva b le –
20x3 60,000
Inte re st inc o me 36,000 72,000
(5) to re c o rd p a yme nt o f o p e ra ting e xp e nse s:

O p e ra ting e xp e nse s 90,000 102,000
C a sh 90,000 102,000
2.
Ad justing e ntrie s (e nd o f the ye a r):

(6) To re c o g nize a c c rue d inte re st re c e iva b le
Inte re st re c e iva b le 1,440 2,880

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(7) To se t-up C o st o f Sa le s:
Pe rio d ic Me tho d :
Pe rp e tua l Me tho d : No e ntry
(7) To se t-up C o st o f Insta llme nt Sa le s:

Pe rio d ic Me tho d :
Ship me nt s o n insta llme nt sa le s 252,000 312,000
Pe rp e tua l Me tho d : No e ntry
(8) To se t-up De fe rre d G ro ss Pro fit

Insta llme nt sa le s 360,000 480,000
De fe rre d g ro ss p ro fit – 20x4 108,000
G ro ss p ro fit ra te – 20x4: P 108,000 / P360,000 = 30%.
G ro ss p ro fit ra te – 20x5: P168,000 / P480,000 = 35%.
(9) To re c o rd re a lize d g ro ss p ro fit o n insta llme nt

sa le s:
De fe rre d g ro ss p ro fit – 20x4 25,200 25,200
Re a lize d g ro ss p ro fit 25,200 46,200
20x4: Re a lize d g ro ss p ro fit o n insta llme nt sa le s:

C o lle c tio ns a p p lying a s to p rinc ip a l..……………………………P 72,000
Multip lie d b y: G ro ss p ro fit ra te ……………………………………. 30%
Re a lize d g ro ss p ro fit…………………………………………………P 21,600
20x5: Re a lize d g ro ss p ro fit o n insta llme nt sa le s;

20x4 20x5
C o lle c tio ns – p rinc ip a l…………… P 72,000 P 60,000
Multip lie s b y: G ro ss p ro fit %.......... ____30% ____35%
Re a lize d g ro ss p ro fit……………… P 21,600 P 21,000 P 42,600
C lo sing e ntrie s:
(10) To c lo se re a lize d g ro ss p ro fit a c c o unt:
Re a lize d g ro ss p ro fit 21,600 42,600
Inc o me summa ry 21,600 42,600
(11) To c lo se o the r no mina l a c c o unts

Sa le s 600,000 1,080,000

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C o st o f sa le s 480,000 864,000
(12) To c lo se re sults o f o p e ra tio ns:

Re ta ine d e a rning s 89,040 231,480
Pro b le m V
1.
Typ e o f Sa le Amo unt Ra tio to To ta l Sa le s Allo c a te d C o st
Re g ula r Sa le s:
C a sh sa le s P 225,000 P *146,250
C re d it sa le s ___450,000 **292,500
To ta l re g ula r sa le s P 675,000 675/ 1,800 P 438,750
Insta llme nt Sa le s _ 1,125,000 1,125/ 1,800 __731,250
To ta l Sa le s P 1,800,000 P 1,170,000
*P225,000/P1,800,000 x P1,170,000 = P146,250
**P450,000/P1,800,000 x P1,170,000 = P292,500
The a llo c a tio n a b o ve w a s b a se d o n the a ssum p tio ns tha t the m a rkup fo r e a c h typ e o f sa le is the
sa m e . No rm a lly, the se lling p ric e s o f the m e rc ha nd ise a re no t the sa m e fo r e a c h typ e o f sa le s.
2.
Amo unt b a se d o n Ra tio to To ta l
Typ e o f Sa le Amo unt C a sh Sa le s (100%) Sa le s Allo c a te d C o st
C a sh sa le s P 225,000 P 225,000 225/ 1,500 P 175,500
C re d it sa le s 450,000 375,000* 375/ 1,500 292,500
Insta llme nt Sa le s 1,125,000 900,000** 900/ 1,500 __ 702,000
To ta l Sa le s P 1,500,000 P 1,250,000 P 1,170,000
*P450,000 / 120% = P375,000
**P1,125,000 / 125% = P900,000
3.
Typ e o f Sa le Amo unt G ro ss p ro fit ra te C o st ra tio Allo c a te d C o st*
C a sh sa le s P 225,000 30% 70% P 157,500
C re d it sa le s 450,000 36% 64% 288,000
Insta llme nt Sa le s 1,125,000 40% 60% _ _675,000
To ta l Sa le s P 1,800,000 P 1,170,000
* Amo unt o f sa le x c o st ra tio .

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Pro b le m VI
The e ntrie s a re re q uire d und e r the p e rio d ic m e tho d :
Re p o sse sse d me rc ha nd ise ………………………………… 68,400
De fe rre d g ro ss p ro fit – 20x4……………………………… 48,000
Lo ss o n re p o sse ssio n……………………………………………… 3,600
Insta llme nt a c c o unts re c e iva b le – 20x4……………………. 120,000
To re c o rd re p o sse sse d me rc ha ndise .
Re p o sse sse d me rc ha nd ise ……………………………… 12,000

C a sh, e tc (o r va rio us c re d its)…………………… 12,000
To re c o rd re c o nd itio ning c o sts
The lo ss o n re p o sse ssio n is c o m p ute d a s fo llo w s:

Estim a te d se lling p ric e a fte r re c o nd itio ning c o sts P 108,000
Le ss: Re c o nd itio ning c o sts……………………………………… P 12,000
C o sts to se ll a nd d isp o se ……………………………… 6,000
No rm a l p ro fit (20% x 108,000)………………………… __21,600 __39,600
Ma rke t va lue b e fo re re c o nd itio ning c o sts………………… P 68,400
Le ss: Unre c o ve re d c o st
Insta llm e nt a c c o unts re c e iva b le – 20x4,
unp a id b a la nc e …………………………………… P120,000
Le ss: De fe rre d g ro ss p ro fit – 20x4 (P120,000 x 40%) __48,000 __72,000
Lo ss o n re p o sse ssio n……………………………. P( 3,600)
Pro b le m VII
The e ntry to re c o rd the sa le o f the ne w ve hic le und e r the p e rio d ic m e tho d :
Tra d e -in Me rc ha nd ise ……………………………… 840,000

O ve r-a llo wa nc e o n tra d e -in me rc ha nd ise …………………. 360,000
C a sh…………………………………………………………… 2,400,000
Insta llme nt a c c o unts re c e iva b le – 20x4… 3,360,000
Insta llme nt sa le s…………………………… 6,960,000
To re c o rd insta llme nt sa le s with tra de -in.
Alte rna tive ly, the o ve r-a llo w a nc e o n tra d e -in m e rc ha nd ise m a y a lso b e tre a te d a s ne t o f insta llme nt
sa le s, the e ntry w o uld b e a s fo llo w s:
C a sh……………………………………………………………… 2,400,000
Insta llme nt a c c o unts re c e iva b le – 20x4……… 3,360,000
Insta llme nt sa le s (ne t o f o ve r-a llo wa nc e )… 6,600,000
To re c o rd insta llme nt sa le s with tra de -in.
The o ve r-a llo w a nc e is c o m p ute d a s fo llo w s:

Tra d e -in a llo wa nc e ……………………………… P1,200,000
Le ss: Ma rke t va lue b e fo re re c o nd itio ning c o sts:
Estima te d re sa le p ric e a fte r re c o nd itio ning c o sts. P1,680,000
Le ss: Re c o nd itio ning c o sts…………………………… 420,000
C o sts to se ll (5% x P1,680,000)…………………… 84,000
No rma l p ro fit (20% x P1,680,000)……… __336,000 __840,000
O ve r-a llo wa nc e …………………………………………………… P 360,000

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The g ro ss p ro fit ra te o n insta llm e nt sa le s is c o m p ute d a s fo llo w s:

Insta llme nt sa le s……………………………………………………… P6,960,000
Le ss: O ve r-a llo wa nc e ………………………………………………………… ___360,000
Ad juste d Insta llme nt Sa le s…………………………………………………… P6,600,000
Le ss: C o st o f insta llme nt sa le s……………………………………………… __3,920,000
G ro ss p ro fit…………………………………………………………………… P2,680,000
G ro ss p ro fit ra te (P2,680,000/ P6,600,000)………………………… 40.60%
Furthe r, the e ntry to re c o rd the re c o nd itio ning c o sts is a s fo llo w s:

C a sh, e tc (o r va rio us c re d its)………………… 420,000
To re c o rd re c o nditio ning c o sts.
Inc id e nta lly, the re alize d g ro ss pro fit o n installm e nt sale s o f the ne w m e rc handise fo r the ye a r 20x4 is
c o m p ute d a s fo llo w s:
Tra d e -in me rc ha nd ise (ma rke t va lue b e fo re re c o nd itio ning c o sts)……… P 840,000
Do wn p a yme nt…………………………………………………………………… 2,000,000
Insta llme nt c o lle c tio n (Ma rc h 31 – De c e mb e r 31: P80,000 x 10 mo nths) ___800,000
To ta l c o lle c tio ns…………………………………………………………… P3,640,000
Multip lie d b y: G ro ss p ro fit ra te in 20x4………………………………… ___40.60%
Re a lize d g ro ss p ro fit o n insta llme nt sa le s o f ne w me rc ha nd ise ………… P1,477,840
Pro b le m VIII
1. Entrie s a ssum ing tha t m o nthly p a ym e nts c o nsist o f P600 p lus inte re st o n the unp a id b a la nc e :
O c t. 31 C a sh ……………………………………………………………………… 20,000
Mo rtg a g e No te s Re c e iva b le ………………………………… 55,000
Re a l Esta te ……………………………………………………… 60,000
De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s …………… 15,000
No v. 30 C a sh ……………………………………………………………………… 1,150
Mo rtg a g e No te s Re c e iva b le ………………………………… 600
Inte re st Inc o m e ………………………………………………… 550
Inte re st Re c e ive d : P55,00 a t 12% fo r 1 m o nth, o r P550
De c . 31 C a sh ………………………………………………………………………… 1,144
Mo rtg a g e No te s Re c e iva b le ……………………………… 600
Inte re st Inc o m e …………………………………………………… 544
Inte re st re c e ive d : P54,400 (P55,000-P600) a t 12% 1 m o nth, o r P544
31 De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s ……………… 4,240

Re a lize d G ro ss Pro fit o n Insta llm e nt Sa le s ………………… 4,240
G ro ss Pro fit Pe rc e nta g e : 15,000/ 75,000, o r 20%
Re a lize d G ro ss Pro fit: 20% o f P21,200 (c o lle c tio ns a p p lic a b le to p rinc ip a l in 19X3) o r P4,240
2. Entrie s a ssum ing m o nthly p a ym e nts o f P600 tha t inc lud e inte re st o n the unp a id b a la nc e o f the
c o ntra c t:
De c . 31 C a sh ……………………………………………………………………… 20,000.00
Mo rtg a g e No te s Re c e iva b le ………………………………… 55,000.00
Re a l Esta te ……………………………………………………… 60,000.00
De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s ………… 15,000.00

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No v. 30 C a sh ……………………………………………………………………… 600
Mo rtg a g e No te s Re c e iva b le …………………… 50.00
Inte re st Inc o m e ………………………………………………… 550.00
Inte re st Re c e ive d : P55,000 a t 12% fo r 1 m o nth o r P550. Ba la nc e Pa ym e nt, P600-P550, o r P50, is

re d uc tio n in p rinc ip a l)
De c . 31 C a sh ………………………………………………………………………. 600.00
Mo rtg a g e No te s Re c e iva b le ………………………………… 50.50
Inte re st Re c e ive d ……………………………………………… 549.50
Inte re st Re c e ive d : P54,950. Ba la nc e Pa ym e nt, P600.00-549.50, o P50.50, is re d uc tio n in p rinc ip a l.
31 De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s ………………… 4,020.10

Re a lize d G ro ss Pro fit o n Insta llm e nt Sa le s ………………… 4,020.10
G ro ss Pro fit Pe rc e nta g e : 15,000/ 75,000, o r 20%
Re a lize d G ro ss Pro fit: 20% o f P20,100.50 (c o lle c tio ns a p p lic a b le to p rinc ip a l in 19X3), o r P4,020.10
Pro b le m IX
1. 6/ 30x4: C a sh…………………………………………………………………………… 25,000
No te s Re c e iva b le …………………………………………………………… 125,000
Ac c um ula te d De p re c ia tio n (3.1/ 2[2% o f P90,000]) …………………… 6,300
De p re c ia tio n Exp e nse (1/ 2[2% o f P90,000]) …………………………… 900
La nd …………………………………………………………………… 10,000
Build ing …………………………………………………………… 90,000
De fe rre d G ro ss Pro fit o n Sa le o f Pro p e rty …………………… 57,200
De fe rre d G ro ss Pro fit o n Sa le o f Pro p e rty ……………… 9,553

Re a lize d G ro ss Pro fit o n Sa le o f Pro p e rty ………………… 9,553
Am o unt re a lize d : (P25,000/ 150,000) x 57,200
2. 6/ 30x5: C a sh …………………………………………………………………………… 30,000

No te s Re c e iva b le …………………………………………………… 30,000
De fe rre d G ro ss Pro fit o n Sa le o f Pro p e rty ………………… 11,440

Re a lize d G ro ss Pro fit o n Sa le o f Pro p e rty ………………………… 11,440
Am o unt re a lize d (P30,000/ P150,000) x 57,200
6/ 30/ x6 C a sh ………………………………………………………………………… 50,000

De fe rre d G ro ss Pro fit o n Sa le o f Pro p e rty …………… … 19,067

Am o unt Re a lize d : (P50,000/ P150,000) X 57,200
6/ 30/ x7 C a sh ……………………………………………………………………… 15,000

De fe rre d G ro ss Pro fit o n Sa le o f Pro p e rty ………………… 5,720

Am o unt Re a lize d : (P15,000/ P150,000) X 57,200

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Pro b le m X
Insta llm e nt C o ntra c ts Re c e iva b le …………………………… 200,000
Insta llm e nt Sa le s ……………………………………………………… 200,000
C o st o f Insta llm e nt Sa le s …………………………………………… 120,000

Me rc ha nd ise Inve nto ry ……………………………………………… 120,000
C o st o f Sa le s: 60% o f P200,000
Insta llm e nt Sa le s ………………………………………………………… 200,000
C o st o f Insta llm e nt Sa le s …………………………………………… 120,000
De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s ……………………… 60,000
C a sh ………………………………………………………………………………. 124,000
Insta llm e nt o n C o ntra c ts Re c e iva b le – 20x4…………… 30,000
Insta llm e nt o n C o ntra c ts Re c e iva b le – 20x5………………… 34,000
Insta llm e nt o n C o ntra c ts Re c e iva b le – 20x6………………… 60,000
De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s -20x4 …………… 13,800

De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s-20x5 ………… 14,280
De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s -20x6 ………… 24,000
Re a lize d G ro ss Pro fit o n Insta llm e nt Sa le s ……………………… …… 52,080
Re a lize d G ro ss Pro fit
20x4: 46% o f P30,000 o r P13,800
20x5: 42% o f P34,000 o r P14,280
20x6: 40% o f P60,000 o r P24,000

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Pro b le m XI
1. C a lc ula tio n o f g ro ss p ro fit p e rc e nta g e o n insta llm e nt sa le s
20x6: P88,000 g ro ss p ro fit o n insta llm e nt sa le s, 20x6, / P320,000 insta llm e nt sa le s 20x6 27.5%
20x5: P45,000 d e fe rre d g ro ss p ro fit, 20x5, / P150,000 insta llm e nt a c c o unts re c e iva b le 20x5 30%
20x4: P9,600 d e fe rre d g ro ss p ro fit, 20x4 , / 30,000 insta llm e nt a c c o unts re c e iva b le 20x4 32%
2.
WW EQ UIPMENT, Inc .
Ba la nc e She e t
De c e m b e r 31, 20x6
Asse ts
C a sh ………………………………………………………………………………..................... P27,500
Insta llm e nt Ac c o unts Re c e iva b le 20x6 …………………………... P 55,000
20x5 ………………………….. 12,000
20x4 ………………………….. 3,000 70,000
Ac c o unts re c e iva b le …………………………………………………………………………. 17,000
Inve nto ry ……………………………………………………………… ……………………….. 60,000
O the r Asse ts …………………………………………………………………… ………………... 40,000
To ta l Asse ts ………………………………………………………………… …………………… P 214,500
Lia b ilitie s
Ac c o unts p a ya b le …………………… ………………………………………… P 40,000
De fe rre d G ro ss Pro fit 20x6 …… ……………………… P 15,125
20x5 ………… ………………… 3,600
20x4 …………… ……………… 960 19,685
To ta l Lia b ilitie s P 59,685
Sto c kho lde rs’ Eq uity

C a p ita l Sto c k …………………………………………………………………….. P 100,000
Re ta ine d Ea rning s ……………………………………………….. P 68,400
Ba la nc e , Ja n. 1, 20x6 ………………………………………. 13,585
Ba la nc e , De c . 31, 20x6 ……………………………………………………. 54,185
To ta l Sto c kho ld e r’ s Eq uity ……………………………………………………… P154,815
To ta l Lia b ilitie s a nd Sto c kho ld e r’ s Eq uity ……………………………………. P 214,500
Inc o m e Sta te m e nt
Fo r Ye a r End e d De c e m b e r 31, 20x6
Insta llme nt Re g ula r To ta l

Sa le s Sa le s
Sa le s ………………………………………………………............ P320,000 P125,000 P445,000
C o st o f g o o d s so ld :
Me rc ha nd ise Inve nto ry, Ja n. 1 ………………P 52,000
Purc ha se s ………………………….................. 350,000
Me rc ha nd ise Ava ila b le fo r sa le ................. 402,000
Le ss: Me rc ha nd ise Inv. De c . 31 ………… 60,000 232,000 110,000 342,000
G ro ss Pro fit ……………………………………………………….. P88,000 P15,000 P103,000
Le ss: De fe rre d G ro ss Pro fit o n 19X34 ………………………… 15,125 15,125
Re a lize d G ro ss Pro fit o n c urre nt ye a r’ s sa le s ………………. P78,875 P15,000 P87,875
Ad d : re a lize d g ro ss p ro fit o n p rio r ye a rs’ sa le s o n
Insta llme nt b a sis (se e g ro ss p ro fit sc he d ule ) ………………. 50,040
To ta l Re a lize d G ro ss Pro fit ……………………………………. P137,915
O p e ra ting Exp e nse s …………………………………………... 151,500
Ne t Lo ss ………………………………………………………….. P 13,585

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Ana lysis o f G ro ss Pro fit o n Insta llm e nt Sa le s
Sc he d ule to Ac c o m p a ny Inc o m e Sta te m e nt
De fe rre d G ro ss p ro fit o n insta llme nt sa le s, 20x6
Insta llme nt c o ntra c ts re c e iva b le , P320,000 le ss c o lle c tio ns P265,000
O r P55,000; P55,000 x 27.5% ………………………………………………………… P 15,125
Re a lize d G ro ss Pro fit:

20x6 20x5 20x4
C o lle c tio ns o n Insta llme nt C o ntra c ts Re c e iva b le ………... P265,000 P138,000 P27,000
Insta llme nt sa le s g ro ss p ro fit p e rc e nta g e ………………….. 27.5% 30% 32%
Re a lize d G ro ss Pro fit …………………………………………….. P 72,875 P 41,400 P 8,640
Insta llme nt Sa le s …………………………………………………… 320,000

C o st o f Insta llme nt Sa le s …………………………………………. 232,000
De fe rre d G ro ss p ro fit -20x6……………………………………………… 88,000
De fe rre d G ro ss Pro fit, 20x6 ……………………………............... 72,875

Re a lize d G ro ss Pro fit o n Insta llme nt sa le s…………… 122,915
Inc o me Summa ry ………………………………………………… 170,000

Ship me nt o n Insta llme nt o f Sa le s ……………………………… 232,000
Me rc ha nd ise Inve nto ry, Ja n. 1, 20x6 ………………. 52,000
Purc ha se s ……………………………………………… 350,000
Me rc ha nd ise Inve nto ry, De c . 31, 20x6 …………………….. 60,000

Inc o me Summa ry …………………………………… 60,000
Sa le s ………………………………………………………………. 125,000
Inc o me Summa ry ……………………………………. 125,000
Re a lize d G ro ss Pro fit o n Insta llme nt Sa le s………..………... 122,915
Inc o me Summa ry ……………………………………. 122,915
Inc o me Summa ry ……………………………………………… 151,500

O p e ra ting Exp e nse s ………………………………... 151,500
Re ta ine d Ea rning s …………………………………………….. 13,585

Inc o me Summa ry …………………………………... 13,585
Pro b le m XII
1. C a lc ula tio n o f g ro ss p ro fit p e rc e nta g e o n insta llm e nt sa le s
20x6: P190,000 g ro ss p ro fit o n insta llm e nt sa le s, 20x6, / P500,000 insta llm e nt
sa le s 20x6 …………………………………………………………………………………… 38%
20x5: P96,000 d e fe rre d g ro ss p ro fit, 20x5, / P240,000 insta llm e nt
a c c o unts re c e iva b le 20x5 ………………………………………………………………. 40%
20x4: P22,500 d e fe rre d g ro ss p ro fit, 20x4 , / 50,000 insta llm e nt
a c c o unts re c e iva b le 20x4 ………………………………………………………………. 45%

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2.
De fe rre d G ro ss Pro fit, 20x6……………………………… 1,900
De fe rre d G ro ss p ro fit, 20x5……………………………… 4,000
De fe rre d G ro ss Pro fit, 20x4……………………………… 3,600
Lo ss o n Re p o sse ssio ns………………………….. 9,500
C a nc e lla tio n o f d e fe rre d g ro ss p ro fit,
b a la nc e s up o n re p o sse ssio ns:
20x6: 38% o f P5,000, o r P1,900
20x5: 40% o f P10,000, o r P4,000
20x4: 45% o f P8,000, o r P3,600
G G SALES C O RPO RATIO N

Inc o m e Sta te m e nt
Insta llme nt Re g ula r To ta l

Sa le s Sa le s
Sa le s ………………………………………………………............ P500,000 P192,000 P692,000
C o st o f g o o d s so ld :
Me rc ha nd ise Inve nto ry, Ja n. 1 …………… P 30,000
Purc ha se s ………………………….................. 445,000
Re p o sse sse d Me rc ha nd ise ……………….. 10,000
Me rc ha nd ise Ava ila b le fo r sa le ................. 495,000
Le ss: Me rc ha nd ise Inv. De c . 31 ………… 35,000 310,000 150,000 460,000
G ro ss Pro fit ……………………………………………………….. P190,000 P42,000 P103,000
Le ss: De fe rre d G ro ss Pro fit o n 20x6 sa le s (se e sc he d ule ) 32,300 32,300
Re a lize d G ro ss Pro fit o n c urre nt ye a r’ s sa le s ………………. P157,700 P42,000 P199,700
Ad d : re a lize d g ro ss p ro fit o n p rio r ye a rs’ sa le s o n
Insta llme nt b a sis (se e g ro ss p ro fit sc he d ule ) ………………. 100,650
P300,350
De d uc t lo ss o n re p o sse ssio n …………………………………. 3,500
To ta l Re a lize d G ro ss Pro fit ……………………………………. P296,850
O p e ra ting Exp e nse s …………………………………………… 300,000
Ne t Lo ss ………………………………………………………….. P 3,150
Ana lysis o f G ro ss Pro fit o n Insta llm e nt Sa le s

Sc he d ule to Ac c o m p a ny Inc o m e Sta te m e nt
De fe rre d g ro ss p ro fit o n Insta llm e nt sa le s – b e fo re d e fa ults, 19X8:
Insta llm e nt c o ntra c ts re c e iva b le , P500,00, le ss c o lle c tio ns, P415,000, o r
P85,000; P85,000 x 38% ………………………………………………………. P 32,300
Re a lize d G ro ss Pro fit:

20x6 20x5 20x4
C o lle c tio ns o f Insta llm e nt c o ntra c ts re c e iva b le .. P415,000 P210,000 P 37,000
Insta llm e nt sa le s g ro ss p ro fit p e rc e nta g e ……….. 38% 40% 45%
Re a lize d g ro ss p ro fit …………………………………..P157,700 P 84,000 P 16,650

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G G SALES C O RPO RATIO N

Ba la nc e She e t
De c e m b e r 31, 20x6
Asse ts
C a sh …………………………………………………………………………………... P 25,000
Insta llm e nt Ac c o unts Re c e iva b le 20x6 …………………P 80,000
20x5 ………………… 20,000
20x4 ………………… 5,000 105,000
Ac c o unts re c e iva b le ………………………………………………………………….. 40,000
Inve nto ry …………………………………………………………………………………. 35,000
O the r Asse ts ……………………………………………………………………………… 52,000
To ta l Asse ts ……………………………………………………………………………….P 257,000
Lia b ilitie s
Ac c o unts p a ya b le ……………………………………………………. P 75,000
De fe rre d G ro ss Pro fit 20x6 ………………………………. P 30,400
20x5 ………………………………. 8,000
20x4 ………………………………. 2,250 40,650
Sto c kho ld e rs’ Eq uity

C a p ita l Sto c k …………………………………………………………. P100,000
Re ta ine d Ea rning s ………………………………………. P 44,500
Ba la nc e , Ja n. 1, 20x6 ……………………………… 3,150
Ba la nc e , De c . 31, 20x6 …………………………… 41,350
To ta l Sto c kho ld e r’ s Eq uity …………………………………………. 141,350
To ta l Lia b ilitie s a nd Sto c kho ld e r’ s Eq uity ……………………….. P 257,000
4. Insta llm e nt Sa le s ……………………………………………………………….. 500,000

C o st o f Insta llm e nt Sa le s ……………………………………………….. 310,000
De fe rre d G ro ss Pro fit, 20x6 …………………………………………….. 190,000
De fe rre d G ro ss Pro fit, 20x6 …………………………………………………… 157,500

Re a lize d G ro ss Pro fit o n Insta llm e nt Sa le s… ………………………… 258,350
Inc o m e Sum m a ry ……………………………………………………………… 185,000

Ship m e nt o n Insta llm e nt Sa le s ……………………………………………… 310,000
Me rc ha nd ise Inv, Ja nua ry 1, 20x6 ……………………………………. 30,000
Purc ha se s …………………………………………………………………. 455,000
Re p o sse sse d Me rc ha nd ise …………………………………………….. 10,000
Me rc ha nd ise Inv, De c e m b e r 31, 20x6……..………………………………. 35,000

Inc o m e Sum m a ry ……………………………………………………….. 35,000
Sa le s …………………………………………………………………………….... 192,000
Inc o m e Sum m a ry ………………………………………………………… 192,000
Re a lize d G ro ss Pro fit o n Insta llm e nt Sa le s………………………………….. 258,350

Inc o m e Sum m a ry ……………………………………………………….. 258,350

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Inc o m e Sum m a ry ……………………………………………………………… 3,500

Lo ss o n Re p o sse ssio n ……………………………………………………. 3,500
Inc o m e Sum m a ry ……………………………………………………………… 300,000

O p e ra ting Exp e nse s …………………………………………………….. 300,000
Re ta ine d Ea rning s ……………………………………………………………… 3,150

Inc o m e Sum m a ry …………………………………………………………. 3,150
Pro b le m XIII
1.
De fe rre d g ro ss p ro fit – 20x4……….……………………………………. 8,407.00
Re a lize d G ro ss Pro fit o n Insta llm e nt Sa le s (20x4 – 20x6)….. 172,852.50
C o m p uta tio n o f G P ra te s:
20x4: P247,000/ P380,000 = 65%, c o st ra te ; G P ra te = 100% - 65% = 35%
C a lc ula tio n o f c o lle c tio ns in 20x6:

20x4: Be g inning b a la nc e P 24,020
20x5: P344,460 (b e g inning b a la nc e ) – P67,440 (e nd ing b a la nc e ) –
P2,200 (w rite -o ffs o n d e fa ult) 274,820
20x6: P602,000 (sa le s) – P410,090 (e nd ing b a la nc e ) 191,910
C a lc ula tio n o f re a lize d g ro ss p ro fit:

20x4: 35% x P24,020 P 8,407.00
20x5: 34% x P274,820 93,438.80
20x6; 37% x P191,910 71,006.70
To ta l P172,852.50
2. De fe rre d g ro ss p ro fit 20x5……………………………………………………… 748.00

Inve nto ry o f Re p o sse sse d Me rc ha nd ise ………………………………. 748.00
To re d uc e b y 20x5 d e fe rre d g ro ss p ro fit re la te d to de fa ulte d c o ntra c t a nd re q uiring
c a nc e lla tio n, 34% o f P2,200 (P5,400 sa le s p ric e - P3,200 c o lle c tio ns to d a te ); inve nto ry
no w re p o rte d a t P2,200 (b a la nc e o f insta llme nt c o ntra c t), le ss P748 o r P1,452.
Lo ss o n re p o sse ssio n…………………………………………………………….. 381.00

Inve nto ry o f re p o sse sse d m e rc ha nd ise ……………………………….. 381.00
To re d uc e inve nto ry to “ ma rke t” a s fo llo ws: to re a lize a g ro ss p ro fit o f 37% o n a re sa le
e stima te d a t P1,700, the re p o sse sse d me rc ha nd ise sho uld b e re p o rte d a t a va lue o f
63% o f P1,700, o r P1,071; the inve nto ry the n re q uire s a furthe r write -d o wn o f P381
(P1,452 – P1,071)
Re p o sse sse d m e rc ha nd ise c o uld b e re c o rd e d a t its re sa le va lue le ss the usua l g ro ss p ro fit m a rg in o n

sa le s. Re c o rd ing the m e rc ha nd ise a t P1,452 w ill re sult in the re a liza tio n o f le ss tha n the no rm a l p ro fit
m a rg in o n the re sa le o f the g o o d s in the sub se q ue nt p e rio d . if e xp e nse s o f the re sa le e xc e e d P248
(P1,700 – P1,452), the la te r p e rio d w o uld a c tua lly ha ve to a b so rb a lo ss a s a re sult o f suc h va lua tio n.
Re c o rd ing the g o o d s a t re sa le va lue re d uc e d b y the c o m p a ny’ s usua l p ro fit m a rg in o n sa le s is

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re c o m m e nd e d , fo r suc h p ra c tic e w ill c ha rg e the ne xt p e rio d w ith no m o re tha n the utility o f the
g o o d s c a rrie d fo rw a rd .
Pro b le m XIV – HH Instrum e nts

1. Insta llm e nt C o ntra c ts Re c e iva b le ……………………………………. 1,600.00
Me rc ha nd ise Inve nto ry (Pia no ) ……………………………… 1,000.00
De fe rre d G ro ss Pro fit o n Insta llm e nt Sa le s ………………… 600.00
C a sh ……………………………………………………….......................... 160.00
Insta llm e nt C o ntra c ts Re c e iva b le …………………………… 160.00
2. C a sh …………………………………………………………........................ 160.00
Inte re st Inc o m e …………………………………………………… 14.40
Insta llm e nt C o ntra c ts Re c e iva b le ……………………………. 145.60
C a sh ……………………………………………………………...................... 160.00
Inte re st Inc o m e ……………………………………………………. 11.47
Insta llm e nt C o ntra c ts Re c e iva b le ……………………………… 148.53
3. De fe rre d G ro ss Pro fit o n Insta llm e nt o f Sa le s ………………………….. 225.45

Re a lize d G ro ss Pro fit o n Insta llm e nt o f Sa le s ………………… 225.45
G ro ss Pro fit Pe rc e nta g e : 37.5% (P600/ P1,600)
Re a lize d G ro ss Pro fit fo r 20x4: 37.5% o f 601.19
(sum o f p a ym e nts o n insta llm e nt c o ntra c t)
4. Me rc ha nd ise Inve nto ry (p ia no ) …………………………………………... 560.00

De fe rre d G ro ss Pro fit o n Insta llm e nt o f Sa le s ……………………........... 374.55
Lo ss o n Re p o sse ssio ns ………………………………………………………. 64.36
Insta llm e nt C o ntra c ts Re c e iva b le ……………………………… 998.81
De fe rre d G ro ss p ro fit c a nc e lle d up o n re p o sse ssio n:
37.5% o f P998.81 (b a la nc e in insta llm e nt c o ntra c ts
re c e iva b le a c c o unt) o r P 374.55
Pro b le m XV – Big Be a r
20x4:
Insta llm e nt re c e iva b le s 250,000
Inve nto ry 150,000
De fe rre d g ro ss p ro fit 100,000
C a sh 80,000
20x5:
C a sh 120,000

Re a lize d g ro ss p ro fit 50,000
20x6:
C a sh 50,000

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Inve nto ry 210,000
C a sh 135,000

G ro ss p ro fit d e fe rre d a t sa le = 30% x P300,000 = P90,000.

G ro ss p ro fit e a rne d a t c o lle c tio n = (P135,000/ P300,000) x P90,000 = P40,500
(O r c a sh c o lle c te d x G P% =P135,000 x 30% = P40,500)
Pro b le m XVI – Ta ppa n Industria l

(1) Re a so na b ly a ssure d - a c c rua l b a sis sho uld b e use d : full g ro ss p ro fit re c o g nize d in the ye a r o f the sa le .
De te rm ina tio n o f se lling p ric e :
PV n = R(PVAFn/ i) Ta b le IV
PV n = P187,500 x 4.3553 n = 6, i = 10%
PV n = P816,619 (ro und e d )
G ro ss p ro fit o n sa le :
Sa le s P816,619
C o st o f sa le s 637,500
G ro ss p ro fit P179,119
Inte re st re ve nue --4 m o nths: P816,619 x 10% x 4/ 12 = _ 27,221
To ta l inc o m e fo r 20x5 = P179,119 + P27,221 = P206,340
(2) No re a so na b le a ssura nc e – a ssum e the use o f insta llm e nt sa le s m e tho d

Insta llm e nt sa le : G ro ss p ro fit (P179,119/ P816,619) = 22% ro und e d
G ro ss p ro fit e a rne d in 20x5 (P0 x 22%) P 0
Inte re st re ve nue 27,221
To ta l inc o m e fo r 20x5 P 27,221
1. b –
20x4: P500,000 x 30% = P 150,000
20x5: P600,000 x 40% = 240,000 P390,000
2. d
Re a lize d G ro ss Pro fit o n Insta llm e nt Sa le s in 20x6:
20x4 sa le s: P10,000 x 22%P 2,200
20x5 sa le s: P50,000 x 25% 12,500
20x6 sa le s: P45,000 x P28,200 / (P28,200+P91,800) 10,575
P 25,275
Re a lize d G ro ss Pro fit o n Sa le s in 20x5 P 10,500

Le ss: Re a lize d G ro ss Pro fit in 20x5 fo r 20x5 sa le s: (P20,000 x 25%) 5,000
Re a lize d G ro ss Pro fit in 20x5 fo r 20x4 sa le s P 5,500
Divid e d b y: C o lle c tio ns in 20x5 fo r 20x4 sa le s P 25,000
G ro ss Pro fit % fo r 20x4 sa le s 22%

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3. a
Insta llm e nt Sa le s Me tho d :
20x3 Sa le s: P240,000 x 25/ 125P 48,000
20x4 Sa le s: P180,000 x 28/ 128 39,375
Re a lize d G ro ss Pro fit o n Insta llm e nt Sa le s P 87,375
C o st Re c o ve ry Me tho d :
20x3 C o st: P480,000 / 1.25 P384,000
Le ss: C o lle c tio ns in 20x3 140,000
C o lle c tio ns in 20x4 240,000
Unre c o ve re d C o st, 12/ 31/ 20x4 P 4,000
Unde r the c o st re c o ve ry m e tho d , no inc o m e is re c o g nize d o n a sa le until the c o st o f the ite m so ld is

re c o ve re d thro ug h c a sh re c e ip ts. All c a sh re c e ip ts, b o th inte re st a nd p rinc ip a l p o rtio ns, a re a p p lie d
first to the c o st o f the ite m s so ld . The n, a ll sub se q ue nt re c e ip ts a re re p o rte d a s re ve nue . Be c a use a ll
c o sts ha ve b e e n re c o ve re d , the re c o g nize d re ve nue a fte r the c o st re c o ve ry re p re se nts inc o me
(inte re st a nd re a lize d g ro ss p ro fit). This m e tho d is use d o nly whe n the c irc um sta nc e s surro und ing a
sa le a re so unc e rta in tha t e a rlie r re c o g nitio n is imp o ssib le .
4. a P0.
5. c
6. e , 20x6 – 0; 20x7 - 0
Unre c o ve re d c o sts,1/ 1/ 20x4 110,000
Le ss: C o lle c tio ns
1/ 1/ / 20x4 0
Ad d : Sa le s o n a c c o unt 15,000
To ta l 15,000
Le ss: 1/ 1/ 20x5 10,500
C o lle c tio ns in 20x4 __4,500
1/ 1/ / 20x5 10,500
To ta l 40,500
Le ss: 1/ 1/ 20x6 25,500
1/ 1/ / 20x6 25,500
To ta l 85,500
Le ss: 1/ 1/ 20x7 40,500
1/ 1/ / 20x7 40,500
To ta l 64,500
Le ss: 1/ 1/ 20x8 70,000
C o lle c tio ns in 20x7 ____-0-
7. b
20x4: P150,000 – (P568,620 x 10%) = P93,138.
20x5: (P568,620 – P93,138) x 10% = P47,548.

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8. a – re fe r to No . 3 fo r d isc ussio n.
C o st, Ja nua ry 1, 20x4 P 60,000
Le ss: C o lle c tio ns inc lud ing inte re st – 20x4 32,170
Unre c o ve re d C o st, De c e m b e r 31, 20x4 P 27,830
9. c (P3,600,000 – P2,400,000) ÷ P3,600,000 = 33 1/ 3%

(P3,600,000 × .20) + [(3,600,000 × .80) × 4/ 12)] = P1,680,000
P1,680,000 × 33 1/ 3% = P560,000.
10. b [(P3,600,000 × .20) + (P3,600,000 × .80 x 8/ 12] – P2,400,000 = P240,000.
11. b – re fe r to No . 3 d isc ussio n.

C o st, Ja nua ry 1, 20x4…………………………………………………………….P 500,000
Le ss: C o lle c tio ns inc lud ing inte re st – 20x4……………………….P241,269
C o lle c tio ns inc lud ing inte re st – 20x5……………………… 241,269 482,538
Unre c o ve re d C o st, De c e m b e r 31, 20x5……………………………………….P 17,462
12. b [(P1,400,000 – P980,000) ÷ P1,400,000] x P840,000 = P252,000.
13. c P300,000 + P50,000 = P350,000

P350,000 – P245,000 = P105,000 g ro ss p ro fit (30% g ro ss p ro fit ra te )
(P300,000 – P100,000) x 30% = P60,000.
14. c P1,200,000 – P720,000 = P480,000 g ro ss p ro fit (40% g ro ss p ro fit ra te )

P480,000 – (P288,000 ×.4) = P364,800.
15. d – [P225,000 + (P120,000/ 40%)]
16. b (P36,000 ÷ 24%) + (P198,000 ÷ 30%) = P810,000.
17. d
Insta llm e nt Ac c o unts Re c e iva b le , De c e m b e r 31, 20x5: DG P, 12/ 31/ 20x5 / G P%
20x4 Sa le s: P120,000/ 30% P 400,000
20x5 Sa le s: P440,000/ 40% 1,100,000
P 1,500,000
18. c
Sa le : Insta llm e nt re c e iva b le s 4,500,000
Inve nto ry 3,600,000
Pa ym e nt: C a sh 500,000
Ba la nc e She e t:
Insta llm e nt re c e iva b le s (4,500,000 – 500,000) P 4,000,000
De fe rre d g ro ss p ro fit (900,000 – 100,000) 800,000
Insta llm e nt re c e iva b le s (ne t) P 3,200,000

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19. b
12/ 15/ x5 C a sh [(P4,500,000 – P500,000)/ 2 = P2,000,000] 2,000,000
Insta llm e nt re c e iva b le s 2,000,000
De fe rre d g ro ss p ro fit [P2,000,000 x (900/ 4,500)] 400,000
Ba la nc e she e t:
De fe rre d g ro ss p ro fit: P800,000 400,000 = P400,000
Re a lize d g ro ss p ro fit o f P400,000 w o uld b e re p o rte d in the inc o m e sta te m e nt.
20. No re q uire m e nt
21. c - P300,000 (20x4 sa le s) + P500,000 (20x5 sa le s) = P800,000
22. a G ro ss p ro fit % = (P900,000 P450,000)/ P900,000 = 50%

20x4: 50% x P300,000 = P150,000
23. c
20x4 sa le s: G ro ss p ro fit % = (P900,000 P450,000)/ P900,000 = 50%
50% x P300,000 re c e ive d in 2010 = P150,000
20x5 sa le s: G ro ss p ro fit % = (P1,500,000 P900,000)/ P1,500,000 = 40%

40% x P400,000 re c e ive d in 2010 = P160,000
To ta l: P150,000 + P160,000 = P310,000
24. c
20x4 Sa le s: Insta llm e nt re c e iva b le s = P900,000 – P300,000 (x4 c o lle c tio ns)
- P300,000 (x5 c o lle c tio ns) = P 300,000
De fe rre d g ro ss p ro fit = P450,000 – P150,000 (x4 c o lle c tio ns)
- P150,000 (x5 c o lle c tio ns) = 150,000
Ne t insta llm e nt re c e iva b le fo r 20x4 sa le s = P 150,000
20x5 Sa le s: Insta llm e nt re c e iva b le s = P1,500,000 – P500,000 (x5 c o lle c tio ns)= P1,000,000
De fe rre d g ro ss p ro fit = P600,000 – P200,000 (x5 c o lle c tio ns) = 400,000
Ne t insta llm e nt re c e iva b le fo r 20x5 = P 600,000
To ta l = P 750,000
25. a - C o sts no t ye t re c o ve re d .
26. c
C o st, 20x4 P 30,000
20x4 c o st re c o ve ry (20,000)
Re m a ining c o st, 12/ 31/ x4 P 10,000
20x5 c o lle c tio n 15,000
G ro ss p ro fit – 20x5 P 5,000
27. d
C o st P 30,000
20x4 c o st re c o ve ry ( 20,000)
20x5 c o st re c o ve ry ( 10,000)
Re m a ining c o st 0
The e ntire P20,000 p a ym e nt re c e ive d in 20x6 is re c o g nize d a s g ro ss p ro fit.

lOMoARcPSD|10477308
28. d
Sa le : Insta llm e nt re c e iva b le s 55,000
Inve nto ry 30,000
Pa ym e nt: C a sh 20,000
Ba la nc e She e t:
Insta llm e nt re c e iva b le s P55,000 – 20,000 P 35,000
De fe rre d g ro ss p ro fit ( 25,000)
Insta llm e nt re c e iva b le s (ne t) P 10,000
29. a
Sa le : Insta llm e nt re c e iva b le s 55,000
Inve nto ry 30,000
2008: C a sh 20,000
C a sh 15,000
2009: De fe rre d g ro ss p ro fit 5,000
Ba la nc e She e t:
Insta llm e nt re c e iva b le s P 20,000
De fe rre d g ro ss p ro fit ( 20,000)
Insta llm e nt re c e iva b le s (ne t) P 0
30. c
No te : Sinc e the c o lle c tib ility o f the no te is re a so na b ly a ssure d , the a c c rua l b a sis sho uld b e a p p lie d .
The re fo re , full g ro ss p ro fit is re c o g nize d in the ye a r o f sa le .
G ro ss p ro fit o n sa le :
Sa le s (P187,500 x 4.3553) P816,619
G ro ss p ro fit (re a lize d ) P179,119
31. c
To ta l Inc o m e fo r 20x4:
G ro ss p ro fit (re a lize d ) – No . 51 P179,119
Inte re st re ve nue —4 m o nths: P816,619 x 10% x 4/ 12.. _ 27,221
To ta l inc o m e fo r 20x4 P206,340
32. b
G ro ss p ro fit (re a lize d ) – a lre a d y re c o g nize d in 20x4 P 0
Inte re st re ve nue – 8 m o nths in Ye a r 1 (P81,662* x 8/ 12) P 54,441
4 m o nths in Ye a r 2 (P71,078* x 4/ 12) 23,693 78,134
To ta l Inc o m e fo r 20x5 P 78,134
*Sc he d ule o f Disc o unt Am o rtiza tio n/ Inte re st Inc o m e c o m p uta tio n:

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(1) (2) (3) (4)

Fa c e Ne t Disc o unt
Am o unt Una m o rtize d Am o unt Am o rtiza tio n
Ye a r o f No te 1 Disc o unt (1) – (2) 10% × (3)
1 P1,125,000 P308,3813 P 816,6192 81,6625
2 937,500 226,7194 710,781 71,078
1 P187,500 x 6 ye a rs = P1,125,000; e ve ry ye a r P187,500 sho uld b e d e d uc te d o n the p re vio us b a la nc e .

2 The p re se nt va lue o f sa le s/ re c e iva b le s: P187,500 x 4.3553 = P816,619
3 P1,125,000 – P816,619
4 (2) – (4)
5 Disc o unt a m o rtiza tio n g ive rise to re c o g nitio n o f inte re st re ve nue / inc o m e .
33. a
No te : Sinc e the c o lle c tib ility o f the no te c a nno t b e re a so na b ly a ssure d , the insta llm e nt sa le s m e tho d
sho uld b e a p p lie d . Also , if the the re is hig h d e g re e o f unc e rta inty a s to c o lle c tib ility , the c o st
re c o ve ry m e tho d m a y b e use d .
Insta llm e nt sa le : G ro ss p ro fit (P179,119/ P816,619) 22% (ro und e d )
G ro ss p ro fit e a rne d in 20x4 (P0* x 22%) P 0

* no c o lle c tio ns in 20x4.
34. a
G ro ss p ro fit e a rne d in 20x4 (P0* x 22%) P 0
Inte re st re ve nue (re fe r to No . 52 27,221
To ta l inc o m e fo r 20x4. P 27,221
35. d
C o lle c tio ns in 20x5 (Aug ust 31, 20x5) P 187,500
Le ss: Inte re st re ve nue / inc o m e fro m Se p te m b e r 1, 20x4 to
Aug ust 31, 20x5 (re fe r to sc he d ule o f a m o rtiza tio n in No . 53) 81,662
C o lle c tio n a s to p rinc ip a l P 105,838
x: G ro ss Pro fit % (re fe r to No . 54) 22%
G ro ss p ro fit re a lize d in 20x5 P 23,284
Ad d : Inte re st re ve nue / inc o m e fo r 20x5 (re fe r to No . 53) 78,134
To ta l Inc o m e fo r 20x5 P 101,418
36. d (P2,000,000 – P1,500,000) ÷ P2,000,000 = 25%
37. a (P800,000 x .25) – P90,000 = P110,000,
38. d P700,000 x .25 = P175,000; P500,000 x .25 = P125,000.
39. a (P3,000,000 – P2,100,000) ÷ P3,000,000 = 30%.
40. d (P1,200,000 × .30) – P120,000 = P240,000.
41. a P1,050,000 × .30 = P315,000

P900,000 – [(P1,200,000 + P1,050,000) × .30] = P225,000.
42. b P24,000 – P7,200 = P16,800

lOMoARcPSD|10477308
P16,800 – P13,500 = P3,300 lo ss.
43. d [P5,600 x (1 – .40)] – (P2,100 – P140) = P1,400.

44. d P8,400 – P5,880 = P2,520
(P3,000 – P300) – P2,520 = P180 g a in.
45. d
20x4: P24,000 – P0 = P24,000 c o lle c tio ns x 39%P 9,360
20x5: P300,000 – P60,000 – P10,000 d e fa ults = P230,000 x 42% 96,600
20x6: P480,000 – P320,000 – P5,000 d e fa ults = P155,000 x 40% 62,000
Re a lize d g ro ss p ro fit o n insta llm e nt sa le s in 20x6 P167,960
46. b
20x5 Sa le s 20x6 Sa le s Ne t
Ma rke t Va lue s P 4,500 P 3,500
Le ss: Unre c o ve re d C o st:
IAR, unp a id b a la nc e s P10,000 P 5,000
x: C o st Ra tio 50% 5,800 60% 3,000
G a in (lo ss) P (1,300) P 500 P( 800)
47. a
(1) G a in o r Lo ss o n re p o sse ssio n:
Estim a te d se lling p ric e P 1,700
Le ss: No rm a l p ro fit (37% x P1,700) 629
Ma rke t va lue o f re p o sse sse d m e rc ha nd ise P 1,071
Le ss: Unre c o ve re d C o st:
Unp a id b a la nc e – 20x3 P 2,200
Le ss: DG P – x3 (P2,200 x34%) 748 1,452
Lo ss o n re p o sse ssio n P( 381)
(2) Re a lize d g ro ss p ro fit o n insta llm e nt sa le s:

20x2 Sa le s: (P24,020 – P 0) x 35% P 8,407.0
20x3 Sa le s: (P344,460 – P67,440 – P2,200) x 34% 93,438.8
20x4 Sa le s: (P602,000 – P410,090) x 37% 71,006.7
Re a lize d g ro ss p ro fit o n insta llm e nt sa le s P 172,852.5
48. c
De fe rre d G ro ss Pro fit, e nd (12/ 312/ 20x4: IAR, e nd o f 2004 x G P %)
20x2 Sa le s: P 0
20x3 Sa le s: (P67,440 x 34%. 22,929.6
20x4 Sa le s: (P410,090 x 37%) 151,733.3
P174,662.9
49. d *
Re sa le Va lue P 8,500
Le ss: No rm a l p ro fit fo r 20x6 - ye a r o f re p o sse ssio n
[(P3,010,000 – P1,896,300)/ P3,010,000] x 8,500 3,145
Ma rke t Va lue o f Re p o sse sse d Me rc ha nd ise P 5,355
Le ss: Unre c o ve re d C o sts – 20x5
De fa ulte d b a la nc e * (P27,000 – P16,000) P 11,000
Le ss: DG P [(P2,160,000 - P1,425,600)/ P2,160,000] x
P11,000 ___3,740 __7,260
Lo ss o n re p o sse ssio n P( 1,905)

lOMoARcPSD|10477308
Entry m a d e :
Inve nto ry o f RM* 11,000
IAR-20x5 11,000
C o rre c t Entry (Sho uld b e ):

Inve nto ry o f RM (a t MV) 5,355
DG P-20x5 3,740
Lo ss o n re p o sse ssio n 1,905
IAR-20x5 11,000
C o rre c ting Entry:

DG P-20x5 3,740
Lo ss o n re p o sse ssio n 1,905
Inve nto ry o f RM 5,645**
50. c
Insta llm e nt Sa le s P 3,600,000
Le ss: O ve r-a llo w a nc e :
Tra d e -in a llo w a nc e P1,500,000
Le ss: MV o f Tra d e -in Me rc ha nd ise :
Estim a te d Re sa le Pric e P 1,400,000
Le ss: No rm a l p ro fit (25% x P1,400,000) 350,000
Re c o nd itio ning c o sts 150,000 900,000 600,000
Ad juste d Insta llm e nt Sa le s P 3,000,000
Le ss: C o st o f I/ S 2,500,000
G ro ss Pro fit P 500,000
G ro ss p ro fit ra te : P500,000/ P3,000,000 16 2/ 3%
x: C o lle c tio ns –Tra d e -in m e rc ha nd ise (a t MV) P 900,000
RG P o n I/ S in 20x4 P 150,000
51. c
Tra d e -in a llo w a nc e P43,200
Le ss: MV o f tra d e -in a llo wa nc e :
Estim a te d re sa le p ric e a fte r re c o nd itio ning c o sts P36,000
Le ss: Re c o nd itio ning c o sts 1,800
No rm a l p ro fit (15% x P36,000) 5,400 28,800
O ve r-a llo w a nc e P 14,400
Insta llm e nt sa le s P122,400
Le ss: O ve r-a llo w a nc e 14,400
Ad juste d Insta llm e nt Sa le s P108,000
Le ss: C o st o f Insta llm e nt Sa le s 86,400
G ro ss p ro fit P 21,600
G ro ss p ro fit ra te : P21,600/ P108,000 20%
Re a lize d g ro ss p ro fit:
Do w n p a ym e nt P 7,200
Tra d e -in (a t m a rke t va lue ) 28,800
Insta llm e nt c o lle c tio ns:
(P108,000 – P28,800 – P7,200) / 10 m o s. X 3 m o s. 21,600
To ta l c o lle c tio ns in 2008 P 57,600
x: G ro ss p ro fit ra te 20%
Re a lize d g ro ss p ro fit P 11,520

lOMoARcPSD|10477308
52. d
( No te : Fo r fina nc ia l a c c o unting p urp o se s, the insta llm e nt-sa le s m e tho d is no t use d , a nd the full g ro ss
p ro fit is re c o g nize d in the ye a r o f sa le , b e c a use c o lle c tio n o f the re c e iva b le is re a so na b ly a ssure d .)
Finle y C o m p a ny
C o m p uta tio n o f Inc o m e Be fo re Inc o m e Ta xe s
O n Insta llm e nt Sa le C o ntra c t
Fo r the Ye a r End e d De c e m b e r 31, 20x3
Sa le s P4,584,000
C o st o f Sa le s 3,825,000
G ro ss Pro fit 759,000
Inte re st Re ve nue (Sc he d ule I) 328,320
Inc o m e b e fo re Inc o m e Ta xe s P1,087,320
Sc he d ule I
C o m p uta tio n o f Inte re st Re ve nue o n
Insta llm e nt Sa le C o ntra c t
C a sh se lling p ric e (sa le s) P4,584,000
Pa ym e nt m a d e o n Ja nua ry 1, 20x3 936,000
Ba la nc e o utsta nd ing a t 12/ 31/ x3 3,648,000
Inte re st ra te 9%
Inte re st Re ve nue P 328,320
Q uiz - VII
1. P920,000
20x4: P1,200,000 x 30% = P 360,000

20x5: P1,400,000 x 40% = 560,000 P920,000
2. P190,000
(P300,000 ÷ P750,000) x P250,000 = P100,000
[(P270,000 ÷ P900,000) x P300,000] + P100,000 = P190,000
3. P1,600– a ssum e the use o f insta llm e nt sa le s m e tho d . It sho uld b e no te d tha t if the c o lle c ta b ility is
hig hly unc e rta in o r e xtre m e ly unc e rta in, the use o f c o st re c o ve ry m e tho d is p re fe ra b le .
4. Ze ro / Nil
Whe n the c o st re c o ve ry m e tho d is use d , g ro ss p ro fit is re c o g nize d o nly a fte r a ll c o sts ha ve b e e n
re c o ve re d .
20x5
P45,000 x 63% = P28,350 C o st o f sa le
P28,350 - P24,000 = P4,350 No g ro ss p ro fit is re c o g nize d in 20x5.
C o sts still to b e re c o ve re d .
5. P19,250
20x6
Re la ting to 20x5 sa le s:
P19,000 - P4,350 = P14,650 G ro ss p ro fit re c o g nize d
P60,000 x 59% = P35,400 C o st o f sa le
P40,000 - P35,400 = 4,600 G ro ss p ro fit re c o g nize d
P19,250 Re c o g nize d in 20x6

lOMoARcPSD|10477308
6. P21,000
20x7
Sinc e a ll c o sts ha ve b e e n
re c o ve re d , a ll c a sh c o lle c te d is
re c o g nize d a s g ro ss p ro fit ...... P 2,000
Sinc e a ll c o sts ha ve b e e n
re c o ve re d , a ll c a sh c o lle c te d is
re c o g nize d a s g ro ss p ro fit ...... 17,000
P85,000 x 60% = P51,000 C o st o f sa le
P53,000 - P51,000 = .......... 2,000 G ro ss p ro fit
re c o g nize d
P21,000 Re c o g nize d in 20x7
7. P320,000
[(P1,000,000 – P200,000) x (P1,000,000 – P600,000)/ P1,000,000 = P320,000
8. P390,000
P1,800,000 – P1,080,000 = P720,000 (40% g ro ss p ro fit ra te )
P720,000 – (P825,000 x 40%) = P390,000.
9. P 128,000
Insta llm e nt Ac c o unts Re c e iva b le , e nd o f 20x4 P 320,000
x: G ro ss p ro fit ra te (66 2/ 3 / 166 2/ 3) _____40%
De fe rre d G ro ss Pro fit, e nd o f 20x4 P 128,000
10. P25,168, d e te rm ine d a s fo llo w s:
G ro ss p ro fit p e rc e nta g e s:
20x3: P136,000/ P160,000 = 85%; 100% x 85% = 15%
20x4: P158,240/ P184,000 = 86%; 100% x 86% = 14%
To d e fe rre d g ro ss p ro fit:
20x3: P160,000 x P136,000 = P24,000
20x4: P184,000 x P158,240 = 25,760
P49,760
G ro ss p ro fit re a lize d :
0.15 x P40,000 = P 6,000
0.15 x P89,600 = 13,440
0.14 x P36,800 = 5,152
P24,592
Ba la nc e o f G ro ss Pro fit De fe rre d :
P49,760 - P24,592 = P25,168
11. P 0 – a ll p ro fit re c o g nize d in 20x5

12. P240 – (P1,200/ P2,000) x P400
13. P100 - (100% o f c o sts w e re fully re c o ve re d p rio r to 20x7
14. P10 m illio n, the a m o unt o f sa le
15 . P450 – [P1,000 – P250 = P750 – (P750 x 400/ 1,000)] = P450

lOMoARcPSD|10477308
16. P50 g a in
Re p o sse sse d m e rc ha nd ise ……………………………………… 500
De fe rre d g ro ss p ro fit……………………………………………… 300
Insta llm e nt Ac c o unts re c e iva b le …………………….. 750
G a in o n re p o sse ssio n…………………………………… 50
17. 0
Unre c o ve re d c o sts,1/ 1/ 20x4 100
Le ss: C o lle c tio ns 70
Unre c o ve re d c o sts,1/ 1/ 20x5 30
Le ss: C o lle c tio ns 40
Pro fit – 20x5 10
Pro fit – 20x5 30
18. P10 – re fe r to No . 17
19. P30 –re fe r to No . 17
20. Ze ro
Unre c o ve re d c o sts – 20x4 120,000
Le ss: C o lle c tio ns – 20x4 ______0
Unre c o ve re d c o sts, 12/ 31/ 20x4 120,000
Ad d itio na l c o sts – 20x5 _20,000
To ta l c o sts 140,000
Le ss: C o lle c tio ns – 20x5 80,000
Ad d itio na l c o sts – 20x6 20,000
Ad d itio na l c o sts – 20x7 10,000
Pro fit – 20x7 50,000
21. P50,000 p ro fit – re fe r to No . 20
22. P105,000 = P68,250 / (100% - 35%)
23. P31,000 = P50,000 x (100% - 38%)
24. P43,700
Unre c o ve re d c o sts – C o st o f insta llme nt sa le s fo r 20x5 insta llme nt sa le s 56,050
Le ss: C o lle c tio ns in 20x5 fo r 20x5 insta llme nt sa le s _22,800
Le ss: C o lle c tio ns in 20x6 fo r 20x5 insta llme nt sa le s (b a la nc ing fig ure ) _ 43,700
Re a lize d G P o n I/ S in 20x6 fo r 20x5 sa le s *10,450
*
Re a lize d G P o n I/ S in 20x6 16,050
Le ss: Re a lize d G P o n I/ S in 20x6 fo r 20x5 I/ S sinc e c o st o f P31,000 (No . 23) is
a lre a d y re c o ve re d in 20x5 e q uiva le nt to c o lle c tio n __5,600
Re a lize d G P o n I/ S in 20x6 fo r 20x5 insta llme nt sa le s *10,450
25. Ze ro – c o sts is no t ye t fully re c o ve re d , the p ro fit sho uld b e re c o g nize d
Unre c o ve re d c o sts – C o st o f insta llme nt sa le s fo r 20x4 (No . 23) 31,000
26. P41,000
Unre c o ve re d c o sts – C o st o f insta llme nt sa le s fo r 20x4 insta llme nt sa le s 31,000
Le ss: C o lle c tio ns in 20x5 fo r 20x4 insta llme nt sa le s 46,400

lOMoARcPSD|10477308
Re a lize d G P o n I/ S in 20x5 fo r 20x4 insta llme nt sa le s 41,000

Re a lize d G P o n I/ S in 20x5 fo r 20x5 insta llme nt sa le s:
Unre c o ve re d c o sts – C o st o f insta llme nt sa le s fo r 20x5 insta llme nt
Sa le s 56,050
Le ss: C o lle c tio ns in 20x5 fo r 20x5 insta llme nt sa le s 22,800
Unre c o ve re d c o sts, 12/ 31/ 20x4 33,250 ____-0-
Re a lize d G P o n I/ S in 20x5 41,000
27. P 45,000
Insta llm e nt re c e iva b le = P200,000
De fe rre d g ro ss p ro fit = P80,000 (P200,000 x 40%)
Fa ir va lue = P75,000
Re p o sse sse d inve nto ry P 75,000

De fe rre d g ro ss p ro fit P 80,000
Lo ss o n re p o sse ssio n (p lug ) P 45,000
Insta llm e nt re c e iva b le P 200,000
28. Ze ro
P450,000 c o st P300,000 c o lle c tio ns = P150,000 unre c o ve re d c o sts
29. P300,000
20x4 sa le s: C o st = P450,000; P300,000 c o lle c te d in e a c h ye a r 20x4-20x6. P300,000 o f c o st
re c o ve re d in 20x4, the o the r P150,000 o f c o st re c o ve re d in 20x5, so P150,000 o f
g ro ss p ro fit re c o g nize d in 20x5, le a ving P300,000 re c o g nize d in 20x6.
20x5 sa le s: C o st = P900,000; P500,000 c o lle c te d in 20x5, P400,000 c o lle c te d in 20x6. P500,000 o f c o st
re c o ve re d in 20x5, the o the r P400,000 o f c o st re c o ve re d in 20x5, so P0 o f g ro ss
p ro fit re c o g nize d in 20x6.
To ta l: P300,000 + P0 = P300,000
30. d
20x4 Sa le s: Insta llm e nt re c e iva b le s = P900,000 – P300,000 (x4 c o lle c tio ns)
- P300,000 (x5 c o lle c tio ns) = P 300,000
De fe rre d g ro ss p ro fit = P450,000 – P0 (a ll x4 c o lle c tio ns to c o st
re c o ve ry - P150,000 (P150,000 o f x5
c o lle c tio ns to c o st re c o ve ry) = 300,000
Ne t insta llm e nt re c e iva b le fo r 20x4 sa le s = P 0
20x5 Sa le s: Insta llm e nt re c e iva b le s = P1,500,000 – P500,000 (x5 c o lle c tio ns)= P1,000,000
De fe rre d g ro ss p ro fit = P600,000 – P0 (a ll x5 c o lle c tio ns to
c o st re c o ve ry) = P 600,000
Ne t insta llm e nt re c e iva b le fo r 20x5 = P 400,000
To ta l = P 400,000
31. 24%.
De te rm ine d fro m the re p o sse ssio n e ntry:
De fe rre d g ro ss p ro fit P2,400
———— = 24%
Insta llm e nt a c c o unts re c e iva b le P10,000

lOMoARcPSD|10477308
32. 35%
G ro ss p ro fit P 42,000
G ro ss p ro fit P42,000
————- = 35% g ro ss p ro fit ra te
33.
a . 20x4 De fe rre d g ro ss p ro fit b a la nc e P 12,000
G ro ss p ro fit ra te ÷ 25%
Be g inning a c c o unts re c e iva b le P 48,000
Be g inning a c c o unts re c e iva b le P 48,000
End ing a c c o unts re c e iva b le (20,000)
C a sh c o lle c te d P 28,000
b . 20x5 De fe rre d g ro ss p ro fit b a la nc e P 26,400

G ro ss p ro fit ra te ÷ 24%
Be g inning a c c o unts re c e iva b le * P110,000
Be g inning a c c o unts re c e iva b le * P110,000
End ing a c c o unts re c e iva b le * (50,000)
c . 20x6 Insta llm e nt sa le s—20x6 P120,000

Ac c o unts re c e iva b le —20x6 (90,000)
34. P31,900
To ta l re a lize d g ro ss p ro fit in 20x6
Fro m 20x4 P28,000 × 25% = P 7,000
20x5 P60,000 × 24% = 14,400
20x6 P30,000 × 35% = 10,500
P31,900
*Exc lud ing a c c o unts re c e iva b le fo r re p o sse sse d m e rc ha nd ise .
35. 20x4 (2010), P33,750; 20x5 (2011), P95,250

G ro ss p ro fit re a lize d in 20x4 (2010):
Insta llm e nt sa le s = [(P300,000 ฀ P165,000)/ P300,000] x P75,000 = P33,750
G ro ss p ro fit re a lize d in 20x5 (2011):

Fro m 20x4 sa le s = [(P300,000 ฀ P165,000)/ P300,000] x P105,000 = P47,250
Fro m 20x5 sa le s = [(P450,000 ฀ P270,000)/ P450,000] x P120,000 = 48,000

P95,250

lOMoARcPSD|10477308
36. 20x4 (2010), P148,750; 20x5 (2011), P275,250
20x4 20x5
(2010) (2011
Sa le s P450,000 P450,000
C o st o f sa le s 335,000 270,000
G ro ss p ro fit P115,000 P180,000
G ro ss p ro fit re a lize d o n insta llm e nt sa le s 33,750 95,250
To ta l g ro ss p ro fit P148,750 P275,250
37. 20x4 (2010), P148,750; 20x5 (2011), P275,250

. 20x4 20x5
(2010) (2011
Insta llm e nt a c c o unts re c e iva b le P225,000 P450,000
Le ss: De fe rre d g ro ss p ro fit 101,250 186,000
Ne t o f d e fe rre d g ro ss p ro fit P123,750 P264,000
The o rie s
1. Fa lse 6. True 11. True 16. True 21. True 26. True
2. True 7. Fa lse 12. Fa lse 17. True 22. True 27. True
3. Fa lse 8. True 13. Fa lse 18. Fa lse 23. True 28. Fa lse
4. True 9. Fa lse 14. True 19. Fa lse 24. True 29. True
5. True 10. True 15. True 20. True 25. True
30. c 35. b 40. a 45. b 50. d 55. d

31. b 36. d 41. e 46. c 51. c 56. b
32. b 37. d 42. b 47. c 52. b 57. d
33. b 38. e 43. b 48. c 53. a 58. c
34. c 39. c 44. d 49. d 54. b 59. c
60. C 65. b
61. B 66. b
62. b 67. d
63. c 68. d
64. d 69. c

lOMoARcPSD|10477308
C ha pte r 8
Pro b le m I
1. Input Me a sure - Pe rc e nta g e o f C o m ple tio n Me tho d (C o st to C o st Me tho d)
2008:
C o ntra c t p ric e P 1,800,000
Ac tua l c o sts to d a te P 450,000
Estim a te d c o sts to c o m p le te 1,200,000
To ta l e stim a te d p ro je c t c o sts 1,650,000
Estim a te d to ta l g ro ss p ro fit 150,000
Pe rc e nta g e o f c o m p le tio n:
P450,000 / P,1650,000 27.27%
G ro ss p ro fit re c o g nize d P 40,905
2009: P 1,800,000
C o ntra c t p ric e
C o sts inc urre d :
2008 P 450,00
2009 1,100,000
To ta l c o st 1,550,000
To ta l g ro ss p ro fit 250,000
Re c o g nize d in 2008 40,905
Re c o g nize d in 2009 P 209,095
2. Input Me a sure - C o st Re c o ve ry Me tho d

2008: (a ll c o sts no t ye t re c o ve re d ) P -0-
2009:
C o ntra c t p ric e 1,800,00
C o sts inc urre d : 2008 P 450,000
2009 1,100,000
To ta l c o st 1,550,000
To ta l g ro ss p ro fit P 250,000
Pro b le m II
1. Input Me a sure - Pe rc e nta g e o f C o m ple tio n Me tho d (C o st to c o st Me tho d )
Ye a rs G ro ss Pro fit (o r Lo ss) Sup p o rting c o m p uta tio ns
re c o g nize d
2008 P 2 m illio n (P108 – 90) x (P30/ P90) = P6 m illio n
2009 ( P18 m illio n) To ta l lo ss is (P108 –120) = (P12 m illio n)
To d a te , P6 m illio n w a s re c o rd e d :
the re fo re , (P12 m illio n) – P6 m illio n =
(P18 m illio n) in 2009
2010 P 10 m illio n To ta l lo ss is P 108 – 110) = (P2 m illio n)
To d a te , (P 12 m illio n w a s re c o rd e d :
the re fo re , ( P2 m illio n) – (P12 m illio n)
= P10 m illio n in 2010

lOMoARcPSD|10477308
2. Input Me a sure - C o st Re c o ve ry Me tho d

Ye a rs G ro ss Pro fit (o r Lo ss) Sup p o rting c o m p uta tio ns
2008 P -0- ( P108 – 90) = P18 a ntic ip a te d g ro ss
p ro fit, so no ne e d to re c o g nize d a
g ro ss lo ss
2009 (P 12 m illio n) To ta l lo ss is ( P108 – 120) = (12 m illio n)
2010 P 10 m illio n To ta l lo ss is (P108- 110) – ( P2 m illio n)
To d a te , ( P12 m illio n w a s re c o rd e d :
the re fo re , ( P2 m illio n) – ( P12 m illio n)
= P10 m illio n in 2010
Pro b le m III
1. Jo urna l Entrie s
a . Input Me a sure – Pe rc e nta g e o f c o m ple tio n – (c o st- to - c o st m e tho d)
The fo llo w ing a na lysis is to d e te rm ine the p e rc e nta g e o f c o m p le tio n:
20x3 20x4 20x5
C o ntra c t p ric e :
Initia l a mo unt o f c o ntra c t…………... P528,000 P528,000 P528,000
Va ria tio n……………………………….. _______- __12,000 __12,000
To ta l c o ntra c t p ric e …………………….. P528,000 P540,000 P540,000
C o sts inc urre d e a c h ye a r……………… P 126,048 *P244,032 P121,920
Ad d : C o sts inc urre d in p rio r ye a rs……. _______- _126,048 _370,080
Ac tua l c o sts inc urre d to d a te (1)…..… P126,048 *P370,080 P492,000
Ad d : Estima te d c o sts to c o mp le te ….. _358,752 _121,920 _______-
To ta l e stima te d c o sts (3)……..………… P484,800 P492,000 P492,000
Estima te d g ro ss p ro fit…………………… P 43,200 P 48,000 P 48,000
Pe rc e nta g e o f c o mp le tio n (1) / (3) 26% **74% 100%
* inc lud ing the P7,200 a d d itio na l c o sts in 20x4.
** it sho uld b e no te d tha t the p e rc e nta g e o f c o m p le tio n fo r 20x4 is c a lc ula te d b y d e d uc ting the P6,000 o f m a te ria ls he ld fo r
the fo llo w ing p e rio d fro m the c o sts inc urre d up to tha t ye a r e nd , i. e ., P370,080 – P6,000 = P364,080, P364,080 / P492,000 = 74%.
The re ve nue , e xp e nse s (c o sts) a nd p ro fit w ill b e re c o g nize d in p ro fit o r lo ss a s fo llo w s:

Re c o g nize d in Re c o g nize d in
20x3 To d a te p rio r ye a rs c urre nt ye a r
Re ve nue (P528,000 x 26%) P 137,280 - P 137,280
C o sts/ Exp e nse s (P484,800 x 26%) 126,048 - 126,048
G ro ss Pro fit (P43,200 x 26%) P 11,232 - P 11,232
Re ve nue (P540,000 x 74%) P 399,600 P 137,280 P 262,320
C o sts/ Exp e nse s (P492,000 x 74%) _364,080 _126,048 238,032
G ro ss Pro fit (P48,000 x 74%) P 35,520 P 11,232 P 24,288
Re ve nue (P540,000 x 100%) P 540,000 P 399,600 P 140,400
C o sts/ Exp e nse s (P492,000 x 100%) _492,000 _364,080 _127,920
G ro ss Pro fit (P48,000 x 100%) P 48,000 P 35,520 P 12,480
Alte rna tive ly, the g ro ss p ro fit re c o g nize d e a c h ye a r m a y a lso b e c o m p ute d a s fo llo w s:
20x3 20x4 20x5
Initia l a mo unt o f c o ntra c t…………....... P528,000 P528,000 P528,000

lOMoARcPSD|10477308
Va ria tio n…………………………………… _______- __12,000 12,000

To ta l c o ntra c t p ric e ………………………… P528,000 P540,000 P540,000
C o sts inc urre d e a c h ye a r…………………. P126,048 P240,032 P121,920
Ad d : C o sts inc urre d in p rio r ye a rs……….. _______- _126,048 _370,080
Ac tua l c o sts inc urre d to d a te (1)…..……. P126,048 P370,080 P492,000
Ad d : Estima te d c o sts to c o mp le te ……… _358,752 _121,920 _______-
To ta l e stima te d c o sts (3)……..……………. P484,800 P492,000 P492,000
Estima te d g ro ss p ro fit……………………… P 43,200 P 48,000 P 48,000
Pe rc e nta g e o f c o mp le tio n (1) / (3)……... ____26% ____74% ___100%
G ro ss p ro fit to d a te …………………………. P 11,232 P 35,520 P 48,000
Le ss: G ro ss p ro fit in p rio r ye a rs……………. _______- ___11,232 __35,520
G ro ss p ro fit in c urre nt ye a r -% o f c o mp le tio n P 11,232 P 24,288 P 12,480
G ro ss p ro fit in c urre nt ye a r –c o st re c o ve ry me tho d P 0 P 0 P 48,000
Fo llo w ing a re the e ntrie s fo r the ye a rs 20x3 to 20x5:

Pe rc e nta g e o f C o m ple tio n Me tho d
20x3 20x4 20x5
1. To re c o rd c o sts inc urre d :
C o nstruc tio n In Pro g re ss*………...... 126,048 232,032 127,920
Ma te ria ls Inve nto ry………………….. 6,000 6,000
C a sh, p a ya b le s, e tc …………….. 126,048 244,032 121,920
2. To re c o rd p ro g re ss b illing s:
Ac c o unts re c e iva b le ……………….. 144,000 240,000 156,000
Pro g re ss b illing s*.…………………. 144,000 240,000 156,000
3. To re c o rd c o lle c tio ns:

C a sh…………………………………..... 120,000 228,000 192,000
Ac c o unts re c e iva b le …………… 120,000 228,000 192,000
4. To re c o g nize Re ve nue , C o sts

a nd G ro ss Pro fit:
C o nstruc tio n Exp e nse s……………… 126,048 238,032 127,920
C o nstruc tio n in Pro g re ss*..……….... 11,232 24,288 12,480
Re ve nue fro m C o nstruc tio n...... 137,280 262,320 140,400
5. To c lo se C o nstruc tio n In Pro g re ss**

a nd Pro g re ss Billing s a c c o unt:
Pro g re ss b illing s……………………… 540,000
C o nstruc tio n In Pro g re ss………. 540,000
* The te rm “ C o ntra c t a c c o unt” ma y a lte rna tive ly b e use d .
** If “ C o ntra c t a c c o unt” is use d the n no e ntry is re q uire d fo r No . 5.
b . Input Me a sure – C o st Re c o ve ry Me tho d

The fo llo w ing ta b le sho w s the d a ta ne e d e d fo r furthe r a na lysis:
20x3 20x4 20x5
Initia l a mo unt o f c o ntra c t…………... P528,000 P528,000 P528,000
Va ria tio n……………………………….. _______- __12,000 __12,000
To ta l c o ntra c t p ric e …………………….. P528,000 P540,000 P540,000
C o sts inc urre d e a c h ye a r……………… P126,048 P244,032 P121,920
Ad d : C o sts inc urre d in p rio r ye a rs……. _______- _126,048 _370,080
Ac tua l c o sts inc urre d to d a te ……....… P126,048 P370,080 P492,000
Ad d : Estima te d c o sts to c o mp le te ….. ____ _? ____ _? _______-
To ta l e stima te d c o sts ….……..………… P ? P ? P492,000

lOMoARcPSD|10477308
The re ve nue , e xp e nse s (c o sts) a nd p ro fit w ill b e re c o g nize d in p ro fit o r lo ss a s fo llo w s:

Re ve nue * P 126,048 - P 126,048
C o sts/ Exp e nse s 126,048 - 126,048
G ro ss Pro fit P 0 - P 0
* e q uiva le nt to c o sts inc urre d
Re ve nue * P 364,080 P 126,048 P 238,032
C o sts/ Exp e nse s _364,080 126,048 238,032
G ro ss Pro fit P 0 P 0 P 0
* e q uiva le nt to c o sts inc urre d
Re ve nue (P540,000 x 100%) P 540,000 P 364,080 P 175,200
C o sts/ Exp e nse s (P492,000 x 100%) _492,000 364,080 127,920
G ro ss Pro fit (P48,000 x 100%) P 48,000 P 0 P 48,000
Alte rna tive ly, the g ro ss p ro fit re c o g nize d e a c h ye a r m a y a lso b e c o m p ute d a s fo llo w s:
20x3 20x4 20x5
Initia l a mo unt o f c o ntra c t…………....... P528,000 P528,000 P528,000
Va ria tio n…………………………………… _______- __12,000 12,000
To ta l c o ntra c t p ric e ………………………… P528,000 P540,000 P540,000
C o sts inc urre d e a c h ye a r…………………. P 126,048 P244,032 P 121,920
Ad d : C o sts inc urre d in p rio r ye a rs……….. _______- _126,048 _370,080
Ac tua l c o sts inc urre d to d a te ……...……. P 126,048 P370,080 P492,000
Ad d : Estima te d c o sts to c o mp le te ……… ____ _? ____ _? _______-
To ta l e stima te d c o sts …….…..……………. P ? P ? P492,000
Estima te d g ro ss p ro fit………………………. P 0 P 0 P 48,000
Pe rc e nta g e o f c o mp le tio n……………….. _ -___ _ -___ ___100%
G ro ss p ro fit to d a te …………………………. P 0 P 0 P 48,000
Le ss: G ro ss p ro fit in p rio r ye a rs……………. _______- _______- __ 0
G ro ss p ro fit in c urre nt ye a r………………... P 0 P 0 P 48,000
Fo llo w ing a re the e ntrie s fo r the ye a rs 20x3 to 20x5:

20x3 20x4 20x5
1. To re c o rd c o sts inc urre d :
C o nstruc tio n In Pro g re ss*………...... 126,048 238,032 127,920
Ma te ria ls Inve nto ry………………….. 6,000 6,000
C a sh, p a ya b le s, e tc …………….. 126,048 244,032 121,920
2. To re c o rd p ro g re ss b illing s:
Ac c o unts re c e iva b le ……………….. 144,000 240,000 156,000
Pro g re ss b illing s*.…………………. 144,000 240,000 156,000
3. To re c o rd c o lle c tio ns:

C a sh…………………………………..... 120,000 228,000 192,000
Ac c o unts re c e iva b le …………… 120,000 228,000 192,000
4. To re c o g nize Re ve nue , C o sts

lOMoARcPSD|10477308
a nd G ro ss Pro fit:
C o nstruc tio n Exp e nse s……………… 126,480 238,032 127,920
C o nstruc tio n in Pro g re ss*..……….... 48,000
Re ve nue fro m C o nstruc tio n...... 126,480 238,032 175,920
5. To c lo se C o nstruc tio n In Pro g re ss**

a nd Pro g re ss Billing s a c c o unt:
Pro g re ss b illing s……………………… 540,000
C o nstruc tio n In Pro g re ss………. 540,000
* The te rm “ C o ntra c t a c c o unt” ma y a lte rna tive ly b e use d .
** If “ C o ntra c t a c c o unt” is use d the n no e ntry is re q uire d fo r No . 5.
2. Due fro m / Due to C usto m e rs

a . Input Me a sure - Pe rc e nta g e o f C o m ple tio n Me tho d
C urre nt Asse t:
20x3 20x4 20x5
Ac c o unts re c e iva b le ………………………. P 24,000 P 36,000 P -
O the r re c e iva b le s:
C o nstruc tio n In Pro g re ss………………… P399,600
Le ss: Pro g re ss b illing s……………………. _384,000
G ro ss a m o unt d ue fro m c usto m e rs… ... P 15,600
Ra w ma te ria ls Inve nto ry…………………… P 6,000
C urre nt Lia b ility:

Pa ya b le s (“ Pa ym e nts o n Ac c o unt” )
Pro g re ss b illing s……………………………… P144,000
Le ss: C o nstruc tio n In Pro g re ss……………. _137,280
G ro ss a m o unt d ue to c usto m e rs… … … … P 6,720
C o nstruc tio n In Pro g re ss Pro g re ss Billing s
20x3 C I 126,048 144,000 20x3

Pr 11,232
e nd o f x3 137,280 144,000 e nd o f x3
20x4 C I 238,032 240,000 20x4
Pr 11,232
e nd o f x4 399,600 384,000 e nd o f x4
20x5 C I 127,920 156,000 20x5
Pr 12,480
540,000 540,000 540,000 540,000
w he re : C I - c o st inc urre d e a c h ye a r
Pr - p ro fit
b . Input Me a sure – C o st Re c o ve ry Me tho d

C urre nt Asse t:
20x3 20x4 20x5
Ac c o unts re c e iva b le ………………………. P 24,000 P 36,000 P -
Ra w ma te ria ls Inve nto ry…………………… P 6,000

lOMoARcPSD|10477308
C urre nt Lia b ility:

Pa ya b le s (“ Pa ym e nts o n Ac c o unt” )
Pro g re ss b illing s……………………………… P 137,280 P384,000
Le ss: C o nstruc tio n In Pro g re ss……………. _144,000 _364,080
G ro ss a m o unt d ue to c usto m e rs… … … … P 6,720 P 19,920
C o nstruc tio n In Pro g re ss Pro g re ss Billing s
20x3 C I 126,048 144,000 20x3

Pr 0
e nd o f x3 126,048 144,000 e nd o f x3
20x4 C I 238,032 240,000 20x4
Pr 0
e nd o f x4 364,080 384,000 e nd o f x4
20x5 C I 127,920 156,000 20x5
Pr 48,000
540,000 540,000 540,000 540,000
w he re : C I - c o st inc urre d e a c h ye a r
Pr - p ro fit
3. G ro ss Pro fit
a . Input Me a sure - Pe rc e nta g e o f C o m ple tio n Me tho d (re fe r to re q uire m e nt 1 fo r de ta ile d
c o m puta tio n)
20x3 20x4 20x5
Re ve nue ……………………………………… P 137,280 P 262,320 P 140,400
Le ss: C o sts / Exp e nse s……………………... _126,048 _238,032 _127,920
G ro ss Pro fit……………………………………. P 11,232 P 24,288 P 12,480
b . Input Me a sure – C o st Re c o ve ry Me tho d (re fe r to re q uire m e nt 1 fo r de ta ile d c o m puta tio n)

20x3 20x4 20x5
Re ve nue ……………………………………… P 126,048 P 238,032 P 175,920
Le ss: C o sts / Exp e nse s……………………... _126,048 _238,032 _127,920
G ro ss Pro fit……………………………………. P 0 P 0 P 48,000
Pro b le m IV
1. Antic ipa te d/ G ro ss Lo ss
a . Input Me a sure – Pe rc e nta g e o f C o m ple tio n (C o st- to - C o st Me tho d)
2008:
C o ntra c t p ric e P2,500,000
Ac tua l c o st to d a te P1,500,000
Estim a te d c o sts to c o m p le te 1,200,000
To ta l e stim a te d p ro je c t c o sts 2,700,000
Estim a te d lo ss, re c o g nize d in 2008 P (200,000)

lOMoARcPSD|10477308
2009:
C o ntra c t p ric e P 2,500,000
C o sts inc urre d : In 2008 P1,500,000
In 2008 1,300,000 a . Input
To ta l c o st 2,800,000 Me a sure –
To ta l lo ss P (300,000) C o st
Re c o g nize d in 2008 (200,000) Re c o ve ry
Re c o g nize d in 2009 P (100,000) Me tho d
Lo ss in 20x4 P( 200,000)
Lo ss in 20x5 P (100,000)
2. Jo urna l Entrie s
a . Input Me a sure – Pe rc e nta g e o f C o m ple tio n (C o st- to - C o st Me tho d)
2008:
C o nstruc tio n in p ro g re ss 1,500,000
Va rio us c re d its 1,500,000
Ac c o unts re c e iva b le 1,200,000

Billing s o n c o nstruc tio n c o ntra c t 1,200,000
C a sh 1,000,000
C o st o f c o nstruc tio n 1,588,889

C o nstruc tio n in p ro g re ss (lo ss) 200,000
Re ve nue fro m lo ng -te rm c o ntra c ts* 1,388,889
2009:
Va rio us c re d its 1,300,000

C a sh 1,500,000
C o st o f c o nstruc tio n 1,211,111

C o nstruc tio n in p ro g re ss (lo ss) 100,000
Re ve nue fro m lo ng -te rm c o ntra c ts** 1,111,111

*P2,500,000 (P1,500,000/ P2,700,000)

** P2,500,000 1,388,889

lOMoARcPSD|10477308
Pro b le m V
Ite m to c o m p ute Answ e r
To ta l re ve nue re c o g nize d d uring 2009 (w ): P50 m illio n
C IP c o nta ins c o st + g ro ss p ro fit = re ve nue , so w = P50 P 15 m illio n
G ro ss p ro fit re c o g nize d d uring 2009 (x): P50 – P35 = P15
Billing s o n c o nstruc tio n (y) : P14 + P 46 = P60 P60m illio n
Ne t b illing s in e xc e ss o f c o nstruc tio n in p ro g re ss (z): Billing s o f P60 – C IP o f P10 m illio n
P50
C a lc ula te the p e rc e nta g e o f PAC tha t w a s c o m p le te d d uring 2009:
50/ 150 = 33.33% 333.33%
Pro b le m VI
Ite m to c o m p ute Answ e r
C a sh c o lle c te d b y KP o n C inc y O ne d uring 2009. (P75 b illing s – P10 A/ R) P65 m illio n
Ac tua l c o sts inc urre d b y KP o n C inc y O ne d uring 2009 (P66 C IP – P22 P44 m illio n
g ro ss p o fit)
At 12/ 31/ 2009, the e stim a te d re m a ining c o sts to c o m p le te C inc y O ne P156 m illio n
(44/ {44 + x})(300 – {44 + x}) = 22; x = 156
The p e rc e nta g e o f C inc y O ne tha t w a c o m p le te d d uring 2009 100 x (44/ 22%
{44 + 156})
Pro b le m VII
1.
Pro g re ss b illing s o n c o nstruc tio n c o ntra c t P562,000
Le ss a c c o unts re c e iva b le 150,500
C a sh c o lle c te d in 20x4 P411,500
2.
G ro ss p ro fit fro m c o nstruc tio n c o ntra c t + C o nstruc tio n in p ro g re ss = Re ve nue fo r 20x4
P301,000 + P602,000 = P903,000
P903,000/ P7,525,000 = 12% Pe rc e nta g e c o m p le te d in 20x4
P301,000/ .12 = P2,508,333 Estim a te d inc o m e o n c o nstruc tio n c o ntra c t
Pro b le m VIII
1. Pe rc e nta g e o f C o m ple tio n Me tho d (C o st- to - c o st Appro a c h)
20x4 20x5 20x6
C o ntra c t p ric e ................... P250,000 P250,000 P250,000
C urre nt ye a r c o sts ............... 110,000 120,000 15,000
C o sts to d a te .................... 110,000 230,000 245,000
Estim a te d c o st to c o m p le te ....... 100,000 20,000 0
Estim a te d to ta l c o st ............. 210,000 245,000 240,000
Estim a te d to ta l g ro ss p ro fit ..... 40,000 5,000 5,000
Pe rc e nt c o m p le te ................. 52% 94% 100%
Re ve nue to d a te .................. P130,000 P230,000 P250,000
To Da te Pre vio us C urre nt

a t De c . 31 Ye a rs Ye a r
20x4: Re ve nue P130,000 P130,000
C o sts (110/ 210 x 210) 110,000 110,000
G ro ss p ro fit P 20,000 P 20,000

lOMoARcPSD|10477308
20x5: Re ve nue P235,000 P130,000 P105,000

C o sts (230/ 245 x 245) 230,000 110,000 120,000
G ro ss p ro fit (lo ss) P 5,000 P 20,000 P(15,000)
20x6: Re ve nue P250,000 P235,000 P 15,000

C o sts 245,000 230,000 15,000
G ro ss p ro fit P 5,000 P 5,000 P 0
20x4 20x5 20x6

1. Re ve nue re c o g nize d d uring
the ye a r P130,000 P100,000 P15,000
2. G ro ss p ro fit re c o g nize d d uring
the ye a r 20,000 (15,000) 0
3. Ba la nc e in the c o nstruc tio n in
p ro g re ss a c c o unt a t De c . 31 . 130,000 235,000 0
4. Ba la nc e in the p ro g re ss
b illing s a c c o unt a t De c . 31 . 125,000 250,000 0
5. Ne t (3-4) o r (4-3) – d ue fro m (d ue to ) 5,000 (15,000) 0
2. C o st Re c o ve ry Me tho d
20x4 20x5 20x6
1. Re ve nue re c o g nize d d uring
the ye a r P110,000 P120,000 P20,000
the ye a r 0 0 5,000
p ro g re ss a c c o unt a t De c . 31 . 110,000 230,000 0
5. Ne t (3-4) o r (4-3) – d ue fro m (d ue to ) (15,000) (20,000) 0
Pro b le m IX
1. Pe rc e nta g e o f C o m ple tio n Me tho d (C o st- to - c o st Appro a c h)
2005 2006 2007

C o ntra c t p ric e P250,000 P250,000 P250,000
C urre nt ye a r c o sts 150,000 100,000 15,000
C o sts to d a te 150,000 250,000 265,000
Estim a te d c o st to c o m p le te 90,000 20,000 0
Estim a te d to ta l c o st 240,000 270,000 265,000
Estim a te d to ta l g ro ss p ro fit 10,000 (20,000) (15,000)
Pe rc e nt c o m p le te 63% 93% 100%
Re ve nue to d a te P157,500 P232,500 P250,000
To Da te Pre vio us C urre nt

a t De c . 31 Ye a rs Ye a r
2005: Re ve nue ............ P157,500 P157,500
C o sts (150/ 240 x 240) 150,000 150,000
G ro ss p ro fit ............ P 7,500 P 7,500
2006: Re ve nue ............ P232,500 P157,500 P 75,000

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C o sts ............ 252,500 150,000 102,500

G ro ss p ro fit (lo ss) ............ P(20,000) P 7,500 P(27,500)
2007: Re ve nue ............ P250,000 P232,500 P 17,500

C o sts ............ 265,000 252,500 12,500
G ro ss p ro fit (lo ss) ............ P(15,000) $(20,000) P 5,000
20x4 20x5 20x6

1. C o nstruc tio n c o sts (e xp e nse )
re c o g nize d d uring the ye a r P150,000 P102,500 P12,500
the ye a r 7,500 (27,500) 5,000
p ro g re ss a c c o unt a t De c . 31
(a fte r c lo sing e ntrie s) 157,500 230,000* 0
5. NNe t (3-4) o r (4-3) – d ue fro m (d ue to ) 47,500 0 0
Ba la nc e in a c c o unts re c e iva b le
a t De c . 31 (a fte r c lo sing e ntrie s) 10,000 10,000 0
*P150,000 + 7,500 + 157,500 + 100,000 c o sts inc urre d d uring the ye a r – 27,500 lo ss
2. C o st Re c o ve ry Me tho d
20x4 20x5 20x6
1. C o nstruc tio n c o sts (e xp e nse )
re c o g nize d d uring the ye a r P150,000 P 80,000* P20,000**
the ye a r 0 (20,000) 5,000
p ro g re ss a c c o unt a t De c . 31
(a fte r c lo sing e ntrie s) 150,000 ***230,000 0
5. NNe t (3-4) o r (4-3) – d ue fro m (d ue to ) 40,000 0 0
Ba la nc e in a c c o unts re c e iva b le
a t De c . 31 (a fte r c lo sing e ntrie s) 10,000 10,000 0
*P100,000 c o sts inc urre d – P20,000 e stim a te d lo ss = P80,000, re ve nue – 20x5
** P250,000 – P150,000, re ve nue – 20x4 – P80,000, re ve nue – 20x5
***P150,000 + P100,000 – P20,000
1. a
C o sts inc urre d e a c h ye a r
(2.5 M + 2.0 M + 1 M* + .5 M) P 6M
Ad d : C o st inc urre d in p rio r ye a rs 0
C o sts inc urre d to d a te P 6M
Ad d : Estim a te d c o st to c o m p le te
To ta l e stim a te d c o sts P 18 M

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Pe rc e nta g e o f c o m p le tio n 6 M / 18M

Ad m inistra tive c o st a s lo ng a s re im b ursab le is inc lud e d in the c o nstruc tio n c o sts.
Ma rke ting c o sts a re c o nsid e re d a s e xp e nse s.
De p re c ia tio n o f id le e q uip m e nt is c ha rg e d to e xp e nse s.
2. b
P7,200,000
——————————— x (P15,000,000 – P12,000,000) = P1,800,000.
P7,200,000 + $4,800,000
3. c
P1,170,000
—————- x (P3,300,000 – P1,950,000) = P810,000
P1,950,000
(P3,300,000 – P2,010,000) – P810,000 = P480,000.
4. d
Und e r the p e rc e nta g e o f c o m p le tio n m e tho d , the C o nstruc tio n-In-Pro g re ss a c c o unt is use d fo r c o st
inc urre d d uring the ye a r a nd a ny re a lize d g ro ss p ro fit (lo ss). The fo llo w ing T-a c c o unt is p re p a re d :
C o nstruc tio n-In-Pro g re ss

C I in 2004 210,000
RG P in 20x4 (? ) 34,000
End o f 20x4 244,000
C I in 20x5 384,000
RG P in 20x5 (? ) 100,000
End o f 20x5 728,000
5. b P1,200,000
————— x (P7,200,000 – P4,800,000) = P600,000.
P4,800,000
6. c P7,200,000 – P4,875,000 =P2,325,000.
7. a
20x4
C o ntra c t Pric e P4,800,000
x: Pe rc e nta g e -o f-c o m p le tio n _______75%
Re c o g nize d Re ve nue to d a te P3,600,000
Le ss: C o sts inc urre d to d a te P3,400,000
G ro ss Pro fit to d a te P 200,000
Le ss: G P in p rio r ye a r _______-0-
G ro ss p ro fit in c urre nt ye a r P 200,000
8. a P3,600,000
————— x (P8,400,000 – P6,000,000) = P1,440,000.
P6,000,000
9. b P8,400,000 – P5,600,000 = P2,800,000.

lOMoARcPSD|10477308
Ite m s 10 and 11
No num b e r re q uire m e nt ide ntifie d, if p e rc e ntag e - o f- c o m p le tio n the n the answe r wo uld (a)
a [P1,950,000 ÷ (P1,950,000 + P1,300,000)] × P2,250,000 = P1,350,000
(P5,500,000 – P3,350,000) – P1,350,000 = P800,000.
10. C o st Re c o ve ry Me tho d - c - P5,500,000 – P3,350,000 = P2,150,000.
11. a - G ro ss p ro fit is re c o g nize d in the ye a r o f sa le , 20x4; the re fo re , in 20x6 no g ro ss p ro fit sho uld b e
re a lize d .
12. c P600,000
—————————— x (P1,500,000 – P1,000,000) = P300,000
P600,000 + P400,000
(P1,500,000 – P1,050,000) – P300,000 = P150,000.

13. a
Le ss: To ta l Estim a te d C o sts
C o sts Inc urre d -1/ 10/ x4 to 12/ 31/ x5 P3,600,000
Ad d : Estim a te d c o sts to c o m p le te 1,200,000 4,800,000
Le ss: C o sts inc urre d to d a te P1,200,000
Multip lie d b y: % o f c o m p le tio n ___3.6/ 4.8
G ro ss Pro fit to d a te P 900,000
Le ss: G P in p rio r ye a r (g ive n) ___600,000
G ro ss p ro fit in c urre nt ye a r P 300,000
14. b
20x4: C o st to d a te – P7,500,000 x 20% P1,500,000
20x5: C o st to d a te – P8,000,000 x 60% 4,800,000
C o st inc urre d d uring 20x5 P3,300,000
15. b = (P25,000,000 × .60) – (P22,500,000 × .25) = P9,375,000.
16. b
C o sts Inc urre d 50,000
C o ntra c t p ric e ………………………………………. P260,000
C o st inc urre d e a c h ye a r………………………….. P 50,000
Ad d : C o st inc urre d in p rio r ye a r…………………. -0-
C o sts inc urre d to d a te …………………………….. P 50,000
Ad d : Estima te d c o sts to c o mp le te ……………… 150,000
To ta l e stima te d c o sts………………………………. P200,000
Estima te d g ro ss p ro fit (lo ss)………….……………. P60,000)
Multip lie d b y: p e rc e nta g e o f c o mp le tio n……….. __50/ 200 15,000
C o nstruc tio n In Pro g re ss a c c o unt 65,000
Le ss: Pro g re ss b illing s 30,000
C o nstruc tio n In Pro g re ss a c c o unt (ne t) o r Due fro m c usto me rs 35,000
17. d - P2,040,000 – P980,000 = P1,060,000 (re ve nue lim ite d to c o sts inc urre d sinc e c o st-re c o ve ry
m e tho d m ust b e use d ).
18. a - P2,040,000 – (P1,000,000 + P1,000,000) = P40,000.
19. c - (P1,000,000 + P1,000,000) – (P648,000 + P1,280,000) = P72,000.

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20. d
21. d
Re c o g nize d g ro ss p ro fit (lo ss) to d a te ………….. P( 100,000)
Le ss: Re c o g nize d g ro ss p ro fit in p rio r ye a rs……. ____20,000
Re c o g nize d g ro ss p ro fit e a c h ye a r…………….. P (120,000)
22. b = P5,600,000 – (P2,560,000 + P3,280,000) = –P240,000.
23. c
Prio r ye a r C urre nt ye a r
C o ntra c t p ric e ………………………………………. P7,000,000 P7,000,000
C o st inc urre d e a c h ye a r…………………………..
Ad d : C o st inc urre d in p rio r ye a r………………….
C o sts inc urre d to d a te …………………………….. P5,000,000
Ad d : Estim a te d c o sts to c o m p le te ……………… 2,800,000
To ta l e stim a te d c o sts………………………………. P7,800,000
Estim a te d g ro ss p ro fit (lo ss)………….……………. (P 800,000)
Multip lie d b y: p e rc e nta g e o f c o m p le tio n……….. _____100%
Re c o g nize d g ro ss p ro fit (lo ss) to d a te ………….. P600,000 (P 800,000)
Le ss: Re c o g nize d g ro ss p ro fit in p rio r ye a rs……. ___600,000
Re c o g nize d g ro ss p ro fit e a c h ye a r…………….. (P1,400,000)
24. c P7,440,000 × .30 = P2,232,000.
25. d (P7,200,000 × .75) – (P7,100,000 × .30) = P3,270,000.
26. b (P7,440,000 × .75) – (P620,000 × 8) = P620,000 d e b it.
27. c P7,440,000 × .25 = P1,860,000

P7,500,000 – (P7,200,000 × .75) = P2,100,000.
28. b (P9,000,000 – P8,250,000) × (P3,795,000 ÷ P8,250,000) = P345,000.
29. c P3,795,000 + P345,000 = P4,140,000.
30. d P3,500,000 –P1,350,000 – P1,525,000 = P625,000.
31. b P240,000 – P100,000 = P140,000.
32. d P300,000 – P60,000 = P240,000
P240,000
————————— x (P2,400,000 – To ta l e stim a te d c o st) = P60,000
To ta l e stim a te d c o st
To ta l e stim a te d c o st = P1,920,000
P2,400,000 – P1,920,000 =P480,000.
33. c (P6,325,000 ÷ P13,750,000) × P1,250,000 = P575,000.
34. a (P6,325,000 ÷P13,750,000) × P1,250,000 = P575,000.

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P6,325,000 + P575,000 = P6,900.000.
35. d - P85M c o sts inc urre d in 2011 = re ve nue re c o g nize d in 2011. Und e r the c o sts re c o ve ry (ze ro -p ro fit
a p p ro a c h) o f c o nstruc tio n a c c o unting , re ve nue is re c o g nize d up to the e xte nt o f c o sts inc urre d a s
lo ng a s it is p ro b a b le w ill b e re c o ve ra b le .
36. b - 20x5: P12,000,000 > P11,870,000, No lo ss;

20x6: P12,000,000 – P12,400,000 = P400,000 lo ss.
37. a - Re ve nue re c o g nize d to the e xte nt o f c o sts inc urre d
38. c P3,200,000 – P2,150,000 = P1,050,000.
39. c P1,500,000 – P820,000 = P680,000.
40. a
Und e r PFRS, the e xc e ss o f C o nstruc tio n In Pro g re ss a m o unting to P2,100,000 (P2,250,000 – P150,000,
lo ss) – P1,900,000, b illing s = P200,000 is c la ssifie d a s d ue fro m c usto m e rs.
Unde r the US FA SB, the e xc e ss o f P200,00 is c o nside re d as an inve nto ry ac c o unt.
41. c
C o sts o f c o nstruc tio n 1,200,000
C o nstruc tio n in p ro g re ss 800,000
Re ve nue fo r lo ng -te rm c o ntra c ts 2,000,000
Pe rc e nta g e c o m p le te = P1,200,000 / (P1,200,000 +P600,000) = 2/ 3
Re ve nue re c o g nize d = 2/ 3 P3,000,000 = P2,000,000
C o st re c o g nize d = P1,200,000
G ro ss p ro fit re c o g nize d = P2,000,000 P1,200,000 = P800,000
42. a
C o sts o f c o nstruc tio n P1,200,000
Pro fit 800,000
C o nstruc tio n In Pro g re ss P2,000,000
Le ss: Pro g re ss b illing s 1,500,000
Exc e ss (Due fro m c usto m e rs) P 500,000
43. b
C o sts o f c o nstruc tio n 600,000
C o nstruc tio n in p ro g re ss 400,000
To ta l re ve nue P3,000,000 re ve nue p re vio usly re c o g nize d P2,000,000 = Re ve nue to
re c o g nize this ye a r P1,000,000.
C o st re c o g nize d = P600,000
G ro ss p ro fit re c o g nize d = P1,000,000 P600,000 = P400,000
44. d
C o sts o f c o nstruc tio n 1,200,000

lOMoARcPSD|10477308
Und e r c o st re c o ve ry m e tho d , re ve nue sho uld b e re c o g nize d up to the e xte nt o f c o sts inc urre d .
45. b
C o sts o f c o nstruc tio n P1,200,000
Pro fit 0
C o nstruc tio n In Pro g re ss P1,200,000
Le ss: Pro g re ss b illing s 1,500,000
Exc e ss (Due to c usto m e rs) P( 300,000)
46. d
C o sts o f c o nstruc tio n 600,000
Und e r the c o st re c o ve ry m e tho d , re c o rd e q ua l a m o unts o f re ve nue a nd c o st until c o st re c o ve re d ,
a nd the n re c o rd g ro ss p ro fit. In 20x4, re c o rd e d re ve nue a nd c o st o f P1,200,000, so re c o rd
re m a ining c o st o f P600,000 a nd a ll g ro ss p ro fit o f P1,200,000 in 20x5.
47. a
20x4 20x5
C o ntra c t p ric e P 9,600,000 P10,080,000
C o sts inc urre d to d a te P 4,920,000 P 8,640,000
Ad d : Estim a te d c o st to c o m p le te 4,920,000 2,160,000
To ta l e stim a te d c o sts P 9,840,000 P 10,800,000
Estim a te d G ro ss Pro fit (lo ss) P(240,000) P (720,000)
Multip ly b y: % o f c o m p le tio n 100% 100%
Re c o g nize d G ro ss Pro fit (Lo ss) to d a te P (240,000) P (720,000)
Le ss: G ro ss Pro fit (Lo ss) in p rio r ye a r _________ (240,000)
Re c o g nize d G ro ss Pro fit (Lo ss) in c urre nt ye a r P (240,000) P (480,000)
% o f C o m p le tio n / C o st Re c o ve ry Me tho d :
C o nstruc tio n in Pro g re ss Pro g re ss Billing s
CI 4,920,000 240,000 lo ss 5,280,000
4,680,000 5,280,000
CI 3,720,000 480,000 lo ss 3,420,000
7,920,000 8,700,000
d ue to c usto me rs
P780,000
No te : If the re is a n a ntic ip a te d lo ss, the C o nstruc tio n-in-Pro g re ss fo r b o th m e tho d s w ill e xa c tly b e
the sa m e in the ye a r the lo ss w a s inc urre d .
48. d
Pe rc e ntag e o f C o m p le tio n: Pro je c t 6 Pro je c t 7 Pro je c t 8
C o ntra c t p ric e ………………………….. P500,000 P700,000 P250,000
C o st inc urre d e a c h ye a r………………. P375,000 P100,000 P100,000
Ad d : C o st inc urre d in p rio r ye a r……… _________ ________ ________
C o sts inc urre d to d a te ………………… P375,000 P100,000 P100,000
Ad d : Estim a te d c o sts to c o m p ute ……. ________ 400,000 100,000
To ta l e stim a te d c o sts…………………. P375,000 P500,000 P200,000

lOMoARcPSD|10477308
Estim a te d g ro ss p ro fit………………… P125,000 P200,000 P 50,000

Multip ly b y: p e rc e nta g e o f c o m p le tio n. 100% 20% 50%
Re c o g nize d g ro ss p ro fit to d a te ……… P125,000 P 40,000 P 25,000
Le ss: Re c o g nize d g ro ss p ro fit in p rio r ye a rs _________ _________ _________
Re c o g nize d g ro ss p ro fit e a c h ye a r…. P125,000 P 40,000 P 25,000
C o st Re c o ve ry Me tho d o f C o nstruc tio n A c c o unting :

Pro je c t 6 Pro je c t 7 Pro je c t 8
Re c o g nize d Re ve nue ………..……….. P500,000* P100,000 P100,000
Le ss: C o sts o f lo ng -te rm c o nstruc tio n
c o ntra c t…………………………….. 375,000 100,000 100,000
Re c o g nize d g ro ss p ro fit e a c h ye a r…. P125,000 P 0 P 0
* Sinc e the c o ntra c t is c o mp le te d the n the full a mo unt o f P500,000 c o ntra c t p ric e sho uld b e re c o g nize d a s
re ve nue .
Pe rc e nta g e o f C o m p le tio n C o st Re c o ve ry Me tho d o f C o nstruc tio n

C o nstruc tio n in Pro g re ss C o nstruc tio n in Pro g re ss
Pr. 6 - C l. 375,000 500,000 Pr. 6 Pr. 6 - C l. 375,000 500,000 Pr. 6
Pr. 125,000 Pr. 125,000
Pr. 7 – C l. 100,000 Pr. 7 – C I 100,000
Pr. 40,000 Pr. 8 – C I 100,000
Pr. 8. C l 100,000 700,000 500,000
Pr. 100,000 12/ 31 200,000 (d)
765,000 500,000
12/ 31 265,000 (d)
49. a
Inp ut Me a sure s: Effo rts-Exp e nd e d Me tho d - using tim b e rs la id
Ye a r 2 Ye a r 3
Tim e rs la id Ea c h Ye a r 300 500
Ad d : Tim b e rs la id in Prio r Ye a rs 150 450
Tim b e rs la id to d a te 450 950
Ad d : Ad d itio na l sup p o rt tim b e rs to b e la id 520 -0-
To ta l Estim a te d Tim b e rs 970 950
Pe rc e nta g e -o f-C o m p le tio n 45/ 97 100%
x: C O NTRAC T PRIC E P 800,000 P 800,000
Re c o g nize d Re ve nue to Da te P 371,134 P 800,000
Re c o g nize d Re ve nue in Prio r Ye a rs 371,134
Re c o g nize d Re ve nue in C urre nt Yr. P 428,866
O utp ut Me a sure s – Num b e r o f tra il fe e t

Ye a r 2 Ye a r 3
Tra il fe e t Ea c h Ye a r 7,500 8,000
Ad d : Tra il fe e s in Prio r Ye a rs 3,000 10,500
Tra il fe e t to d a te 10,500 18,500
Ad d : Ad d itio na l tra il fe e t to b e c o nstruc te d 8,200 ___-0-
To ta l Estim a te d Tra il fe e t 18,700 18,500
Pe rc e nta g e -o f-C o m p le tio n 105/ 187 100%
x: C O NTRAC T PRIC E P 800,000 P 800,000
Re c o g nize d Re ve nue to Da te P 449,198 P 800,000

lOMoARcPSD|10477308
Re c o g nize d Re ve nue in Prio r Ye a rs 449,198

Re c o g nize d Re ve nue in C urre nt Yr. P 350,802
50. b
2006 2007 2008
C o ntra c t p ric e ………………………….. P5,000,000 P5,000,000 P5,000,000
C o st inc urre d e a c h ye a r………………. P2,050,000
Ad d : C o st inc urre d in p rio r ye a r……… 900,000 2,550,000
C o sts inc urre d to d a te ………………… P 900,000 P2,550,000 P4,600,000
Ad d : Estim a te d c o sts to c o m p le te 1,700,000 -0-
To ta l e stim a te d c o sts…………………. P4,250,000 P4,600,000
Estim a te d g ro ss p ro fit………………… P 750,000 P 400,000
Multip ly b y: p e rc e nta g e o f c o m p le tio n. 60% 100%
Re c o g nize d g ro ss p ro fit to d a te ……… P 100,000 P 450,000 P 400,000
Le ss: Re c o g nize d g ro ss p ro fit in p rio r ye a rs -0- 100,000 450,000
Re c o g nize d g ro ss p ro fit e a c h ye a r…. P 100,000 P 350,000 P( 50,000)
51. d – re fe r to No . 50
52. c
C o ntra c t Pric e ……………………………………………… P60,000,000
Le ss: To ta l Estim a te d C o sts
C o st Inc urre d to Da te ……………………………… P26,000,000
Ad d : Estim a te d C o sts to C o m p le te ……………… 25,000,000 51,000,000
Estim a te d G ro ss Pro fit……………………………………. P 9,000,000
Multip lie d b y: % o f c o m p le tio n…………………………. 30%
Re c o g nize d g ro ss p ro fit to d a te ……………………….. P 2,700,000
Le ss: RG P in p rio r ye a rs…………………………………… _________0
Re c o g nize d g ro ss p ro fit in c urre nt ye a r……………… P 2,700,000
C o nstruc tio n-in-p ro g re ss Ac c o unt:

C o sts inc urre d to d a te ………………………………….. P 26,000,000
G P in the c urre nt ye a r…………………………………… 2,700,000
P 28,700,000
Le ss: Pro g re ss b illing s…………………………………….. 5,000,000
Due fro m c usto m e r (ne t)………………………………. P 23,700,000
53. c
Multip lie d b y: G ro ss Pro fit Ra te _________25%
Estim a te d G ro ss Pro fit o f the e ntire c o ntra c t P 25,000,000
Multip lie d b y: Pe rc e nta g e o f C o m p le tio n fo r first ye a r _________50%
G ro ss Pro fit re a lize d fo r c urre nt ye a r P 12,500,000
54. c
x: Mo b iliza tio n Fe e 10%
C o lle c tio n in 20x4 P 12,000,000
No te : Billing s fo r 20x4 w ill b e c o lle c te d in Ja nua ry 20x5.
55. a
Mo b iliza tio n Fe e : 5% x P10M P 5.0 M

lOMoARcPSD|10477308
C o lle c tio n o n Billing s:

C o ntra c t p ric e P 100 M
x: Pro g re ss b illing s, ne t o f 10% a nd 8% (50% - 10% - 8%) 32%
Pro g re ss b illing s P 32 M
x: C o lle c tio ns ne t o f c o ntra c t re te ntio n o f 10% 90% 28.8 M
C o lle c tio ns in 20x4 P 33.8 M
56. b – c o st re c o ve ry m e tho d is use d .

At the e nd o f 20x4 the c o ntra c to r m ust re c o g nize d o nly to the e xte nt o f re c o ve ra b le c o ntra c t c o sts
inc urre d (i.e ., P5,000 c o ntra c t re ve nue a nd P5,000 c o nstruc tio n c o sts/e xp e nse s).
Q uiz- VIII
1. P100,000 = [P900,000 ÷ (P900,000 + P1,800,000)] × P3,000,000 = P1,000,000
P1,000,000 – P900,000 = P100,000.
2. P150,000
C o sts inc urre d to d a te 1,350,000
Ad d : Estim a te d c o st to c o m p le te _2,700,000
To ta l e stim a te d c o sts 4,050,000
Estim a te d G ro ss Pro fit (lo ss) 450,000
Multip ly b y: % o f c o m p le tio n 1,350/ 4,050
Re c o g nize d G ro ss Pro fit (Lo ss) to d a te 150,000
Le ss: G ro ss Pro fit (Lo ss) in p rio r ye a r ____-0-
Re c o g nize d G ro ss Pro fit (Lo ss) in c urre nt ye a r 150,000
3. P150,000
20x5 20x6
C o ntra c t p ric e 3,000,000 3,000,000
C o sts inc urre d to d a te 1,800,000
Ad d : Estim a te d c o st to c o m p le te _600,000
To ta l e stim a te d c o sts 2,250,000 2,400,000
Estim a te d G ro ss Pro fit (lo ss) 750,000 600,000
Multip lie d b y: % o f c o m p le tio n 1,800/ 2,400
Re c o g nize d G ro ss Pro fit (Lo ss) to d a te 300,000 450,000
Le ss: G ro ss Pro fit (Lo ss) in p rio r ye a r _300,000
4. P80,000
20x5
C o sts inc urre d to d a te 240,000
Ad d : Estim a te d c o st to c o m p le te _960,000
Multip lie d b y: % o f c o m p le tio n 240/ 1,200
Le ss: G ro ss Pro fit (Lo ss) in p rio r ye a r ______0

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5. P20,000
20x5 20x6
C o ntra c t p ric e 1,400,000 1,400,000
C o sts inc urre d e a c h ye a r 400,000 400,000
Ad d : C o st inc urre d in p rio r ye a rs _____-0- 400,000
C o sts inc urre d to d a te 400,000 800,000
Ad d : Estim a te d c o st to c o m p le te _400,000 200,000
To ta l e stim a te d c o sts 800,000 1,000,000
Multip lie d b y: % o f c o m p le tio n 400/ 800 800/ 1,000
Le ss: G ro ss Pro fit (Lo ss) in p rio r ye a r ______0 300.000
Re c o g nize d G ro ss Pro fit (Lo ss) in c urre nt ye a r 300,000 20,000
6. P-0- , Und e r the c o st re c o ve ry m e tho d , re c o rd e q ua l a m o unts o f re ve nue a nd c o st until c o st

re c o ve re d , a nd the n re c o rd g ro ss p ro fit
7.P240,000 Pro fit

20x5
C o sts inc urre d e a c h ye a r 960,000
Ad d : C o st inc urre d in p rio r ye a rs _______0
Multip lie d b y: % o f c o m p le tio n 960/ 3,200
Le ss: G ro ss Pro fit (Lo ss) in p rio r ye a r _______0
8. P102,000
20x5
C o ntra c t p ric e 850,000
Ad d : Estim a te d c o st to c o m p le te 357,000
To ta l e stim a te d c o sts 595,000
Multip lie d b y: % o f c o m p le tio n 238/ 595

lOMoARcPSD|10477308
9. P990,000
20x5 20x6
C o ntra c t p ric e 3,000,000 3,000,000
Ad d : C o st inc urre d in p rio r ye a rs 450,000
C o sts inc urre d to d a te * 450,000 1,440,000
Multip lie d b y: % o f c o m p le tio n ____20% _____60%
Le ss: G ro ss Pro fit (Lo ss) in p rio r ye a r ______0 150.000
Re c o g nize d G ro ss Pro fit (Lo ss) in c urre nt ye a r 150,000 210,000
* to tal e stim ate d c o sts x % o f c o m ple tio n
10. P50,000
20x5
Ad d : Estim a te d c o st to c o m p le te 1,085,000
Estim a te d G ro ss Pro fit (lo ss) ( 50,000)
Multip lie d b y: % o f c o m p le tio n 100%
Re c o g nize d G ro ss Pro fit (Lo ss) to d a te ( 50,000)
Re c o g nize d G ro ss Pro fit (Lo ss) in c urre nt ye a r ( 50,000)
11. P625,000
20x5 20x6
C o ntra c t p ric e 3,500,000 3,500,000
C o sts inc urre d e a c h ye a r 1,350,000 1,525,000
Ad d : C o st inc urre d in p rio r ye a rs -0- 1,350,000
C o sts inc urre d to d a te 1,350,000 2,875,000
Ad d : Estim a te d c o st to c o m p le te 1,350,000 _______0
Multip lie d b y: % o f c o m p le tio n - ___100%
Le ss: G ro ss Pro fit (Lo ss) in p rio r ye a r -0- _______0
Re c o g nize d G ro ss Pro fit (Lo ss) in c urre nt ye a r -0- 625,000

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12. P550
C o sts Inc urre d ………………………………………………………………………. 400
C o ntra c t p ric e ………………………………………. P2,750
C o st inc urre d e a c h ye a r………………………….. P 400
Ad d : C o st inc urre d in p rio r ye a r…………………. ___-0-
C o sts inc urre d to d a te …………………………….. P 400
Ad d : Estima te d c o sts to c o mp le te ……………… _1,600
Estima te d g ro ss p ro fit (lo ss)………….……………. P 750
Multip lie d b y: p e rc e nta g e o f c o mp le tio n……….. 400/ 2,000 150
C o nstruc tio n In Pro g re ss a c c o unt – inve nto ry a c c o unt…………………… 550
13. P1,200,000
The te rm “c o m p le te d” sho uld b e “c o st re c o ve ry ”
C o ntra c t p ric e ………………………………………. P2,000,000
Ad d : C o st inc urre d in p rio r ye a r…………………. ______-0-
C o sts inc urre d to d a te …………………………….. P 700,000
Ad d : Estima te d c o sts to c o mp le te ……………… __800,000
To ta l e stima te d c o sts………………………………. P1,500,000
Estima te d g ro ss p ro fit (lo ss)………….……………. P 500,000
Multip lie d b y: p e rc e nta g e o f c o mp le tio n……….. ________0 _______0
C o nstruc tio n In Pro g re ss a c c o unt – inve nto ry a c c o unt 700,000
20x5
C o sts inc urre d 600,000
C o ntra c t p ric e ………………………………………. P2,000,000
Ad d : C o st inc urre d in p rio r ye a r…………………. _700,000
C o sts inc urre d to d a te …………………………….. P1,300,000)
Ad d : Estima te d c o sts to c o mp le te ……………… __800,000
To ta l e stima te d c o sts………………………………. P(2,100,000)
Estima te d g ro ss p ro fit (lo ss)………….……………. P (100,000)
Multip lie d b y: p e rc e nta g e o f c o mp le tio n……….. ________0 _(100,000)
C o nstruc tio n In Pro g re ss a c c o unt – inve nto ry a c c o unt 1,200,000
14. P32,000 = P47,000 – P15,000

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15. P782,000
20x5
C o ntra c t p ric e ………………………………………. P850,000
C o st inc urre d e a c h ye a r………………………….. P238,000
Ad d : C o st inc urre d in p rio r ye a r…………………. ______-0-
C o sts inc urre d to d a te …………………………….. P238,000
Estima te d g ro ss p ro fit (lo ss)………….……………. P255,000
Multip lie d b y: p e rc e nta g e o f c o mp le tio n……….. _238/ 595 102,000
20x6
C o sts inc urre d 319,600
C o ntra c t p ric e ………………………………………. P850,000
C o st inc urre d e a c h ye a r………………………….. P319,600
Ad d : C o st inc urre d in p rio r ye a r…………………. _238,000
C o sts inc urre d to d a te …………………………….. P557,600
Estima te d g ro ss p ro fit (lo ss)………….……………. P153,000
Multip lie d b y: p e rc e nta g e o f c o mp le tio n……….. _557.6/ 697 _122,400
Le ss: Pro g re ss b illing s (P260,000 + P210,000) 470,000
C o nstruc tio n In Pro g re ss a c c o unt (ne t) – Due fro m
c usto me rs 312,000
16. P312,000
17. sa m e w ith no .16 – P312,000
18. (P9,000,000 – P8,250,000) × (P3,795,000 ÷ P8,250,000) = P345,000.
19.P3,795,000 + P345,000 = P4,140,000.
20. P2,750,000
P1,650,000
————— × P5,000,000 = P2,750,000
P3,000,000
21. Ac c o unts Re c e iva b le ................................................................................ 1,650,000

Billing s o n C o nstruc tio n in Pro c e ss ........................................... 1,650,000
22. C o nstruc tio n Exp e nse s .............................................................................. 1,650,000

C o nstruc tio n in Pro c e ss............................................................................. 1,100,000
Re ve nue fro m Lo ng -Te rm C o ntra c ts ........................................ 2,750,000
23. P875,000
Re ve nue P5,000,000
C o sts 3,025,000
To ta l g ro ss p ro fit 1,975,000
Re c o g nize d in 20x5 (1,100,000)
Re c o g nize d in 20x6 P 875,000
Or
To ta l re ve nue P5,000,000
Re c o g nize d in 20x5 (2,750,000)

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Re c o g nize d in 20x6 2,250,000

C o sts in 20x6 (1,375,000)
G ro ss p ro fit in 20x6 P 875,000
Pe rc e nta g e -o f-C o m p le tio n C o m p le te d -C o ntra c t

G ro ss Pro fit G ro ss Pro fit
24. 20x5 P750,000a 20x5 —
25. 20x6 P210,000b 20x6 —
26. 20x7 P440,000c 20x7 P1,400,000d
a P1,500,000
————— × P2,000,000 = P750,000

P4,000,000
b P2,640,000
————— × P1,600,000 = P960,000

P4,400,000
Le ss 20x5 g ro ss p ro fit (750,000)

20x6 g ro ss p ro fit P210,000
c To ta l re ve nue P6,000,000
To ta l c o sts 4,600,000
To ta l g ro ss p ro fit 1,400,000
Re c o g nize d to d a te (960,000)
20x7 g ro ss p ro fit P 440,000
d To ta l re ve nue P6,000,000
To ta l c o sts 4,600,000
To ta l g ro ss p ro fit P1,400,000
27. P312,500
Re ve nue = [P250,000/ (P250,000 + P750,000)] ฀
P1,250,000
= P312,500
G ro ss p ro fit = P312,500 ฀ P250,000 = P62,500
C o nstruc tio n in p ro g re ss = P250,000 + P62,500 = P312,500
28. P125,000
(2) C urre nt Asse ts
Inve nto rie s
C o nstruc tio n in p ro g re ss* P1,000,000
Le ss: Pa rtia l b illing s** (875,000)
C o sts a nd re c o g nize d p ro fit no t P 125,000
ye t b ille d
*Re ve nue to d a te = (P250,000 +
P600,000)/ (P250,000 + P600,000 +
P212,500) ฀ 1,250,000 = P1,000,000
C o nstruc tio n in p ro g re ss = P250,000 +
P600,000 + P150,000 = P1,000,000
**Pa rtia l b illing s = P375,000 + P500,000 =
P875,000

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29. P60,00
Re ve nue to d a te P1,250,000
Re ve nue fro m p re vio us p e rio d s _1,000,000
Re ve nue fo r 20x7 P 250,000
C o sts inc urre d in 20x7 _ 190,000
G ro ss p ro fit fo r 20x7 P 60,000
THEO RIES
1. Fa lse 6. Fa lse 11. Fa lse 16. True 21. True 26. True 31. Fa lse
2. True 7. Fa lse 12. True 17. Fa lse 22. Fa lse 27. True 32. Fa lse
3. True 8. Fa lse 13. Fa lse 18. True 23. Fa lse 28. Fa lse 33. True
4. Fa lse 9. True 14. True 19. Fa lse 24. Fa lse 29. Fa lse 34. Fa lse
5. Fa lse 10, Fa lse 15, Fa lse 20. True 25. Fa lse 30. True 35. True
36. Fa lse
37. True
38. True
39. Fa lse
40. Fa lse
41. b 46. a 51. c 56. d 61. d 66. c

42. c 47. d 52. b 57. b 62. b 67. b
43. b 48. c 53. c 58. c 63. a 68. a
44. c 49. c 54. b 59. c 64. c 69. d
45. b 50. a 55. a 60. c 65. d 70. C

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C ha pte r 9
Pro b le m I
1. Jo llib e e ha s sub sta ntia lly p e rfo rm e d a ll m a te ria l se rvic e s, the re fund p e rio d ha s e xp ire d , a nd the
c o lle c tib ility o f the no te is re a so na b ly a ssure d . Jo llib e e re c o g nize s re ve nue a s fo llo w s:
C a sh……….. 240,000
No te s re c e iva b le ……………. 600,000
Fra nc hise re ve nue …………………….. 840,000
2. The re fund p e rio d ha s e xp ire d a nd the c o lle c tib ility o f the no te is re a so na b ly a ssure d , b ut
Jo llib e e ha s no t sub sta ntia lly p e rfo rm e d a ll m a te ria l se rvic e s. Jo llib e e d o e s no t re c o g nize
re ve nue , b ut inste a d re c o g nize s a lia b ility a s fo llo w s:
C a sh……….. 240,000
Une a rne d fra nc hise re ve nue …………………….. 840,000
Fra nc hiso r w ill re c o g nize the une a rne d fra nc hise fe e s a s re ve nue w he n it ha s p e rfo rm e d a ll
m a te ria l se rvic e s, the a d justing e ntry to re c o rd the re ve nue the n w o uld b e :
Une a rne d fra nc hise re ve nue ……………………... 840,000

Fra nc hise re ve nue ….……. 840,000
3. Jo llib e e ha s sub sta ntia lly p e rfo rm e d a ll se rvic e s a nd the c o lle c tib ility o f the no te is re a so na b ly
a ssure d , b ut the re fund p e rio d ha s no t e xp ire d . Jo llib e e d o e s no t re c o g nize re ve nue , b ut
inste a d re c o g nize s a lia b ility a s fo llo w s:
C a sh……….. 240,000
The fra nc hiso r w ill re c o g nize the une a rne d fra nc hise fe e s a s re ve nue w he n the re fund p e rio d
e xp ire s, the a d justing e ntry to re c o rd the re ve nue the n w o uld b e :

Fra nc hise re ve nue ….……………………………….. 840,000
4. Jo llib e e ha s sub sta ntia lly p e rfo rm e d a ll se rvic e s a nd the re fund p e rio d ha s e xp ire d , b ut the
c o lle c tib ility o f the no te is no t re a so na b ly a ssure d . Jo llib e e re c o g nize s re ve nue b y the insta llm e nt
o r c o st re c o ve ry m e tho d . If w e a ssum e tha t Jo llib e e use s the insta llm e nt m e tho d , it re c o g nize s
re ve nue o f P240,000 a s fo llo w s:
C a sh……….. 240,000
Une a rne d fra nc hise re ve nue …………… 600,000
The fra nc hiso r is using the insta llm e nt m e tho d , it re c o g nize s the une a rne d fra nc hise fe e s a s
re ve nue in the a m o unt o f P120,000 e a c h ye a r a s it re c e ive s c a sh a ssum ing the re is no c o st o f
fra nc hise , the e ntry w o uld b e a s fo llo w s:

lOMoARcPSD|10477308
Une a rne d fra nc hise re ve nue …………… 120,000

This re ve nue re c o g nitio n m a y b e true o nly in the e ve nt the re is no c o st o f fra nc hise a t a ll. O n the
o the r ha nd , it m a y b e so m e w ha t m isle a d ing sinc e und e r the insta llm e nt sa le s m e tho d ; g ro ss p ro fit
is e a rne d o r re a lize d thru c o lle c tio ns.
5. The re fund p e rio d ha s e xp ire d , b ut Jo llib e e ha s no t sub sta ntia lly p e rfo rm e d a ll se rvic e s a nd
the re is no b a sis fo r e stim a ting the c o lle c tib ility o f the no te . Jo llib e e d o e s no t re c o g nize the no te
a s a n a sse t. Inste a d , it use s a fo rm · o f the d e p o sit m e tho d . Fo r e xa m p le , sup p o se Jo llib e e ha s
d e ve lo p e d a n e ntire ly ne w p ro d uc t w ho se suc c e ss is unc e rta in a nd the fra nc hise e w ill p a y
the no te fro m the c a sh flo w s fro m the sa le o f the p ro d uc t, if a ny. Jo llib e e re c o rd s the initia l
tra nsa c tio n a s fo llo w s:
C a sh……….. 240,000
The fra nc hiso r m a y re c o g nize the une a rne d fra nc hise fe e s a s re ve nue und e r the a c c rua l
m e tho d in the no rm a l m a nne r a t the c o m p le tio n o f the se rvic e s to b e p e rfo rm e d (if
c o lle c tib ility is re a so na b ly a ssure d ), the a d justing e ntry to re c o rd the re ve nue the n w o uld b e :

Alte rna tive ly, it m a y re c o g nize re ve nue und e r the insta llm e nt m e tho d if it ha s no b a sis fo r
e stim a ting the c o lle c tib ility o f the no te .
6. No w a ssum e tha t Jo llib e e ha s e a rne d o nly P360,000 fro m p ro vid ing initia l se rvic e s, w ith the
b a la nc e b e ing a d o w n p a ym e nt fo r c o ntinuing se rvic e s. If the re fund p e rio d ha s e xp ire d a nd
the c o lle c tib ility o f the no te is re a so na b ly a ssure d , Jo llib e e re c o g nize s re ve nue o f P360,000 a s
fo llo ws:
C a sh……….. 240,000
Une a rne d fra nc hise re ve nue ………….. 480,000
The fra nc hiso r re c o g nize s the une a rne d fra nc hise re ve nue o f P480,000 a s re ve nue w he n it
p e rfo rm s the c o ntinuing se rvic e s, the a d justing e ntry to re c o rd the re ve nue the n w o uld b e :

In a ll the se c a se s e xc e p t the fifth, the fra nc hiso r a c c o unts fo r the c o lle c tio n o f inte re st a nd
p rinc ip a l o n the no te re c e iva b le in the usua l m a nne r. In the fifth situa tio n, it d o e s no t re c o g nize
the no te a nd re ve nue until a future e ve nt o c c urs. In a d d itio n, the fra nc hiso r a c c o unts fo r its c o sts

lOMoARcPSD|10477308
in the sa m e w a y a s its re ve nue re c o g nitio n. Tha t is, if it d e fe rs re ve nue , the n it d e fe rs the re la te d

c o st o f g o o d s so ld . The n, w he n it re c o g nize s re ve nue , it m a tc he s the c o st o f g o o d s so ld a g a inst
the re ve nue s. The fra nc hise e a c c o unts fo r its p a ym e nts a s a n inta ng ib le a sse t.
So m e tim e s the fra nc hiso r c o lle c ts the initia l fra nc hise fe e fa r in a d va nc e o f p e rfo rm ing its
se rvic e s. At o the r tim e s c o lle c tio n o f p a rt o f the initia l fra nc hise fe e is d e fe rre d until the fra nc hise
is o p e ra ting suc c e ssfully.
Pro b le m II
1.
C a sh ......................................... 75,000
Une a rne d Fra nc hise Fe e ..................... 75,000
2.
C a sh ......................................... 75,000
No te Re c e iva b le .............................. 120,000
Une a rne d I.I. o r Disc o unt o n No te Re c e iva b le 28,881
Re ve nue fro m Fra nc hise Fe e ................. 166,119
[P{75,000 + (P30,000 x 3.0373)] = P116,119

( Ta b le IV n = 4, i = 12%)
3.
C a sh ......................................... 75,000
No te Re c e iva b le .............................. 120,000
Une a rne d I.I. o r Disc o unt o n No te Re c e iva b le 28,881
Re ve nue fro m Fra nc hise Fe e ................. 75,000
Une a rne d Fra nc hise Fe e ..................... 91,119
Pro b le m III
1. If the re is a re a so na b le e xp e c ta tio n tha t the d o w n p a ym e nt m a y b e re fund e d a nd sub sta ntia l future

se rvic e s re m a in to b e p e rfo rm e d b y Pizza , Inc ., the e ntry sho uld b e :
C a sh……….. 120,000.00
No te s re c e iva b le ……………. 480,000.00
Une a rne d inte re st inc o me (o r Disc o unt o n no te s re c e iva b le ) 80,583.20
Une a rne d fra nc hise re ve nue …………………….. 419,416,80
2. If the p ro b a b ility o f re fund ing the initia l fra nc hise fe e is e xtre m e ly lo w , the a m o unt o f future se rvic e s
to b e p ro vid e d to the fra nc hise e is m inim a l, c o lle c tib ility o f the no te is re a so na b ly a ssure d , a nd
sub sta ntia l p e rfo rm a nc e ha s o c c urre d , the e ntry sho uld b e :
C a sh……….. 120,000.00
Fra nc hise re ve nue …………………….. 503,300.16
3. If the initia l d o w n p a ym e nt is no t re fund a b le , re p re se nts a fa ir m e a sure o f the se rvic e s a lre a d y

p ro vid e d , w ith a sig nific a nt a m o unt o f se rvic e s still to b e p e rfo rm e d b y the fra nc hiso r in future
p e rio d s, a nd c o lle c tib ility o f the no te is re a so na b ly a ssure d , the e ntry sho uld b e :
C a sh……….. 120,000.00

lOMoARcPSD|10477308

Une a rne d fra nc hise re ve nue 383,300.16
4. If the initia l d o w n p a ym e nt is no t re fund a b le a nd no future se rvic e s a re re q uire d b y the fra nc hiso r,

b ut c o lle c tio n o f the no te is so unc e rta in tha t re c o g nitio n o f the no te a s a n a sse t is unw a rra nte d , the
e ntry sho uld b e :
C a sh……….. 120,000.00
Whe re the c o lle c tio n o f the no te is e xtre m e ly unc e rta in, re ve nue thru g ro ss p ro fit is re c o g nize d b y
m e a ns o f c a sh c o lle c tio n using the c o st re c o ve ry m e tho d .
5. If the initia l d o wn p a ym e nt is re fund a b le o r sub sta ntia l se rvic e s a re ye t to b e p e rfo rm e d , b ut

c o lle c tio n o f the no te is so unc e rta in tha t re c o g nitio n o f the no te a s a n a sse t is unw a rra nte d , the
e ntry sho uld b e :
C a sh……….. 120,000
Whe re the c o lle c tio n o f the no te is e xtre m e ly unc e rta in, re ve nue thru g ro ss p ro fit is re c o g nize d b y
m e a ns o f c a sh c o lle c tio n using the c o st re c o ve ry m e tho d .
Pro b le m IV
1. If the d o wn p a ym e nt is re fund a b le , a nd no se rvic e s ha ve b e e n re nd e re d a t the time the
a rra ng e m e nt is m a d e , a nd c o lle c tio n o n the no te is re a so na b ly c e rta in, the e ntry sho uld b e :
C a sh……….. 120,000.00
Une a rne d fra nc hise re ve nue …………………….. 262,645.50
2. Initia l se rvic e s a re d e te rm ine d to b e sub sta ntia lly p e rfo rm e d , the re fund p e rio d ha s e xp ire d a nd the
c o lle c tio n o f the no te is re a so na b ly a ssure d , the full a c c rua l m e tho d w o uld b e use d . Assum e tha t
sub sta ntia l p e rfo rm a nc e o f the initia l se rvic e s c o sts P52,529.1 the e ntry sho uld b e :
C a sh……….. 120,000.00
C o st o f fra nc hise re ve nue 52,529.10

C a sh, e tc …………… 52,529.10
Fe w m o nths a fte r, the c o lle c tib ility o f the no te b e c o m e s d o ub tful o r no re a so na b le a ssura nc e , the
insta llm e nt sa le s m e tho d c o uld b e use d a s a g e ne ra l rule . In a d d itio n to the e ntrie s a b o ve , fo llo w ing
e ntrie s w o uld b e re q uire d :
a . To se t-up c o st o f fra nc hise :

No e ntry re q uire d , a lre a d y se t-up p re vio usly.
b . To d e fe r g ro ss p ro fit o n fra nc hise :

Fra nc hise re ve nue 262,645.50

lOMoARcPSD|10477308
C o st o f fra nc hise re ve nue 52,529.10

De fe rre d g ro ss p ro fit o n fra nc hise 210,116.40
c . Ad justme nts to re c o g nize g ro ss p ro fit o n fra nc hise :

De fe rre d g ro ss p ro fit o n fra nc hise 96,000.00
Re a lize d g ro ss p ro fit o n fra nc hise 96,000.00
Fra nc hise re ve nue ……….. 262,645.5

Le ss: C o st o f fra nc hise re ve nue 52,529.1
G ro ss p ro fit……….. 210,116.4
G ro ss p ro fit ra te (210,116.4/ 262,645.5) 80%
C o lle c tio ns a s to p rinc ip a l……. P120,000.00

Multip lie d b y: G ro ss p ro fit ra te ……. 80%
Re a lize d g ro ss p ro fit o n fra nc hise ….. P 96,000.00
Pro b le m V
If w e a ssum e tha t EC HI, w ho se fisc a l ye a r e nd s o n De c e m b e r 31, se c ure s the le a se a nd the p e rm its

o n Fe b rua ry 1, 20x5, a nd o p e ra tio ns c o m m e nc e a t tha t tim e , the fo llo w ing jo urna l e ntrie s w o uld b e
a p p ro p ria te :
July 1, 20x4:
C a sh……….. 120,000
De fe rra l o f re ve nue re c o g nitio n is re q uire d w he n “ sub sta ntia l p e rfo rm a nc e " o f fra nc hiso r se rvic e s ha s
no t b e e n c o m p le te d . It w o uld c a ll fo r d e fe rra l o f re ve nue re c o g nitio n until e vid e nc e o f se rvic e
p e rfo rm a nc e w a s a va ila b le . The b e st e vid e nc e , o f c o urse , w o uld b e the c o m m e nc e m e nt o f
o p e ra tio ns o f the fra nc hise o utle t a nd a t this p o int in tim e , re ve nue is re c o g nize d .
During 20x4:
De fe rre d c o st o f fra nc hise re ve nue …. 360,000
C a sh…………..……….. 360,000
De c e mb e r 31, 20x4:
Inte re st re c e iva b le (P480,000 x 14% x 6/ 12)………….. 33,600
C a sh…………..……….. 33,600
Fe b rua ry 1, 20x5:
C o st o f fra nc hise re ve nue …………………….. 360,000

De fe rre d c o st o f fra nc hise re ve nue …………………….. 360,000
Pro b le m VI
No re a so na b le
Re a so na b ly Assure d a ssura nc e
Ja nua ry 1, 20x4
C a sh………….. 1,500,000 1,500,000
No te s re c e iva b le ……. 4,500,000 4,500,000

lOMoARcPSD|10477308
Une a rne d fra nc hise re ve nue ……. 6,000,000 6,000,000

Re c e ip t o f initia l fra nc hise fe e .
C o nd itio ns to b e me t: C a sh No te s C a sh No te s
Se rvic e s No No No No
Pe rio d o f re fund Ye s Ye s Ye s Ye s
Re a so na b ly No
a ssure d re a so na b le
C o lle c tib ility a ssura nc e
1/ 1/ 20x4 Ba la nc e 1,500,000 4,500,000 1,500,000 4,500,000
Sta tus Lia b ility Lia b ility Lia b ility Lia b ility
De c e mb e r 31, 20x4
C a sh………….. 1,575,000 1,575,000
Inte re st inc o me (P3,750,000 x 10%) 450,000 450,000
Annua l c o lle c tio n.
De fe rre d c o st o f fra nc hise 1,800,000 1,800,000

C a sh………………… 1,800,000 1,800,000
To d e fe r c o st o f fra nc hise sinc e sub sta ntia l
se rvic e s ha d no t b e e n p e rfo rme d .

C a sh………………… 120,000 120,000
To re c o rd e xp e nse s.
Ad justm e nts:
C o st o f fra nc hise 1,800,000
De fe rre d c o st o f fra nc hise 1,800,000
To re c o g nize c o st o f fra nc hise .
Une a rne d fra nc hise re ve nue ……. 6,000,000

Fra nc hise re ve nue 6,000,000
To re c o g nize fra nc hise re ve nue b a se d o n the

fo llo wing a na lysis
:
C o nd itio ns to b e me t: C a sh No te s
Se rvic e s Ye s Ye s
Pe rio d o f re fund Ye s Ye s
Re a so na b ly
C o lle c tib ility a ssure d
1/ 1/ 20x4 Ba la nc e ………………….. 1,500,000 4,500,000
12/ 31/ 20x4: C o lle c tio n a s to p rinc ip a l 1,125,000 (1,125,000)
12/ 31/ 20x4 Ba la nc e 2,625,000 2,625,000
Sta tus Re ve nue Re ve nue
Ad justm e nts (Insta llm e nt sa le s m e tho d )

No e ntry*
b . To se t-up d e fe rre d g ro ss p ro fit

Une a rne d fra nc hise re ve nue 6,000,000
De fe rre d c o st o f fra nc hise re ve nue 1,800,000
De fe rre d g ro ss p ro fit 4,200,000

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*The re a re diffe re nt o p tio ns o n this ma tte r, a n e ntry ma y b e ma d e to se t-up c o st o f fra nc hise a nd e ve ntua lly it will b e c lo se d to
se t-up de fe rre d g ro ss p ro fit. Re g a rdle ss o f the o p tio n, the o b je c tive is to se t-up d e fe rre d g ro ss p ro fit. Re fe r to Illustra tio n 9-6 fo r
a lte rna tive tre a tme nt to se t-up c o st o f fra nc hise .
C o nd itio ns to b e me t: C a sh No te s
Pe rio d o f re fund Ye s Ye s
No
re a so na b e
1/ 1/ 20x4 Ba la nc e ………………….. 1,500,000 4,500,000
12/ 31/ 20x4: C o lle c tio n a s to p rinc ip a l 1,125,000 (1,125,000)
12/ 31/ 20x4 Ba la nc e 2,625,000 2,625,000
Sta tus Re ve nue – Lia b ility
I/ S Me tho d
. To re c o g nize re a lize d g ro ss p ro fit o n

fra nc hise :
De fe rre d g ro ss p ro fit 1,837,500
Re a lize d g ro ss p ro fit o n fra nc hise 1,837,500
C o lle c tio ns – p rinc ip a l x g ro ss p ro fit ra te

P2,625,000 x (6,000 – 1,800)/6,000 = P1,837,500
2.
No re a so na b le
Inc o m e Sta te m e nt, 12/ 31/ 20x4:
Fra nc hise re ve nue (a c c rua l me tho d )* P6,000,000 P 0
Le ss: C o st o f fra nc hise (a c c rua l me tho d )* 1,800,000 0
G ro ss p ro fit o n re g ula r fra nc hise
(a c c rua l)* P4,200,000 P 0
Ad d : G ro ss p ro fit o n fra nc hise (insta llme nt
sa le s me tho d ) -0- *1,837,500
G ro ss p ro fit o n fra nc hise P4,200,000 P1,837,500
Le ss: O p e ra ting e xp e nse s 120,000 120,000
P4,080,000 P1,717,500
Ad d : Inte re st inc o me …………….. 450,000 450,000
Ne t inc o me ……………. P4,530,000 P2,167,500
Pro b le m VII
1.
No re a so na b le
Ja nua ry 1, 20x4
C a sh………….. 1,440,000 1,440,000
Une a rne d inte re st inc o me * 796,896 796,896
Une a rne d fra nc hise re ve nue ……. 4,483,104 4,483,104
Re c e ip t o f initia l fra nc hise fe e .

lOMoARcPSD|10477308
C o nd itio ns to b e me t: C a sh No te s (PV) C a sh No te s (PV)

Se rvic e s** No No No No
Pe rio d o f re fund – until d a te o f
O p e ning No No No No
Re a so na b ly No
a ssure d re a so na b le
1/ 1/ 20x4 Ba la nc e 1,440,000 3,043,104*** 1,440,000 3,043,104***
Sta tus Lia b ility Lia b ility Lia b ility Lia b ility
*Une a rne d inte re st inc o me o r disc o unt o n no te s re c e iva b le : P3,840,000 – P3,043,104 = P796,896.
* *Se rvic e s ha d b e e n sub sta ntia lly p e rfo rme d o nly o n the d a te o f o p e ning whic h is De c e mb e r 8. Re ve nue is de fe rre d a nd
sub se q ue nt dire c t c o st o f fra nc hise sho uld a lso b e de fe rre d .
***P960,000 x 3.1699 = P2,535,920
Fe b rua ry 2, 20x4:
De fe rre d c o st o f fra nc hise 144,931.20 144,931.20
C a sh………………… 144,931.20 144,931.20
June 13, 20x4:

G e ne ra l e xp e nse s 60,000 60,000
C a sh………………… 60,000 60,000
To re c o rd e xp e nse s.
Aug ust 8, 20x4:

De fe rre d c o st o f fra nc hise 360,000 360,000
C a sh………………… 360,000 360,000
No ve mb e r 2, 20x4:
De fe rre d c o st o f fra nc hise 840,000 840,000
C a sh………………… 840,000 840,000
No ve mb e r 2, 20x4:
Sub sta ntia l c o mp le tio n o f se rvic e s.
De c e mb e r 31, 20x4:
C a sh………….. 960,000 960,000
No te s re c e iva b le ………………… 960,000 960,000
Annua l c o lle c tio ns.
Ad justm e nts:
Une a rne d inte re st inc o me 304,310.40 304,310.40
Inte re st inc o me 304,310.40 304,310.40
To re c o g nize inte re st inc o me thru
a mo rtiza tio n a s fo llo ws:
10% x P3,043,104 = P304,310.4.
C o st o f fra nc hise 1,344,931.20

De fe rre d c o st o f fra nc hise 1,344,931.20
To re c o g nize c o st o f fra nc hise .

lOMoARcPSD|10477308
Une a rne d fra nc hise re ve nue ……. 4,438,1040

Fra nc hise re ve nue 4,438,1040
To re c o g nize fra nc hise re ve nue b a se d o n the

fo llo wing a na lysis:
C o nd itio ns to b e me t: C a sh No te s (PV)
Se rvic e s** Ye s Ye s
Pe rio d o f re fund – o utle t a lre a d y
o p e ne d . Ye s Ye s
Re a so na b ly
C o lle c tib ility a ssure d
1/ 1/ 20x4 Ba la nc e 1,440,000 4,438,104
12/ 31/ 20x4:
C o lle c tio n……………..... . P960,000
Le ss: Inte re st c o lle c tio n… 304,310.40
C o lle c tio n – Princ ip a l…….P655,689.60 655,689.60 ( 655,689.60)
2,095,689.60 2,387,414.40
Ad justm e nts (Insta llm e nt sa le s m e tho d )

C o st o f fra nc hise re ve nue ….. 1,344,931.20
De fe rre d c o st o f fra nc hise re ve nue 1,344,931.20
b . To se t-up d e fe rre d g ro ss p ro fit:

Une a rne d fra nc hise re ve nue 3,483,104
C o st o f fra nc hise re ve nue 1,344,931.20
De fe rre d g ro ss p ro fit 2,138,172.80
*The re a re diffe re nt o p tio ns o n this ma tte r, a n e ntry ma y b e ma d e to se t-up c o st o f fra nc hise a nd e ve ntua lly it will b e c lo se d to
se t-up de fe rre d g ro ss p ro fit. Re g a rdle ss o f the o p tio n, the o b je c tive is to se t-up d e fe rre d g ro ss p ro fit. Re fe r to Illustra tio n 9-5 fo r
a lte rna tive tre a tme nt to se t-up c o st o f fra nc hise .
C o nd itio ns to b e me t: C a sh No te s (PV)
Se rvic e s** Ye s Ye s
Pe rio d o f re fund – o utle t a lre a d y
o p e ne d . Ye s Ye s
No
re a so na b le
1/ 1/ 20x4 Ba la nc e 1,440,000 304,104
12/ 31/ 20x4:
C o lle c tio n……………..... . P960,000
Le ss: Inte re st c o lle c tio n… 304,310.40
C o lle c tio n – Princ ip a l…….P655,689.60 655,689.60 ( 655,689.60)
2,095,689.60 2,387,414.4
Sta tus Re ve nue – Lia b ility
I/ S Me tho d
. To re c o g nize re a lize d g ro ss p ro fit o n

fra nc hise :
De fe rre d g ro ss p ro fit 1,466,983.20
Re a lize d g ro ss p ro fit o n fra nc hise 1,466,983.20
C o lle c tio ns – p rinc ip a l x g ro ss p ro fit ra te

lOMoARcPSD|10477308
P2,095,689.60 x (4,483,104 – 1,344,931.20)/4,483,104 = P1,466,983.20
2.
No re a so na b le
Inc o m e Sta te m e nt, 12/ 31/ 20x4:
Fra nc hise re ve nue (a c c rua l me tho d )* P 4,471,1040 P 0
Le ss: C o st o f fra nc hise (a c c rua l me tho d )* 1,344,931.20 0
G ro ss p ro fit o n re g ula r fra nc hise
(a c c rua l)* P3,138,172.8 P 0
Ad d : G ro ss p ro fit o n fra nc hise (insta llme nt
sa le s me tho d ) -0- *1,466,983.20
G ro ss p ro fit o n fra nc hise P3,138,172.8 P1,466,983.20
Le ss: O p e ra ting e xp e nse s 60,000 60,000
P3,078,172.8 P1,406,983.20
Ad d : Inte re st inc o me …………….. 304,310.40 304,310.40

Ne t inc o me ……………. P3,382,483.20 P1,771,293.60
*No te : This ite m re p re se nts re g ula r fra nc hise sa le s-typ e tra nsa c tio n. If the c o lle c tib ility o f the fe e (no te
re c e iva b le ) is re a so na b ly a ssure d , the p e rmissib le m e tho d to b e a p p lie d sho uld b e the a c c rua l m e tho d .
It sho uld b e o b se rve d tha t in the e ve nt, the re is c o st o f fra nc hise a nd the insta llm e nt sa le s m e tho d is
use d , the c o nc e p t o f re ve nue re c o g nitio n do e s lite ra lly a p p ly to fra nc hise re ve nue b ut to the
re c o g nitio n o f re a lize d g ro ss p ro fit o n fra nc hise thru c o lle c tio ns a s to p rinc ip a l m ultip lie d b y g ro ss p ro fit
ra te .
Alte rna tive ly, c o m p uta tio n o f inte re st a nd p rinc ip a l c o lle c tio ns a re a s fo llo ws:
Inte re st (10% o f
Da te C o lle c tio n Unp a id Ba la nc e ) Princ ip a l Unp a id Ba la nc e
1/ 03/ 20x4 4,483,104
1/ 03/ 20x4 1,440,000 -0- 1,440,000 3,043,104
12/ 31/ 20x4 960,000 304,310.40 655,689.60 2,387,414.40
To ta l 2,400,000 304,310.40 2,095,689.60
Pro b le m VIII
1. The fe e is e a rne d fo r p ro vid ing c o ntinuing se rvic e s:

C a sh o r Ac c o unts re c e iva b le ………… 108,000
Fra nc hise re ve nue – c o ntinuing fra nc hise fe e 108,000
2. If P10,000 o f the fe e is fo r na tio na l a d ve rtising :

C a sh o r Ac c o unts re c e iva b le ………… 108,000
Une a rne d fra nc hise re ve nue – c o ntinuing fra nc hise fe e …… 12,000
The fra nc hiso r re c o g nize s the une a rne d fra nc hise fe e s a s re ve nue w he n it p e rfo rm s the a d ve rtising
se rvic e s a nd a lso re c o rd s the c o sts a s e xp e nse s, the e ntrie s sho uld b e :
Ad ve rtising e xp e nse s………… xxx

C a sh, e tc ……………….. xxx
Une a rne d fra nc hise re ve nue – c o ntinuing fra nc hise fe e …… 12,000


lOMoARcPSD|10477308
Pro b le m IX
Ma rc h 20:
C a sh 5,000
No te s re c e iva b le 20,000
Une a rne d fra nc hise fe e 25,000
June 15:
Une a rne d fra nc hise re ve nue 25,000
Fra nc hise re ve nue 25,000
July 15:
C a sh 500
Se rvic e re ve nue 500
Pro b le m X
C a sh o r Ac c o unts re c e iva b le … 117,600

Fra nc hise re ve nue – sup p lie s sa le s…………….. 117,600
C o st o f fra nc hise – sup p lie s sa le s……… 90,000

Sup p lie s inve nto ry………. 90,000
Pro b le m XI
C a sh……………. 21,600
No te s re c e iva b le (P108,000 – P21,600) 86,400
Une a rne d inte re st inc o me (P86,400 – P69,978) 16,422
Fra nc hise re ve nue (P21,600 + 69,978 – P4,800*) 86,778
Une a rne d fra nc hise re ve nue – e q uip me nt sa le * 4,800
All the c rite ria to re c o g nize initia l fra nc hise fe e a s re ve nue w a s m e t, e xc e p t tha t a n a m o unt o f P4,800
e q uiva le nt to ind ic a te d p ro fit (P24,000, se lling p ric e le ss P19,200 o p tio n p ric e ) w ill b e d e fe rre d .
Whe n the fra nc hise e sub se q ue ntly p urc ha se s the e q uip m e nt, the e ntrie s a re a s fo llo w s:
C a sh o r Ac c o unts re c e iva b le … 19,200

Une a rne d fra nc hise re ve nue – e q uip me nt sa le 4,800
Fra nc hise re ve nue – e q uip me nt sa le …………….. 24,000
C o st o f fra nc hise - e q uip me nt sa le ………. 19,200

Eq uip me nt inve nto ry………. 19,200
Pro b le m XII
Ap ril 1, 20x4:
C a sh……………. 288,000
No te s re c e iva b le ………… 192,000
Fra nc hise re ve nue (P21,600 + P86,400 – P4,800*) 480,000
De c e mb e r 31, 20x4:
Fra nc hise re ve nue – initia l fra nc hise fe e 480,000

lOMoARcPSD|10477308
Inte re st inc o me (P192,000 x 8% x 9/ 12) 11,520

C a sh (P153,600 – P11,520)…………. 142,080
No te s re c e iva b le …………… 192,000
G a in o r re ve nue fro m re p o sse sse d fra nc hise …………… 134,400
Pro b le m XIII
C a sh 72,000
No te s re c e iva b le ………… 360,000
De fe rre d fra nc hise p urc ha se o p tio n lia b ility……. 432,000
De fe rre d c o st o f fra nc hise re ve nue …………… 288,000

C a sh, e tc ……… 288,000
Inve stme nt………………………….. 120,000

De fe rre d fra nc hise p urc ha se o p tio n lia b ility……. 432,000
De fe rre d c o st o f fra nc hise re ve nue …………… 288,000
C a sh, e tc ……… 264,000
1. a – fo llo w ing c o nd itio ns sho uld b e o b se rve d to re c o g nize re ve nue :

Se rvic e s – no ne
Pe rio d o f Re fund – e xp ire d
C o lle c tib ility o f the no te – re a so na b ly a ssure d
The re w a s fa ilure o n o ne c o nd itio n; the re fo re , no re ve nue sho uld b e re c o g nize d .
5. a
C a sh 6,000
6. b
Fra nc hise fe e re ve nue 36,000
7. a
C a sh 6,000
Fra nc hise fe e re ve nue 36,000
9. b
In this p ro b le m , sinc e the re is d o ub tful o f c o lle c tio n, it is sa fe ly a ssum e d to use d insta llm e nt m e tho d .
The re fo re , the re a lize d g ro ss p ro fit w o uld b e :
C o lle c tio ns in 20x4……………………………………………………………..P 200,000
x: G ro ss p ro fit ra te [100% - (P150,000/ P500,000)]…………………………. 70%
Re a lize d g ro ss p ro fit in 20x4…………………………………………………. P 140,000
Re ve nue Ana lysis:
C a sh N/ R

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Pe rio d o f Re fund Ye s Ye s
C o lle c tib ility No Re a s.
Assure d
200,000 300,000
Sta tus Re v – I/ S Me tho d Lia b ility
10. d
In this p ro b le m , full a c c rua l m e tho d is use d to re c o g nize d the initial franc hise fe e o f
Initia l Fra nc hise Fe e :

C a sh No te s Re c e iva b le
C o lle c tib ility Re a so na b ly Assure d
P20,000 P80,000
Sub sta ntia l p e rfo rm a nc e o f se rvic e s ha s b e e n re nd e re d b e c a use c o m m e nc e m e nt o f o p e ra tio ns

b y the fra nc hise e sha ll b e p re sum e d to b e the e a rlie st p o int o f w hic h sub sta ntia l p e rfo rm a nc e ha s
o c c urre d , unle ss it c a n b e d e m o nstra te d tha t sub sta ntia l p e rfo rm a nc e o f a ll o b lig a tio ns, inc lud ing
se rvic e s re nd e re d vo lunta rily, ha s o c c urre d b e fo re tha t tim e .
Pe rio d o f re fund ing the initia l fra nc hise fe e a nd c o lle c tib ility o f the no te s is no t a nym o re a
p ro b le m (the y d e p e nd o n the p ro fita b ility o f its first ye a r o f o p e ra tio ns) b e c a use the re sult o f
o p e ra tio ns in the first ye a r is p ro fita b le . The re fo re , the initia l fra nc hise fe e o f P100,000 (P20,000 + P
P80,000) is c o nsid e re d a s re ve nue , a nd a c o ntinuing fra nc hise fe e o f P5,000 (1% x P500,000)
sho uld b e a lso b e re c o g nize d as re ve nue – c o ntinuing fanc hise .
The re fo re , the e a rne d fra nc hise fe e a m o unte d to P105,000 (P100,000 initia l p lus P5,000
c o ntinuing ).
11. a
Initia l fra nc hise e re ve nue (sinc e a ll se rvic e s ha d b e e n p e rfo rm e d
a nd a ssum e d tha t p e rio d o f re fund ing a lre a d y e xp ire d )………………………….. P100,000
Ad d : C o ntinuing fra nc hise re ve nue (5% x P800,000)…………………………………… 40,000
To ta l Re ve nue fro m fra nc hise ………………………………………………………………. P140,000
12. d
The re is a lre a d y sub sta ntia l p e rfo rm a nc e o f se rvic e s re nd e re d sinc e , the fra nc hise o utle t sta rte d
o p e ra tio ns a nd it is a ssum e d tha t p e rio d o f re fund ha s e xp ire d .
The c o ntinuing fra nc hise fe e is re c o g nize d a lso a s re ve nue sinc e it is e a rne d a t the tim e it w a s
re c e ive d .
The ne t inc o m e w o uld b e :

Fra nc hise Re ve nue :
Initia l Fra nc hise Fe e :
Do w n p a ym e nt…………………………………………… P 30,000
PV o f insta llm e nt (P10,000 x 1.7355)……………………. 17,355 P47,355
C o ntinuing Fra nc hise Fe e (5% x P500,000) 25,000
To ta l Fra nc hise Re ve nue ………………………………………………………………… P72,355

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Ad d : Inte re st Inc o m e (10% x P17,355)………………………………………………… 1,735

To ta l Re ve nue / Ne t Inc o m e ……………………………………………………………… P74,090
13. a
All c o nd itio ns tha t initia l fra nc hise fe e b e re c o g nize d a s re ve nue ha d b e e n m e t a s fo llo w s:
Re ve nue Analy sis fo r IFF
C a sh N/ R
(no te )
C o lle c tib ility Re a s. Assure d
200,000 300,000
The Ne t Inc o m e the n w o uld b e a s fo llo w s:
Fra nc hise Re ve nue ………………………………………………………………..P 500,000
Le ss: C o st o f Fra nc hise …………………………………………………………… 150,000
Ne t Inc o m e …………………………………………………………………………P 350,000
14. d
In this p ro b le m , full a c c rua l m e tho d is use d to re c o g nize d the initial franc hise fe e o f P100,000
a na lyze a s fo llo w s:
Re ve nue A naly sis fo r IFF
C a sh N/ R
(no te )
C o lle c tib ility Re a s. Assure d
20,000 80,000
No te : Pe rio d o f re fund ing the initia l fra nc hise fe e w a s p re sum e d to ha ve b e e n e xp ire d sinc e the
b usine ss o p e ra te s p ro fita b ly in its first ye a r o f o p e ra tio n.
C o ntinuing Franc hise Fe e : C o nsid e re d re ve nue the m o m e nt c o ntinuing se rvic e s ha d b e e n

re nd e re d a m o unte d to P5,000 (1% x P500,000).
Initia l Fra nc hise Fe e …………………………………………………………P 100,000

C o ntinuing fra nc hise fe e …………………………………………………. 5,000
To ta l…………………………………………………………………………… P 105,000
Le ss: Ind ire c t c o st o f fra nc hise …………………………………………… 15,000
Ne t inc o m e ……………………………………………………………………P 90,000
15. d
Re ve nue = P400,000
Inte re st inc o m e = P160,000 × ฀8% ×฀9/12 =
P9,600
C a sh = P128,000 – P9,600 = P118,400
Re p o sse ssio n re ve nue : P240,000 – P128,000 = P112,000.
16. c
C a sh = P560,000 + P48,000 = P608,000

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Fra nc hise Fe e Re ve nue = P560,000

Une a rne d Fra nc hise Fe e s = P48,000 × ฀20% =
P9,600
Re ve nue fro m C o ntinuing Fra nc hise Fe e s = P48,000 – P9,600 = P38,400.
17. b - P200,000 + P545,872 – P24,000 = P721,872.
18. b
Fra nc hise e fre q ue ntly p urc ha se s a ll o f the e q uip me nt, p ro d uc ts, a nd sup p lie s fro m the fra nc hiso r. The
fra nc hiso r wo uld a c c o unt fo r the se sa le s a s if, it wo uld b e a p ro d uc t sa le s. So me time s, ho we ve r, the
fra nc hise a g re e me nt g ra nts the fra nc hise e the rig ht to ma ke b a rg a in p urc ha se s o f e q uip me nt o r sup p lie s
a fte r the initia l fra nc hise fe e is p a id . If the b a rg a in p ric e is lo we r tha t the no rma l se lling p ric e o f the sa me
p ro d uc t o r it d o e s no t p ro vid e the fra nc hiso r the re a so na b le p ro fit, the n, a p o rtio n o f the initia l fra nc hise fe e
sho uld b e d e fe rre d . The d e fe rre d p o rtio n wo uld b e a c c o unte d fo r a s a d justme nt o f the se lling p ric e whe n
the fra nc hise e sub se q ue ntly p urc ha se s the e q uip me nt o r sup p lie s. The re fo re , the a mo unt o f re ve nue wo uld
b e P90,234 c o mp ute d a s fo llo ws:
C a sh No te s Re c e iva b le
C o lle c tib ility Re a so na b ly Assure d
P25,000 P68,234
Sta tus Re ve nue Re ve nue e xc e p t
P3,000 re a so na b le
p ro fit o n sa le o f
e q uip me nt
The re ve nue fro m fra nc hise wo uld b e :
C a sh……………………………………………………………………………………………… P 25,000
PV o f No te …………………………………………………………………………..P68,234
Le ss: Re a so na b le p ro fit o n sa le o f
Eq uip me nt P15,000 – P12,000)………………………………………….… 3,000 65,234
P 90,234
Inc ide ntally , the e ntrie s wo uld b e :
Up o n re c e ip t o f IFF:
C a sh………………………………………………………………………… 25,000
No te s Re c e iva b le ………………………………………………………… 90,000
Une a rne d Inte re st Inc o me (P90,000 – P68,234)…………. 21,766
Fra nc hise Re ve nue ……………………………………………. 90,234
Une a rne d Fra nc hise Re ve nue ………………………………. 3,000
If e q uip me nt wa s so ld :
C a sh o r Ac c o unts Re c e iva b le ………………………………………… 12,000
Une a rne d Fra nc hise Re ve nue ………………………………………… 3,000
Fra nc hise Re ve nue – Eq uip me nt…………………………… 15,000
C o st o f Sa le s – e q uip me nt……………………………………………… 12,000

Eq uip me nt Inve nto ry………………………………………….. 12,000

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C ha pte r 10
Pro b le m I
1. The jo urna l e ntrie s sho w n b e lo w w o uld b e m a d e o n the c o nsig no r’ s a nd c o nsig ne e ’ s b o o ks (a ssum e

the use o f p e rp e tua l inve nto ry):
Entrie s o n C o nsig no r’ s Bo o ks Entrie s o n C o nsig ne e ’ s Bo o ks

Tra nsa c tio ns (He rb a life Sup p lie r) (C o nra d o Ente rp rise s)
Ship me nt o f g o o d s o n Inve nto ry o n No e ntry
c o nsig nme nt. C o nsig me nt…… 60,000 (me mo ra nd um
Finishe d G o o d s e ntry o nly)
Inve nto ry*.... 60,000
2. Pa yme nt o f
e xp e nse s b y Inve nto ry o n No e ntry
c o nsig no r. C o nsig nme nt….. 600
C a sh…….. 600
3. Pa yme nt o f C o nsig no r
e xp e nse s Inve nto ry o n Re c e iva b le
b y c o nsig ne e . C o nsig nme nt…… 2,400 2,400
C o nsig ne e C a sh……………. 2,400
Pa ya b le ……… 2,400
Ad va nc e s b y C a sh……… 3,360 Ad va nc e s to
C o nsig no r Ad va nc e s fro m C o nsig no r 3,360
C o nsig ne e ….. 3,360 C a sh 3,360
C a sh
Sa le o f me rc ha nd ise No e ntry. C o nsig no r 48,000
p a ya b le 48,000
C o nsig no r
Pa ya b le ..
C o mmissio n C o mmissio n
6. No tific a tio n o f sa le e xp e nse
to c o nsig no r a nd Ad va nc e s fro m Re ve nue ……..
p a yme nt o f c a sh d ue . C o nsig ne e …… 4,800 C o nsig no r 48,000
C o mmissio n: C a sh……. Re c e iva b le
10% x P48,000 = C o nsig ne e 3,360 ….. 4,800
P4,800 Pa ya b le 37,440 C a sh………
C o nsig nme nt 2,400 Ad va nc e s 2,400
Sa le s fro m 37,440
Re ve nue .. 48,000
C o nsig ne e …… 3,360
7. To re c o rd c o st o f C o st o f g o o d s
g o o d s so ld a nd so ld ** 31,500
re la te d c o sts. Inve nto ry o n
** (P60,000 + P600 + C o nsig nme nt 31,500
P2,400) x ½ =
P31,500
*if p e rio d ic m e tho d is use d , the c re d it sho uld b e “ c o nsig nm e nt ship m e nts” a c c o unt tre a te d a s
re d uc tio n in the C o sts o f g o o d s a va ila b le fo r sa le to a rrive a t C o st o f G o o d s So ld Ava ila b le fo r Re g ula r
Sa le .

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2. The re m itta nc e a m o unting to P37,440 c a n b e d e te rm ine d b y p re p a ring the Ac c o unt Sa le s a s fo llo w s:

So ld fo r the Ac c o unt o f:
Jing ka Juic e
Sa le s (60 sa c he ts o f he rb a l g o o d s) P48,000
C ha rg e s:
Finishing c o sts…………………….. P 2,400
C o m m issio n (P48,000 x 10%)……………….. 4,800 7200
Due to C o nsig no r……………………………. P40,800
Le ss: Ad va nc e s………………. 3,360
Ba la nc e ………………………… P37,440
Re m itta nc e Enc lo se d ……………… 37,440
Ba la nc e Due …………… P 0
Ite m s o n Ha nd (50 sa c he ts o f he rb a l g o o d s): P60,000 x
50% P30,000
Pro b le m II
1. The a c c o unt sa le s:
So ld fo r the Ac c o unt o f:
AA C o m p a ny
Sa le s (8 se ts @ P24,000)……………… P 192,000
C ha rg e s:
Fre ig ht-in…………… P 6,000
Ad ve rtising e xp e nse ………… 2,400
De live rie s a nd insta lla tio n e xp e nse s 9,600
Re p a irs e xp e nse – o n units so ld .. 4,800
C o m m issio ns, 25% o f sa le s 48,000 70,800
Due to C o nsig no r……………………………. P121,200
Le ss: Ad va nc e s………………. 0
Ba la nc e ………………………… P121,200
Re m itta nc e Enc lo se d ……………… 30,000
Ba la nc e Due …………… P 91,200
Ite m s o n Ha nd ………… 15 se ts
Ite m s Re turne d (d e fe c tive )….……. 2 se ts
2. The inve nto ry o n c o nsig nm e nt a m o unte d to P189,000 c o m p ute d a s:

C ha rg e Ana lysis
Sa le s Inve nto ry To ta l
(8 se ts) (15 se ts) (25 se ts)
C ha rg e s b y c o nsig no r:
C o st o f c o nsig ne d g o o d s
(@ P12,000/ se t) P 96,000 P180,000 P 300,000
Fre ig ht-o ut (P9,000/ 25 se ts = P360 p e r se t) 3,600* 5,400 9,000
C ha rg e s b y c o nsig ne e :
Fre ig ht-in (P6,000/ 25 se ts =P240 p e r se t) 2,400* 3,600 6,000
Ad ve rtising e xp e nse ………….. 2,400 0 2,400
De live ry a nd insta lla tio n 9,600 0 9,600
Re p a irs e xp e nse …………… 4,800 0 4,800
C o m m issio ns [25% o f sa le s (8 se ts x
P24,000 p e r se t] 48,000 0 ___48,000
To ta l P166,800 P189,000 P379,800
* Fre ig ht o n se ts re turne d is c ha rg e d a g a inst sa le s o f the p e rio d .

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** No rm a lly, the te rm “ fre ig ht-o ut” is syno nym o us to “ d e live ry e xp e nse ” whic h is c la ssifie d a s se lling
e xp e nse s if we a re d e a ling with a third p a rty. But, fo r c o nsig nm e nt a c c o unting whe re the tra nsfe r
o f m e rc ha ndise if fro m c o nsig no r to c o nsig ne e , the usa g e o f the te rm “ fre ig ht-o ut” d o e s no t
c o nstrue d to b e a se lling e xp e nse b ut still a n inve nto ria b le c o st (whic h is p a rt o f fre ig ht-in).
The c o nsig nm e nt ne t inc o m e a m o unte d to P25,200 c o m p ute d a s:

C o nsig nm e nt Sa le s (8 se ts x P24,000 p e r se t) P 192,000
Le ss: C o sts a nd e xp e nse s:
C ha rg e s b y C o nsig no r:
C o st o f c o nsig ne d g o o d s @ P12,000/ se t) P 96,000
Fre ig ht-o ut (P9,000/ 25 se ts = P360 p e r se t) 3,600* 99,600
C ha rg e s b y c o nsig ne e :
Fre ig ht-in (P6,000/ 25 se ts =P240 p e r se t) P 2,400*
Ad ve rtising e xp e nse ………….. 2,400
De live ry a nd insta lla tio n 9,600
Re p a irs e xp e nse …………… 4,800
C o m m issio ns [25% o f sa le s (8 se ts x P24,000 p e r se t] 48,000 67,200
Ne t Inc o m e P 25,200
Pro b le m III
Sum m it Ele c tro nic s C o m p a ny

Inve nto ry o n C o nsig nm e nt (800 @ P570) 456,000
Finishe d G o o d s Inve nto ry 456,000
C o nsig nm e nt Exp e nse (P368,000 x 30%) 110,400

Ac c o unts Re c e iva b le --C o nsig ne e Sa le s 257,600
Sa le s Re ve nue —C o nsig nm e nt (P920 x 400) 368,000
C o st o f C o nsig ne d G o o d s So ld (P570 x 400) 228,000

Inve nto ry o n C o nsig nm e nt 228,000
C a sh [(P920 x 70%) x 380] 244,720

Ac c o unts Re c e iva b le --C o nsig ne e Sa le s 244,720
Fa rle y Ha rd w a re
No e ntry up o n re c e ip t o f c o nsig ne d m e rc ha nd ise .
C a sh (P920 x 400) 368,000

C o nsig no r Pa ya b le 257,600
C o m m issio n Re ve nue 110,400
C o nsig no r Pa ya b le 244,720
C a sh 244,720

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Multiple C ho ic e Pro b le m
1. c – P1,200
C o m m issio n = 25% x Sa le s p ric e

P400 = 25% x Sa le s p ric e
Sa le s p ric e = P400 ÷ 25% = P1,600
Num b e r o f units so ld = Se lling p ric e = __P1,600__ = 8 ta p e s

Pric e p e r ta p e P200 p e r ta p e
Sa le s ……………………………………………………………….. P1,600
Le ss C o m m issio n o f c o nsig ne e ………………………………... 400
Am o unt re m itte d b y Be ta Vie w Sto re ………………………...P1,200
2. a – P 370
C ha rg e s Re la te d to
To ta l C o nsig nm e nt Inve nto ry o n
C ha rg e s Sa le s C o nsig nm e nt
(25) (8) (15)
C o nsig no r’ s c ha rg e s:
C o st P2,500 P800 P1,500
Fre ig ht-o ut 75 30 45
C o nsig ne e ’ s c ha rg e - C o m m issio n __400__ __400__ _______
To ta l P2,975 1,230 _P1,545_
Sa le s p ric e _1,600_
C o nsig nm e nt p ro fit _P370_
3. a – P1,545 (re fe r to No . 2 fo r c o m p uta tio n)
4. b
Sa le s (P2,250 / 15%) P15,000
Divid e d b y: Se lling p ric e p e r unit P 1,000
Num b e r o f units so ld 15 units
5. c
Sa le s P15,000
Le ss C ha rg e s:
C o m m issio n P 2,250
Ad ve rtising 1,500
De live ry e xp e nse ___750 __4,500
Due to C o nsig no r P10,500
Le ss: Ad va nc e s
Va lue o f no te – sig ht d ra ft: (100 b e d s x P600 p e r b e d ) x 60% P36,000
Multip lie d b y: Pro p o rtio na l num b e r o f b e d s so ld 15/ 100 __5,400
Am o unt re m itte d P 5,100

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6. d – P1,500
Sa le s P15,000
Le ss C ha rg e s:
C o nsig no r’ s c ha rg e :
C o st o f b e d s (P600 p e r b e d x 15 b e d s) 9,000
C o nsig ne e ’ s c ha rg e s:
C o m m issio n P2,250
Ad ve rtising 1,500
De live ry e xp e nse ___750 __4,500
C o nsig nm e nt ne t inc o m e P1,500
7. a – no ite m s w e re so ld in No ve m b e r;
Sa le s (unkno w n) P x
Le ss C ha rg e s:
C o m m issio n 15% x
Re m itta nc e P 27,200
x – 15%x = P27,200
85%x = P27,200
x = P32,000
8. c – P16,800
Sa le s (unkno w n) x
Le ss C ha rg e s:
Ad ve rtising P500
De live ry a nd insta lla tio n c ha rg e s 100
C o m m issio n (unkno w n) 20%x _______
Re m itta nc e P 12,840
x – (P500 + P100 + 20%x) = P 12,840

x – 20%x = P12,840 + P600
80%x = P13,440
x = P16,800
9. b - P6,080
C o st (P150 p e r unit x 40 units) P6,000
Fre ig ht o n ship m e nt (P200 x 40/ 100) 80
C o st o f inve nto ry o n c o nsig nm e nt P6,080
10. c - 6
Le ss C ha rg e s:
C o m m issio n (unkno w n) 20%x
Ad ve rtising P1,000
De live ry a nd insta lla tio n 600
C a rta g e o n c o nsig ne d g o o d s 500
Re m itta nc e P21,900
x – (20%x + P1,000 + P600 + P500) = P21,900

x – 20%x = P21,900 + P2,100
80%x = P24,000

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x = P30,000
Num b e r o f units so ld = _P30,000_ =6

P5,000 p e r se t
11. b – P2,300
(10) (6) (3)
C o st P30,000 P18,000 P9,000
Fre ig ht-o ut 2,500 1,750 750
C o m m issio n (20% x P30,000) 6,000 6,000
Ad ve rtising 1,000 1,000
De live ry a nd insta lla tio n 600 600
C a rta g e __500__ __350__ __150__
To ta l P40,600 27,700 _P9,900_
Sa le s p ric e _30,000_
Pro fit o n C o nsig nm e nt __P2,300__
12. d – No ne o f the a b o ve (P9,900) – re fe r to No . 11 fo r c o m p uta tio n.
13. No a nsw e r a va ila b le - P17,625

Sa le s – (Sa le s x 20%) – P600 – P390 – P210 = P12,900
.8 Sa le s = P14,100
Sa le s = P17,625.
14. a (P270 x 50) + [(P600 ÷ 80) x 50] = P13,875.
AA Sa le s - No s. 15 to 17:
15. a
G ro ss c o lle c tio n (P15,000 x 70% x 80%) P 8,400
Le ss: C a sh d isc o unt ta ke n b y c usto m e r (P8,400 x 2%) __168
Ne t c o lle c tio n P 8,232
Le ss C ha rg e s:
Exp e nse s P 800
C o m m issio n (P8,400 x 15%) _1,260 __2,060
Due to C o nsig no r P 6,172
Le ss: Ad va nc e s _6,000
Am o unt re m itte d P 172

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16. b
(100%) (70%) (30%)
C o st P10,000 P 7,000 P 3,000
Fre ig ht 120 84 36
Exp e nse s 800 800
C o m m issio n (15% x P10,500) 1,575 1,575
C a sh d isc o unt (P10,500 x 80% x 2%) 168 168
To ta l P12,663 P 9,627 _P3,036_
Sa le s p ric e (70% x P15,000) _10,500_
Pro fit o n C o nsig nm e nt P 873
RR Pro duc ts C o m pa ny – No s. 19 to 21
19. c
C o lle c tio n m a d e p e rta ining to :
Ma y sa le
Do w n p a ym e nt (3 x P50) P 150
Mo nthly p a ym e nt the re a fte r (3 x P10) 30 P 180
June sa le
Do w n p a ym e nt (1 x P50) ___50
To ta l P 230
Le ss: C o m m issio n (P230 x 20%) ___46
Am o unt re m itte d P 184
20. d – P140
(5) (4) (1
C o st P 775 P 620 P 155
Fre ig ht 50 40 10
C o m m issio n 200 200 ____
To ta l P1,025 P 860 P165
Sa le s p ric e (4 units x P250/ unit) _ 1,000
Pro fit o n C o nsig nm e nt P 140
22. b
C o lle c tio n m a d e :
C a sh sa le (P1,500 x 2) P 3,000

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C re d it sa le (P1,800 x 25%) ___450

To ta l P3,450
Le ss: C ha rg e s
Fre ig ht P 320
C o m m issio n [(P3,000 + P1,800) x 15%] __720 __1,040
Am o unt re m itte d P 2,410
23. a
(5) (3) (2)
C o st P4,000 P 2,400 P 1,600
Fre ig ht 200 120 80
Fre ig ht 320 192 128
C o m m issio n 720 720 ______
To ta l P5,240 P 3,432 P1,808
Sa le s p ric e 4,800
Pro fit o n C o nsig nm e nt P 1,368
24. b – P1,808 – re fe r to No . 23 fo r c o m p uta tio n
25. d – 244,600
Sa le s o n c re d it (14,000 p e r unit x 12 units) + (13,000 x 10) P298,000
Le ss: Sa le s a llo w a nc e g ra nte d P 2,000
Ba d d e b ts 7,000
C o m m issio n [2% x (P298,000 – P2,000)] _44,400 __53,400
Am o unt still d ue fro m BB, Inc P 244,600
26. d – P67,280
(30) (22) (8)
C o st P240,000 P176,000 P64,000
Fre ig ht-o ut 1,800 1,320 480
Sa le s a llo w a nc e 2,000 2,000
Ba d d e b ts 7,000 7,000
C o m m issio n
[15% x (P298,000 – P2,000)] 44,400 44,400
To ta l P295,200 P230,720 _P64,480_
Sa le s p ric e [P14,000 p e r unit x 12 units)
+ (P13,000 p e r unit x 10 units)] 298,000
C o nsig nm e nt p ro fit P 67,280
27. d – re fe r to No . 26 fo r c o m p uta tio n

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28. b – 395
Le ss C ha rg e s:
C o m m issio n (unkno w n)
(
__x__ P10 )
P100
De live ry e xp e nse __P45__ ________
Re m itta nc e P35,505
x- [( _x__ ) P10 + P45 ] = P35,505

100
x – _P10x_ = P35,550
P100
P100x – P10x = P3,555,000
P90x = P3,555,000
x = P39,500
Num b e r o f b a llp e ns so ld = _P39,500_ = P395

P100 p e r unit
29. b
C o nsig nm e nt
Re g ula r Sa le s Sa le s To ta l
Sa le s P120,000 P30,000 P150,000
C o st o f sa le s 84,000 19,500* 103,500
G ro ss p ro fit P 36,000 P10,500 P 46,500
O p e ra ting e xp e nse s:
C o m m issio n (P30,000 x 5%) P 1,500 P 1,500
Fre ig ht-in (P260 x P19,500*/ P26,000) 1,950 1,950
O the rs
Re g ula r (P15,150 x P19,500/ P26,000) 12,120
C o nsig nm e nt
(P15,150 x P30,000/ P150,000) _______ 3,030 3,030
To ta l P 12,120 P 4,725 _P16,845_
Ne t p ro fit P 23,880 P 5,775 P29,655
*P26,000 – P6,500 = P19,500
30. d – P5,775 (re fe r to No . 29 fo r c o m p uta tio n)
31. a – (P18,000 + P900) = P18,900

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C ha pte r 11
Pro b le m III
1.
• C o ntrib utio ns o f c a sh b y the o p e ra to rs
C a sh 360,000
KK C o m p a ny 180,000
C e rise C o m p a ny 180,000
C o ntrib utio n b y jo int o p e ra to rs.
• Use o f c a sh a nd lo a n to b uy m a c hine ry & e q uip m e nt a nd ra w m a te ria ls

C a sh 60,000
Lo a ns p a ya b le – m a c hine ry a nd e q uip m e nt 36,000
C o ntrib utio n b y jo int o p e ra to rs.
Ma te ria ls 78,000
Ac q uisitio n o f m a te ria ls.
• La b o r inc urre nc e
Pa yro ll 86,400
C a sh 84,000
Ac c rue d p a yro ll 2,400
Annua l la b o r.
• Lo a ns fro m the b a nk
C a sh 72,000
Ba nk lo a ns p a ya b le 72,000
Am o unt b o rro we d .
• Re p a ym e nt o f lo a n – m a c hine ry a nd e q uip m e nt a nd o the r fa c to ry e xp e nse s

Lo a n p a ya b le – m a c hine ry a nd e q uip m e nt 12,000
C a sh 12,000
Pa rtia l p a ym e nt o f lo a n.
C a sh 50,400
Pa ym e nt o f tra d e c re dito rs.
Fa c to ry o ve rhe a d c o ntro l – he a t, lig ht a nd p o w e r 156,000

C a sh 156,000
Pa ym e nt o f m a nufa c turing e xp e nse s suc h a s he a t, lig ht
a nd p o we r.
• De p re c ia tio n o f m a c hine ry a nd e q uip m e nt

Fa c to ry o ve rhe a d c o ntro l – d e p re c ia tio n 9,600
Ac c um ula te d d e p re c ia tio n 9,600
De p re c ia tio n o f e q uip me nt.
• Tra nsfe r o f m a te ria ls, la b o r a nd o ve rhe a d to Wo rk-in-Pro c e ss

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Wo rk-in-p ro c e ss 309,600
Pa yro ll 86,400
Ma te ria ls 57,600
Fa c to ry o ve rhe a d c o ntro l – he a t, lig ht a nd p o w e r 156,000
Fa c to ry o ve rhe a d c o ntro l – d e p re c ia tio n 9,600
Allo c a tio n o f c o sts to wo rk-in-p ro c e ss
• Tra nsfe r o f Wo rk-in-Pro c e ss to Finishe d G o o d s Inve nto ry.

Finishe d g o o d s 216,000
Wo rk-in-p ro c e ss 216,000
Allo c a tio n to finishe d g o o d s
• Tra nsfe r o f Finishe d G o o d s Inve nto ry to Jo int O p e ra to rs thro ug ho ut the ye a r

KK C o m p a ny 96,000
DD C o m p a ny 96,000
Finishe d g o o d s 192,000
De live ry o f o utp ut to jo int o p e ra to rs.
2.
C a sh
C o ntrib utio n – Dre i 180,000 60,000 Ma c hine ry a nd e q uip m e nt
C o ntrib utio n – C e rise 180,000 84,000 La b o r
Ba nk lo a n 60,000 12,000 Ma c hine ry a nd e q uip m e nt
50,400 Ac c o unts p a ya b le
156,000 Fa c to ry o ve rhe a d c o ntro l
Ba la nc e , 12/ 31/ x4 57,600
Wo rk-in-Pro c e ss
La b o r 86,400 216,000 to Finishe d G o o d s
Ma te ria ls 57,600
Fa c to ry O ve rhe a d – he a t, e tc . 156,000
Fa c to ry O ve rhe a d – d e p re c ia tio n 9,600
Ba la nc e , 12/ 31/ x4 93,600
3.
a . To ta l a sse ts, P282,000
b . KK’ s inve stm e nt, P84,000
c . DD’ s inve stm e nt, P84,000
De c e m b e r 31, 20x4
Asse ts
C urre nt Asse ts
C a sh P 57,600
Finishe d g o o d s inve nto ry 24,000
Wo rk-in-Pro c e ss inve nto ry 93,600
Ma te ria ls inve nto ry 20,400
To ta l c urre nt a sse ts P 195,600
No n-c urre nt Asse ts
Eq uip m e nt P 96,000
Le ss: Ac c um ula te d d e p re c ia tio n 9,600 86,400
To ta l Asse ts P282,000

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Lia b ilitie s a nd Ne t Asse ts

C urre nt Lia b ilitie s
Ac c rue d p a yro ll P 2,400
Ac c o unts p a ya b le 27,600 P 30,000
No n-c urre nt Lia b ilitie s
Ba nk lo a n p a ya b le P 60,000
Lo a n p a ya b le – m a c hine ry a nd e q uip m e nt 24,000 __84,000
Ne t Asse ts 168,000
To ta l Lia b ilitie s a nd Ne t Asse ts P282,000
Jo int O p e ra to r’ s Eq uity
KK C o m p a ny: C o ntrib utio ns – Ja nua ry 1, 20x4 P 180,000
C o st o f inve nto ry d istrib ute d ( 96,000) P 84,000
DD C o m p a ny: C o ntrib utio ns – Ja nua ry 1, 20x4 P 180,000

C o st o f inve nto ry d istrib ute d ( 96,000) P 84,000
To ta l Jo int O p e ra to r’ s Eq uity P168,000
Pro b le m VI
The jo int o p e ra to r, Entity K a c c o unt fo r the ir inte re sts in the jo int o p e ra tio n a s fo llo w s:
Ja nua ry 1, 20x4 (P12,000,000 / 5 = P2,400,000)

Pro p e rty, p la nt a nd e q uip m e nt (inte re st in a n a irc ra ft) 2,400,000
C a sh 2,400,000
To re c o g nize the p urc ha se o f a n o wne rship -inte re st in a
jo intly c o ntro lle d a irc ra ft.
In 20x4
C a sh 12,000
Pro fit o r lo ss (re nta l inc o m e ) 12,000
To re c o g nize inc o m e e a rne d in re nting to o the rs the use o f
the a irc ra ft in 20x4.
Pro fit o r lo ss (a irc ra ft o p e ra ting e xp e nse s) 180,000

C a sh 180,000
To re c o g nize the c o sts o f running a n a irc ra ft in 20x4.
Pro fit o r lo ss (d e p re c ia tio n e xp e nse ) 120,000

Ac c um ula te d d e p re c ia tio n (inte re st in a n a irc ra ft 120,000
To re c o g nize d e p re c ia tio n o f a n o wne rship -inte re st in a
jo intly c o ntro lle d a irc ra ft in 20x4: P12,000,000/20 ye a rs =
P600,000/5 o p e ra to rs = P120,000
sha re fo r e a c h jo int o p e ra to r.

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Pro b le m VII
1. The fo llo w ing a re the sum m a rie s o f the a b o ve tra nsa c tio ns fo r a jo int o p e ra tio n in the fo rm o f
a p a rtne rship :
Inve stme nt in
Eve nt Jo int O p e ra tio n AA BB CC
Dr. C r. Dr. C r. Dr. C r. Dr. C r.
a. P 12,000 P12,000
b. 120,000 120,000
6,000 P 6,000
c. 180,000 120,000 P60,000
d. P588,000 P204,000 P312,000 P72,000
e. 3,600 3,600 3,600 10,800
6,000 6,000
f. * ________ ___3,000 ___3,000 ________ ________ ______ _______ _______
P318,000 P597,000 P210,600 P252,000 P315,600 P 60,000 P81,600 P 16,800
NI** _297,000 ________ ________ __112,200 ________ _147,000 _______ 31,800
P597,000 P597,000 P210,600 P364,200 P315,600 P195,000 P81,600 P48,600
C a sh***
Se ttle me nt _______ ________ _153,600 ________ ________ _120,600 _______ _33,000
To ta ls P597,000 P597,000 P364,200 P364,200 P315,600 P315,600 P81,600 P81,600
* p urc ha se s, P300,000; c o st o f g o o d s so ld , P294,000; e nd ing inve nto ry P6,000 x 50% = P3,000.
**NI – Ne t Inc o m e Allo c a tio n

AA BB CC To ta l
Allo w a nc e fo r c le a ning -up o p e ra tio ns P 3,000 P 3,000
C o m m issio n:
Aljo n: 40% o f P204,000 P81,600 81,600
Ele rie : 40% o f P312,000 P124,800 124,800
Ma c : 40% o f P72,000 28,800 28,800
Ba la nc e (75%: 25%) 30,600 10,200 _______ 40,800
To ta l P112,200 P135,000 P31,800 P279,000
**To ta l c re d its o f P597,000 – To ta l d e b its o f P318,000 = P279,000, ne t inc o m e .
2. The c a sh se ttle m e nt e ntry (re fe r to No . 1 fo r the c o m p uta tio n o f se ttle m e nt) w o uld b e a s
fo llo w s:
AA, c a p ita l 153,600
BB, c a p ita l 120,600
C C , c a p ita l 33,000
The re fo re , BB w ill p a y P120,600 a nd C C w ill p a y, P33,000 to AA a s fina l se ttle m e nt fo r the jo int

o p e ra tio ns.

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Pro b le m VIII
Sc he d ule o f De te rm ina tio n a nd Allo c a tio n o f Exc e ss
Da te o f Ac q uisitio n – Ja nua ry 1, 20x4

C o st o f inve stm e nt
C o nsid e ra tio n tra nsfe rre d P2,016,000
Le ss: Bo o k va lue o f sto c kho ld e rs’ e q uity o f So n:
C o m m o n sto c k (P3,600,000 x 30%) P 1,080,000
Re ta ine d e a rning s (P1,080,000 x 30%) 324,000 1,404,000
Allo c a te d e xc e ss (e xc e ss o f c o st o ve r b o o k va lue ) P 612,000
Le ss: O ve r/ und e r va lua tio n o f a sse ts a nd lia b ilitie s:
Inc re a se in inve nto ry (P240,000 x 30%) P 72,000
Inc re a se in la nd (P960,000 x 30%) 288,000
Inc re a se in b uild ing (P600,000 x 30%) 180,000
De c re a se in e q uip m e nt (P840,000 x 30%) ( 252,000)
Inc re a se in b o nd s p a ya b le (P120,000 x 30%) ( 360,000) 252,000
Po sitive e xc e ss: G o o d w ill (e xc e ss o f c o st o ve r fa ir va lue ) P 360,000
The o ve r/ und e r va lua tio n o f a sse ts a nd lia b ilitie s a re sum m a rize d a s fo llo w s:
Anto n C o . Anto n C o . (O ve r) Und e r
Bo o k va lue Fa ir va lue Va lua tio n
Inve nto rie s (so ld in 20x4) P1,200,000 P1,440,000 P 240,000
La nd 1,080,000 2,040,000 960,000
Build ing s – ne t ( 10 ye a r re m a ining life ) 1,800,000 2,400,000 600,000
Eq uip m e nt – ne t ( 7 ye a r re m a ining life ) 1,440,000 600,000 ( 840,000)
Bo nd s p a ya b le (d ue Ja nua ry 1, 20x9) ( 1,200,000) (1,320,000) ( 120,000)
Ne t P4,320,000 P5,160,000 P 840,000
A sum m a ry o r d e p re c ia tio n a nd a m o rtiza tio n a d justm e nts is a s fo llo w s:
O ve r/ 30% C urre nt
Ac c o unt Ad justm e nts to b e a m o rtize d Und e r the re o f Life Ye a r(20x4)
Inve nto rie s (so ld in 20x4) P 240,000 P 72,000 1 P 72,000
La nd 960,000 288,000 - -
Build ing s – ne t ( 10 ye a r re m a ining life ) 600,000 180,000 10 18,000
Eq uip m e nt – ne t ( 7 ye a r re m a ining life ) ( 840,000) ( 252,000) 7 (36,000)
Bo nd s p a ya b le (d ue Ja nua ry 1, 20x9) ( 120,000) ( 36,000) 5 ( 7,200)
Ne t P 840,000 P 252,000 P 46,800
The fo llo w ing a re e ntrie s re c o rd e d b y the p a re nt in 20x4 in re la tio n to its inve stm e nt in jo int
ve nture :
Ja nua ry 1, 20x4:
(1) Inve stm e nt in DD C o m p a ny 2,016,000
C a sh 2,016,000
Ac q uire d 30% jo int c o ntro l in DD C o m p a ny.
Ja nua ry 1, 20x4 – De c e m b e r 31, 20x4:

(2) C a sh 216,000
Inve stm e nt in DD C o m p a ny (P720,000 x 30%) 216,000
Re c o rd d ivid e nd s fro m DD C o m p a ny.

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De c e m b e r 31, 20x4:
(3) Inve stm e nt in DD C o m p a ny 432,000
Inve stm e nt inc o m e (P1,440,000 x 30%) 432,000
Re c o rd sha re in ne t inc o m e o f DD C o m p a ny.
De c e m b e r 31, 20x4:
(4) Inve stm e nt inc o m e 46,800
Inve stm e nt in DD C o m p a ny……………………. 46,800
Re c o rd a m o rtiza tio n o f a llo c a te d e xc e ss o f inve nto ry,
e q uip m e nt, b uilding s a nd b o nd s p a ya b le .
Thus, the inve stm e nt b a la nc e a nd inve stm e nt inc o m e in the b o o ks o f TT C o m p a ny is a s fo llo w s:
Inve stm e nt in Jo int Ve nture (DD C o m p a ny)

C o st, 1/ 1/ x4 2,016,000 216,000 Divid e nd s – So n (720,000x 80%)
NI o f Anto n 46,800 Am o rtiza tio n
(1,440,000 x 30%) 432,000
Ba la nc e , 12/ 31/ x4 2,185,200
Inve stm e nt Inc o m e

Am o rtiza tio n 46,800 NI o f So n
432,000 (P1,440,000 x 30%)
385,200 Ba la nc e , 12/ 31/ x4
To c he c k the b a la nc e o f Inve stm e nt in Jo int Ve nture (DD C o m p a ny):

DD C o m p a ny’ s Sto c kho ld e rs’ Eq uity, 12/ 31/ 20x4:
C o m m o n sto c k P3,600,000
Re ta ine d e a rning s
Re ta ine d e a rning s,1/ 1/ 20x4 P 1,080,000
Ne t inc o m e – 20x4 1,440,000
Divid e nd s – 20x4 ( 720,000) 1,800,000
Bo o k va lue o f sto c kho ld e rs’ e q uity o f DD C o m p a ny,12/ 31/ 20x4 P5,400,000
Multip lie d b y: Inte re st in Jo int Ve nture 30%
Bo o k va lue o f Inte re st in Jo int Ve nture P1,620,000
Ad d : Una m o rtize d a llo c a te d e xc e ss – 30% the re o f
P252,000 – P46,800, a m o rtiza tio n) 205,200
G o o d w ill 360,000
Inve stm e nt in Jo int Ve nture (DD C o m p a ny) – e q uity m e tho d P2,185,200
30. a
Bo o ks o f X
Inv. in JO X, c a p ita l Jo urna l e ntry fo r se ttle m e nt sho uld b e :
Z, c a p ita l……………………….. 6,500
4,000 6,500 2,500 X, c a p ita l…………………… 2,500
2,500 Y, c a p ita l…………………… 4,000

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Bo o ks o f Y
Inv. in JO Y. c a p ita l
2,500 6,500 4,000

4,000
Bo o ks o f Z
Inv. in JO Z, c a p ita l
2,500 6,500
4,000
6,500
31.
To ta l c re d its - Inve stm e nt in Jo int O p e ra tio ns…………………………………P 25,810
To ta l d e b its - Inve stm e nt in Jo int O p e ra tio ns…………………………………. 19,750
Ne t inc o m e o r to ta l g a in (c re d it b a la nc e )…………………………………….P 6,060
32. d
Jo se , c a p ita l
8,500 inve stm e nt
1,212 sha re in ne t inc o m e (P6,060 x 2/ 10)
9,712
33. a – The 20,000 sha re s sho uld b e va lue d a t m a rke t va lue , thus, P800,000 (20,000 sha re s x P40
p e r sha re )
34. b
Jo se , c a p ita l
20,000 sha re s a t P40/ sha re P800,000 P 198,000 (4,500 x P44) – Sa le s
Exp e nse s 3,000 125,000 (5,000 x P25)
4,700 13,600* (13,600 x P1) - C a sh d ivid e nd
168,000 (6,000 x P28) - Sa le s
266,000 (7,600 x P35)
P807,700 P 770,600
Jo int o p e ra tio n lo ss P 37,100
*
9/ 30 Sha re s issue d (6,000 + 10,000 + 4,000) 20,000
10/ 20 So ld (4,500)
11/ 1 Sto c k d ivid e nd (20,000 – 4,500) x 20% 3,100
11/ 15 So ld (5,000)
Ba la nc e o f sha re s o utsta nd ing b e fo re c a sh d ivid e nd 13,600
The re fo re , Ro xa s sha re w o uld b e P11,130 (P37,100 x 6,000/ 20,000 sha re s)

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35. c
Inve stm e nt in Jo int O p e ra tio ns
Sha re in ne t lo ss P400,000 Inve stm e nt (10,000 sha re s x P40)
P37,100 x (10,000/ 20,000) P18,550
P381,450
36. b
Unre a lize d lo ss d ue to d e c line in the va lue o f sha re s a t the tim e o f inve stm e nt
(P62 – P40) x 4,000 sha re s P68,000
Sha re in jo int o p e ra tio n (P37,100 x 4/ 20) __7,420
Re d uc tio n o f lo ss b y c a sh d ivid e nd (P13,600 x 4/ 20) P98,140
37. a
b e fo re ne t inc o m e o r lo ss 15,000 25,000 e nd ing inve nto ry
10,000 ne t inc o m e
38. a (A- P10,000 x 50% = P5,000; B – P10,000 x 30% = P3,000; C – P10,000 x 20%)
39. a
Jo int O p e ra tio ns Anso n, C a p ita l
Purc ha se s 20,000 77,000 Sa le s (? ) Unso ld m e rc ha nd ise 600 20,000
C o ntr/ Inve st 20,000 18,600 Pro fit(50%)
Exp e nse s 800
1,800 600 38,600
42,600 77,000 38,000 to Ala s

34,400 (P16,000 + P18,400)
2,800 (P600 + P2,200)
Unso ld m e rc ha nd ise
37,200 Ne t p ro fit
40. c – re fe r to No . 39 c o m p uta tio n.
41. a
Inve stme nt in Jo int O p e ra tio ns Sa nto , c a p ita l
Purc ha se s 10,000 7,200 sa le s 10,000 C o ntrib utio n/ Inve st
Fre ig ht-in 240 5,120 unso ld 910 Sha re in NI
Fre ig ht-o ut 260 (P10,000 + P240) x 1/ 2
10,500 12,320 10,910
1,820
42. a – re fe r to No . 41 fo r c o m p uta tio n
43. c
b e fo re sa le 6,500 3,500 Sa le s
Ne t lo ss 3,000
N, c a p ita l O , c a p ita l
1,100 14,500 1,100 6,500
13,400 5,400

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Distrib utio n o f Lo ss:

M N O To ta l
Sa la ry P 300 P - P - P 300
Ba la nc e , e q ua lly (1,100) (1,100) (1,100) (3,300)
P ( 900) P(1,100) P(1,100) P(3,000)
44. a – re fe r to No . 43 fo r c o m p uta tio n
45. b
Re ve nue s
To ta l c a sh re c e ip ts (P78,920 + P65,245) P144,345
Le ss: C a sh inve stm e nts (P30,000 + P20,000) 50,000
C a sh sa le s P 94,345
Ad d : Pro c e e d s fro m sa le o f re m a ining a sse ts 60,000
To ta l Re ve nue P154,345
Le ss: Exp e nse s (P62,275 + P70,695) 132,970
Ne t inc o m e P 21,375
46. c
Be nin, c a p ita l Suc a t, c a p ita l
Re c e ip ts 78,920 30,000 C o ntrib utio n Re c e ip ts 65,425 20,000 C o ntrib utio n
62,275 Disb urse me nt 70,695 Disb urse m e nt
12,825 Sha re in NI (3/ 5) 8,550 Sha re in NI (2/ 5)
78,920 105,100 65,425 99,245
26,180 33,820
47. d
N’ s b o o ks: it sho w s P5,000 re c e iva b le fro m P, a nd P3,000 p a ya b le to O ; thus, N sho uld
re c e ive ne t c a sh o f P2,000:
O , c a p ita l 3,000
C a sh 2,000
P, c a p ita l 5,000
O ’ s b o o ks: it sho w s P5,000 re c e iva b le fro m P, a nd P2,000 p a ya b le to N; thus, O sho uld

re c e ive ne t c a sh o f P3,000:
N, c a p ita l 2,000
C a sh 3,000
P, c a p ita l 5,000
P’ s b o o ks: it sho w s P2,000 p a ya b le to N a nd P3,000 p a ya b le to O ; thus, in fina l se ttle m e nt, P

sho uld p a y a to ta l o f P5,000; P2,000 a nd P3,000 to N a nd O , re sp e c tive ly:
N, c a p ita l 2,000
O , c a p ita l 3,000
C a sh 5,000
50. b – re fe r to No . 25 fo r furthe r d isc ussio n.

The Inc o m e fro m Inve stm e nt in Ba ske t C o . o n De c e m b e r 31 is a s fo llo w s:
Sha re in ne t inc o m e (P90,000 x 40%] P 36,000
Am o rtiza tio n o f a llo c a te d e xc e ss ( 16,400)
Inc o m e fro m Inve stm e nt o n De c e m b e r 31 P 19,600

lOMoARcPSD|10477308
51. d
The jo int a rra ng e m e nt is a jo int ve nture b e c a use it ne e d s una nim o us c o nse nt to a ll p a rtie s
invo lve d . The p a rtie s re c o g nize the ir rig hts to the ne t a sse ts o f Ha rriso n C o m p a ny a s
inve stm e nts a nd a c c o unt fo r the m using the e q uity m e tho d .
The Inve stm e nt in G o ld m a n C o . a s o f De c e m b e r 31, 2015 is a s fo llo w s:

Ac q uisitio n c o st, Ja nua ry 1, 2013 P 600,000
Ad d (d e d uc t):
Sha re in ne t inc o m e [(P140,000 x 3 ye a rs) x 40%] 168,000
Sha re in d ivid e nd s [(P50,000 x 3 ye a rs) x 40%] (60,000)
Am o rtiza tio n o f a llo c a te d e xc e ss ( 0)
Inve stm e nt b a la nc e o n De c e m b e r 31 P 708,000
C o st o f inve stm e nt P 600,000

Le ss: Bo o k va lue o f inte re st a c q uire d (40% x P1,200,000) 480,000
Allo c a te d e xc e ssP 120,000
Le ss: O ve r/ und e rva lua tio n o f a sse ts a nd lia b ilitie s 0
G o o d w ill P 120,000
The re is no ind ic a tio n a s to im p a irm e nt o f g o o d w ill.
52. d
To d e te rm ine w he the r a c o ntra c tua l a rra ng e m e nt g ive s p a rtie s c o ntro l o f a n a rra ng e m e nt
c o lle c tive ly, it is ne c e ssa ry first to id e ntify the re le va nt a c tivitie s o f tha t a rra ng e m e nt. Tha t is,
w ha t a re the a c tivitie s tha t sig nific a ntly a ffe c t the re turns o f the a rra ng e m e nt?
Whe n id e ntifying the re le va nt a c tivitie s, c o nsid e ra tio n sho uld b e g ive n to the p urp o se a nd
d e sig n o f the a rra ng e m e nt. In p a rtic ula r, c o nsid e ra tio n sho uld b e g ive n to the risks to whic h
the jo int a rra ng e m e nt w a s d e sig ne d to b e e xp o se d , the risks the jo int a rra ng e m e nt w a s
d e sig ne d to p a ss o n to the p a rtie s invo lve d w ith the jo int a rra ng e m e nt, a nd w he the r the
p a rtie s a re e xp o se d to so m e o r a ll o f tho se risks.
In m a ny c a se s, d ire c ting the stra te g ic o p e ra ting a nd fina nc ia l p o lic ie s o f the a rra ng e m e nt

w ill b e the a c tivity tha t m o st sig nific a ntly a ffe c ts re turns. O fte n, the a rra ng e m e nt re q uire s the
p a rtie s to a g re e o n b o th o f the se p o lic ie s. Ho w e ve r, in so m e c a se s, una nim o us c o nse nt m a y
b e re q uire d to d ire c t the o p e ra ting p o lic ie s, b ut no t the fina nc ia l p o lic ie s (o r vic e ve rsa ). In
suc h c a se s, sinc e the a c tivitie s a re d ire c te d b y d iffe re nt p a rtie s, the p a rtie s w o uld ne e d to
a sse ss w hic h o f tho se two a c tivitie s (o p e ra ting o r fina nc ing ) m o st sig nific a ntly a ffe c ts re turns,
a nd w he the r the re is jo int c o ntro l o ve r tha t a c tivity. This w o uld b e the c a se w he ne ve r the re is
m o re tha n o ne a c tivity tha t sig nific a ntly a ffe c ts re turns o f the a rra ng e m e nts, a nd tho se
a c tivitie s a re d ire c te d b y d iffe re nt p a rtie s.
Ba se d o n the o w ne rship struc ture , e ve n tho ug h Wa lla c e c a n b lo c k a ny d e c isio n, Wa lla c e

d o e s no t c o ntro l the a rra ng e m e nt, b e c a use Wa lla c e ne e d s Zim m e rm a n to a g re e —
the re fo re jo int c o ntro l b e tw e e n Wa lla c e a nd Zim m e rm a n (sinc e the ir vo te s a nd o nly the ir
vo te s, to g e the r m e e t the re q uire m e nt). Be c a use the y a re the o nly c o m b ina tio n o f p a rtie s
tha t c o lle c tive ly c o ntro l the a rra ng e m e nt, it is c le a r tha t Wa lla c e a nd Zim m e rm a n m ust
una nim o usly a g re e .
The a p p ro p ria te m e tho d fo r the jo int ve nture is the e q uity m e tho d . The Inc o m e fro m
Inve stm e nt in G o ld C o . o n De c e m b e r 31, 2015 is a s fo llo w s:

lOMoARcPSD|10477308
Sha re in ne t inc o m e (P140,000 x 40%) P 56,000

Am o rtiza tio n o f a llo c a te d e xc e ss ( 0)
Inc o m e fro m Inve stm e nt o n De c e m b e r 31, 2015 P 56,000

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Advanced Accounting Dayag Solution Manual

Accountancy (University of the East)

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Adva nc e d Ac c o unting So lutio n Ma nua l

Re q uire m e nt 1: Assum ing tha t A a nd B a g re e tha t e a c h p a rtne r is to re c e ive a c a p ita l c re d it e q ua l to

the a g re e d va lue s o f the ne t a sse ts e a c h p a rtne r inve ste d :

To c lo se the b o o ks: no thing to c lo se sinc e b o th o f the m ha ve no se t o f b o o ks.

To re c o rd inve stm e nts:

Pa rtne rship b o o ks:

To re c o rd a djustm e nts: no thing to a d just sinc e b o th o f the m ha ve no se t o f b o o ks.

To c lo se the b o o ks: no thing to c lo se sinc e b o th o f the m ha ve no se t o f b o o ks.

To re c o rd inve stm e nts:

Pa rtne rship b o o ks:

Downloaded by Sandara Park na payat (sandarakrungkrung12@gmail.com)

B, c a p ita l……………………………………………………………………….. 60,000

To ta l a g re e d c a p ita l (P480,000 + P600,000)….P 1,080,000

Re va lua tio n (G o o dwill) Appro a c h:

Asse ts (o r g o o d will o r inta ng ib le a sse t)…………………………………... 120,000

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To ta l a g re e d c a p ita l (P600,000 / 1/2)………..…. P1,200,000

Inve ste d Inve ste d Inve ste d

1. Bo nus Me tho d 2. G o o d will Me tho d (Re va lua tio n o f Asse t)

C a sh 100,000 Eq uip m e nt 110,000

Eq uip m e nt 110,000 G o o d w ill 90,000

Jo hn, C a p ita l 60,000 Jo hn, C a p ita l 90,000

Je ff, C a p ita l 60,000 Je ff, C a p ita l 90,000

Ja ne , C a p ita l 60,000 Ja ne , C a p ita l 90,000

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Ac c o unts Re c e iva b le 8,000

O ffic e Sup p lie s 2,000

O ffic e Eq uip m e nt 30,000

Ac c o unts Re c e iva b le 6,000

O ffic e Sup p lie s 800

Julie , C a p ita l 25,000

(b ) To m , Dra w ing 15,000

Julie , Dra w ing 12,000

(c ) Inc o m e Sum m a ry 50,000

To m , C a p ita l P50,000 (P51,000/ P76,000) 33,553

Julie , C a p ita l P50,000 (P25,000/ P76,000) 16,447

Julie , C a p ita l 12,000

To m , Dra w ing 15,000

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Julie , Dra w ing 12,000

Sta te m e nt o f C ha ng e s in Pa rtne rs' C a p ita l

Bo o k o f H is to b e re ta ine d b y the ne w pa rtne rship .

The fo llo w ing p ro c e d ure s a re to b e fo llo w e d :

Inve stm e nts Ye s**

1. Bo o ks o f So le Pro p rie to r (H):

a . H, c a p ita l………………………………………………………………… 1,800

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Ad d itio na l p ro visio n…………………… P 1,800

b . Inte re st re c e iva b le o r a c c rue d inte re st inc o m e …………………. 3,600

c . H, c a p ita l………………………………………………………………….. 6,000

d . H, c a p ita l…………………………………………………………………. 4,800

e . Pre p a id e xp e nse s………………………………………………………... 2,400

H, c a p ita l…………………………………………………………………… 7,200

c a p ita l a c c o unt, sinc e a ll no m ina l a c c o unts a re a lre a d y c lo se d a t the tim e o f

b . To c lo se the b o o ks: no thing to c lo se sinc e the b o o ks o f H w ill b e re ta ine d .

c . To re c o rd inve stm e nt:

Initia l inve stm e nt c o mp ute d a s fo llo ws:

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Ad d (d e d uc t): a d justm e nts: