Since 1977

AFAR DE LEON/DE LEON/ALENTON

3201-PARTNERSHIP BATCH: MAY 2021
LECTURE NOTES
FORMATION
The initial investments of the partners are recognized at For example:
FAIR VALUES and credited to the partners capital accounts In continuation of the same Illustrative Case
in the agreed INTEREST RATIO. Partnership goodwill is no Partner A invested additional capital on May 1, 2020 for
longer recognized under IFRS. Therefore, the total of the P30,000 cash; contributed merchandise with a fair value of
contributions of the partners is deemed be also the total P24,000 on September 1, 2020; and withdrew
agreed capital, to be allocated to individual partners’ permanently cash of P12,000 on December 1, 2020.
CAPITAL ACCOUNTS per their agreement. For example: Partner B had no additional investments nor permanent
withdrawals during 2020.
A and B formed a partnership on January 2, 2020 by
contributing the following net assets from their respective They agreed to divide profits and losses as follows:
proprietorships: a. Interest of 6% on average capital for each partner
A B b. Salaries of P4,000 each month to both partners
Cash P 30,000 P 20,000 c. Bonus to A of 10% of net income after interests
Non cash assets 620,000 730,000 and salaries; and
Liabilities (450,000) (530,000) d. The balance is agreed to be divided equally.
Net assets P200,000 P220,000 e. Both partners withdrew temporarily 60% of their
respective salaries.
The non-cash assets of A is overstated by P24,500 while
the liabilities of B is understated by P5,500 They agreed on The reported profit of P150,000 for 2020 will be divided as
a interest/capital ratio of 48:52 to A and B, respectively. follows:
A B TOTAL
The compound journal entry to record the formation of the Interests P 12,852 P 12,168 P 25,020
partnership is Salaries 48,000 48,000 96,000
Cash P 50,000 Bonus 2,898 2,898
Non-cash assets 1,325,500 Balance 13,041 13,041 26,082
Liabilities P 985,500 Total P 76,791 P 73,209 P150,000
A, capital 187,200
B, capital 202,800 The journal entry to transfer the net income for 2020 to
capital is
The above agreement resulted in a bonus of P11,700 from Income Summary 150,000
B to A, which is the excess of B’s contribution of P214,500 A, capital 76,791
against a smaller capital credit of P202,800, or the excess B, capital 73,209
of A’s capital credit of P187,200 over the amount
contributed of P175,500. This is referred to as BONUS Average capital for Partner A is computed as follows:
METHOD. If no bonus is to be recognized, the partners
should have used their contributions ratio, 45:55 as 1/01/20 187,200 x 12/12 P187,200
capital ratio to A and B, respectively. This is referred to as 5/01/20 30,000 x 8/12 20,000
NET INVETMENT method. 9/01/20 24,000 x 4/12 8,000
12/01/20 (12,000) x 1/12 (1,000)
OPERATIONS Average capital P214,200
During the operations of the partnership, loan by a partner Multiply by 6%
to the partnership (Loans Payable) or by the partnership to Interest P 12,852
a partner (Loans Receivable) may be recognized; Ave. capital of B : P202,800 x 6% P 12,168
temporary drawings in anticipation of profits may occur;
additional investments may also be made by the partners; The financial statements prepared for partnerships are
and the result of operations during the period is reported. similar to those prepared for corporations, except for the
following basic differences:
Partnership income or loss is allocated to partners in many a. In the balance sheet, ownership equity for a
ways. Generally, agreement items for income or loss partnership will be partners’ capital balances; in a
allocation conform with the following remunerations: corporation, capital stock, additional paid-in capital,
a. income allocations on the basis of capital balances to and retained earnings. In lieu of a statement of
reward partners in proportion to their respective retained earnings done for corporations, partnerships
investments through interests; present a statement of partners’ capital in support of
b. income allocations on the basis of service contributions its ownership equity on the balance sheet.
to reward partners for their respective service to the b. A statement of partners’ capital balances will show
partnership through salaries; initial or beginning balances, additional investments,
c. income allocations on the basis of effective withdrawal of capital, temporary drawings, share of
management of the partnership through bonuses; and net income or net loss, and partners’ compensation
d. Any numerical ratio, e.g. 3:2:5 will apply to the treated as operating expenses.
residual profit or loss after allocations made for (a)
(b), and (c) above. For example:

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Continuing with the same Illustrative Case, the

statement of Partners’ capital balances during 2020 The journal entry to be recorded upon C’s admission is
follows:
Cash P200,000
A, capital (P89,760 x ½) 44,880
A B TOTAL B, capital 44,880
BB P187,200 P 202,800 P390,000 C, capital P289,760
AI 54,000 54,000
Wdrwl of C ( 12,000) (12,000) The new profit and loss ratio would probably be
Drawings ( 28,800) ( 28,800) (57,600) Partner A (60% x ½) 30%
SONI 76,791 73,209 150,000 Partner B 30%
EB P277,191 P247,209 P524,400 Partner C 40%

c. As illustrated, per GAAP, partners’ compensation items
such as interests, salaries, and bonuses are simply
items selected by the partners to make the profit
distribution fair. Nevertheless, in some cases, partners’
1remuneration items are treated as operating
expenses and accordingly included in the income
statement. This latter case requires additional
accounting procedures and the profit agreement will
then apply to the decreased net income as a
consequence of the increased operating expenses.
For example:
Continuing with the same Illustrative Case,
The following journal entry will be recorded to validate
the compensation items as operating expenses:
Interest expense 25,020
Salary expense 96,000
Bonus expenses 2,898
A, capital 63,750
B, capital 60,168
The reduced net income of P26,082 (P150,000 –
P123,918) will be recorded as follows
Income Summary 26,082
A, capital 13,041
B, capital 13,041
Although the revised schedule of capital balances will
have new details, ( 2 items instead of just one over
the net income) , the ending capital balances will be
identical since the profit and loss agreement
remained effectively the same.
ADMISSION OF A NEW PARTNER
Any major change in ownership, such as admission of a
new partner, or withdrawal of a partner from an existing
partnership dissolves the entity. Dissolution of a
partnership entity does not however imply liquidation, for
oftentimes the business entity continues its operations
undisturbed.
There are two ways a new partner can get admitted into
the partnerships:
a. Admission by investment is one in which the new
partner transfers net assets into the partnerships.
Thus, the net assets of the partnerships increase
by the amount contributed and also increase total
capital by the same amount. Capital credits to all
partners upon admission of a new partner will
depend upon the agreement.
For example:
Continuing with the problem, assume C was admitted
as a partner in the AB Partnership by investing
P200,000 for a 40% interest in capital and in profits.
The total contributions by the partners will be
P724,400 (P277,191 + P247,209 + P200,000). The
acquired interest is P289,760 at 40%, resulting in
P89,760 excess credit over the amount contributed.
b. Admission by purchased interest is one in which
the new partner transfers assets directly to one or
more partners (NOT TO THE PARTNERSHIP) in
consideration for the purchased interest. Thus the
net assets of the partnerships remain the same
even after the admission of the new partner.
For example:
Continuing with the same Illustrative Case and
assuming the old partner sells 40% of their respective
interests for a total consideration of P200,000, the
journal entry to be recorded upon C’s admission is
A, capital P110,876
B, capital 98,884
C, capital P209,760
The total old capital remains at P524,400 after C’s
admission and the consideration of P200,000 is divided
between Partner A and Partner B as follows
To A (P277,191 x 40%) – (P9,760 x ½) P105,996
B (P247,209 x 40%) - (P9,760 x ½) 94,004
Total P200,000
The P9,760 is total loss to the old partners, (P209,760
acquired interest less consideration paid of P200,000).
WITHDRAWAL or RETIREMENT of a PARTNER
If a partner withdraws from the partnership, the
partnership must liquidate the withdrawing partner’s
ownership equity, as follows:
a. Payment to withdrawing partner will not come from
partnership assets-
The withdrawing partner may just sell his/her interest
to the remaining partners or to an outsider with the
permission of the remaining partners. In this case the
entry required to be recorded in the books of the
partnership is simply the transfer of interest from the
withdrawing partner to the buying partner(s)
account(s).
For example:
Continuing with the same Illustrative Case and assuming
partner A succumbed to head injuries from a car accident
a day after C’s admission by investment, the journal entry
to be recorded by the partnership if the heirs of A sold the
partnership equity to D (with B and C’s permission) for
P300,000 is
A, capital P232,311
D, capital P232,311
The total capital of the partnership remains the same
at P724,400.
b. Payment to the withdrawing partner will come from
partnership assets –
Under this arrangement, one of three situations can
occur:
i. Payment is equal to the interest withdrawn, which
is easily recorded by a debit to the capital account

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EXCEL PROFESSIONAL SERVICES, INC.

of the withdrawing partner and a credit for the 11/25/20 Paid third-party creditors in full.
payment made, since both amounts are equal. 11/30/20 Paid partners cash of P306,000 in
ii. Payment is less than the interest withdrawn, which final settlement.
is recorded with bonus to the remaining partners
divided in the remaining profit and loss ratio.
iii. Payment is more than the interest withdrawn, the Lump-Sum Liquidation:
excess is recorded as bonus to the retiring partner Cash NCA A/P A B
and charged to the remaining partners in the BBL 185,000 645,000 96,000 366,000 368,000
remaining profit and loss ratio. Sale 597,000 (645,000) (14,400) (19,200)
LQ Exp (10,000) ( 4,286) ( 5,714)
For example: AP Pd. (96,000) (96,000)
Continuing with the same Illustrative Case but this Pd to P(676,000) (347,314)(343,086)
time payment to A’s heirs will be P240,109 from Balances 0 0 0 0 0
partnership assets, the journal entry to record A’s
withdrawal by death is b. Liquidations in which there are several distributions
during the course of liquidation, oftentimes at points
A, capital P232,311 when there are unrealized non-cash assets and unpaid
B, capital 3,342 third-party creditors. This is called installment
C, capital 4,456 liquidation
Cash P240,109
By-Installment Liquidation:
The total capital after the withdrawal of Partner A will be October Liquidation
P484,291, i.e. Partner B, P198,987 and Partner C, Cash NCA A/P A B
P285,304. The bonus to Partner A of P7,798 is divided BBL 185,000 645,000 96,000 366,000 368,000
between B and C in the remaining profit ratio of 3:4. NCA sale 285,000(300,000) (6,429) (8,571)
Exp pd (4,000) ( 1,714) (2,286)
LIQUIDATION OF A PARTNERSHIP A/P pd (50,000) (50,000)
A liquidation winds up all operations of the partnerships, Pd to P (370,000) (210,000)(160,000)
converts all partnerships assets into cash and distributes to Bals. 46,000 345,000 46,000 147,857 197,143
creditors of the partnerships, then to accounts with
partners. Computation for safe payments to partners
A B TOTAL
Statement of Liquidation Balances, 10/31 357,857 357,143 P 715,000
A statement of liquidation summarizes all liquidation TPL(345,000) (147,857) (197,143) (345,000)
activities, including payments to partners. There are two Free interests 210,000 160,000 P370,000
types of distribution in partnerships liquidation, as follows:
a. Liquidations in which all distributions are made in a November Liquidation
single time following the sale of all non-cash assets. Cash NCA A/P A B
This is called lump-sum, or total, liquidation. It is a Bals,11/1 46,000 345,000 46,000 147,857 197,143
summary of the entire liquidation process upon its NCA sale 312,000 (345,000) (14,143) (18,857)
completion. It is one in which at the time cash is Expenses (6,000) ( 2,571 ) ( 3,429)
distributed to partners noncash assets had been A/P paid (46,000) (46,000)
already disposed and the full loss or gain on realization Cash to P (306,000) (131,143)(174,857)
reflected in partners’ capital balances. Balances 0 0 0 0 0

For example: No need for safe payment computations because the

AB Partnerships is to be liquidated on September partners’ capital and profit ratios have become identical by
30, 2020. On this date, its balance sheet is as the end of October, 2020.
follows:
Cash P 185,000 Distribution of partnership cash in liquidation must be
Non-cash assets 645,000 made to creditors first, and then to partners’ accounts
A, loan 20,000 which are always based on free-interest computations.
Accounts payable (96,000) Loan accounts are prioritized over capital balances only if
B, loan (12,000) they belong to the same partner and only after the amount
A, capital (386,000) payable to that partner has been established by free
B, capital (356,000) interest calculations.

Safe-payment computations is required for every

AB divide profits and losses on a 3:4 ratio to A and
B, respectively.
The following are liquidation transactions:
In October, 2020.
10/1-31/20 Realized cash of P285,000 from a sale
of non-cash assets of P300,000
10/10/20 Paid liquidation expenses of P4,000
10/15/20 Paid third-party creditors P50,000
10/31/20 Paid partners cash of P370,000
In November, 2020
11/2-30/20 Realized P312,000 from the sale of
the remaining non-cash assets
11/15/20 Paid liquidation expenses of P6,000
distribution to partners when non- cash assets remain
unsold ( and the profit and loss ratio and the interest ratio
at that point are not identical). The purpose of this
calculation is to determine who among the partners have
the free-interests to deserve the payment from the
partnerships.
Cash Distribution Program – Alternate Method To avoid
preparing the calculation for safe-payment every time
there is an installment distribution, a cash distribution
program to partners is prepared. This statement is
prepared just before the start of liquidation, i.e. before any
realization of assets and replaces the safe-payment
calculations by the use of just one schedule for the
numerous distributions to partners normally occurring in
liquidation.

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EXCEL PROFESSIONAL SERVICES, INC.

A B TOTAL
Priority 1 90,000 - 90,000
Priority 2 120,000 160,000 280,000
Totals 210,000 160,000 370,000
November payment of P306,000 will be paid in the original
For example: profit and loss ratio of 3:4 to A and B, respectively:
Continuing with the current illustrative case
To A: P306,000 x 3/7 P 131,143
INTERESTS PAYMENTS B: P306,000 x 4/7 174,857
A B A B TOTAL
BBL 366,000 368,000
/PLR 3/7 4/7 Please note that payment to partners (AFTER the first
LAA 854,000 644,000 P90,000 payment to A) will henceforth be in the original
P#1 (210,000) 90,000 - 90,000 P&L ratio because the capital and profit ratios of the
LAA 644,000 644,000 90,000 - 90,000 partners have become identical after the said priority
P#2 Payments to both partners in the original P&L ratio. payment.

October payment
10/31/20 Payment, P370,000 - done –

TRUE or FALSE
1. Salary and Interest Allowances in a partnership
agreement do not affect the measurement of total
partnership income.
2. Partnership drawings are withdrawals of the partners
that are closed to the capital accounts at the end of
the period.
9. It is illegal for a partnership to pay a partner’s personal
expenses out of partnership assets.
10. When an incoming partner purchases a partnership
interest by making a payment directly to the current
partner, no entry will be needed on the partnership
books.

3. When non-cash property is contributed to a
partnership, it is recorded in the books of the
partnership at its fair market value.
4. All property brought into the partnership or acquired
by the partnership is partnership property.
5. If an asset is contributed to the partnership subject to
the liability, the amount credited to the contributing
partner’s capital account is still equal to the full fair
market value of the asset.
6. It is possible to admit a new partner into the
partnership without said partner investing any assets
into the partnership.
7. If salary and interest allocation methods are being
used to allocate partnership profits, such methods
would not be applied in accounting periods when there
is a partnership loss.
8. All dissolutions are liquidations but not all liquidations
are dissolutions.
11. A partnership interest is considered a personal asset of
the partner and may be sold or gifted or conveyed to
others in any manner that is legal and acceptable to
the other partners.
12. Drawing accounts are debited for partners’ withdrawal
in anticipation of profits and for the partners’ personal
expenses paid by the partnership.
13. The amount of partnership profits and losses that are
allocated to the partners using salary and interest
allocation procedures also produce deductions to the
partnership for salary and interest expense.
14. It is highly unusual to find profit and loss sharing
agreements that would include salary allocations, and
bonus payments all in the same agreement.
15. If Partner A invested twice as much as Partner B, and
there are only two partners, the income must be
divided in a ratio of 2:1, respectively.
Net assets P544,180 P398,200 P380,720

PARTNERSHIP FORMATION

Xerox, Yves, and Zeus formed the XYZ Partnership on June

1, 2020, with the following assets and liabilities, measured
at book values in their respective records, contributed by Except for the plant assets and the long term debts, the
each partner: partners have agreed that the proprietorship net assets
are fairly valued.
Xerox Yves Zeus
The agreed fair valuation of net asset items where the
Cash P160,000 P120,000 P120,000 book value is not the fair value follows:
Accounts
receivable 28,180 30,800 55,120 Xerox Yves Zeus
Inventory 108,000 95,400 53,600 PPE P404,000 P277,920 P260,100
Long-term-debt 92,000 100,000 120.720
Plant, Property, &
Equipment (PPE) 360,000 288,000 304,000 1. How much is the contribution of each partner?
Accounts payable (32,000) (40,000) 48,000 Calculate their contribution ratio.
Long-term debt ( 80,000) (96,000) 104,000

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EXCEL PROFESSIONAL SERVICES, INC.

2. What is the capital balance for each partner at the 3. What is the capital balance of Carla after the
opening of business on June 1 as per above formation of the partnership?
information? a. P 717,937 c. P 737,179
b. P 797,173 d. P 771,379

3. Prepare the journal entry in the partnership books for
the above assumption.
4. What is the capital balance for each partner at June 1,
instead, if the interest ratio is agreed at 4:3:3 to
Xerox, Yves. and Zeus, respectively?
PARTNERSHIP OPERATIONS
On January 1, 2020, Chris and Nikki formed a partnership
by initially contributing cash of P 280,000 and P176,000,
respectively. The changes in their capital balances during
2020 are summarized as follows:

5. Prepare the journal entry for the revised assumption.

CHRIS NIKKI
6. Explain why Partner Braulio was unaffected by the Balances, January 1 P280,000 P 176,000
bonus feature in the ownership agreement among the Investment, April 1 25,600
partners. Withdrawal July, 1 (40,000)
Investment, September 1 74,400
MULTIPLE CHOICE. Withdrawal, October 1 (3,200)
Investment, December 31 6,400
Amer and Balgan have just formed a partnership. Amer Balances, December 31 P 302,400 P 216,800
contributed cash of P736,000 and office equipment that
costs P337,600. The equipment had been used in his sole The partnership reported a net income of P324,960 in
proprietorship and had been 70% depreciated. The current 2020 and the profit and loss agreement are as follows:
value of the equipment is P236,000. Amer also contributed a. Interest at 5% is allowed on average capital
a note payable of P69,600 to be assumed by the balances;
partnership. The partners agreed on a profit and loss ratio b. Salaries of P2,000 per month to each partner;
of 50% each. Baser is to have a 70% interest in the c. Bonus to Chris of 10% of net income after interest,
partnership. Justine contributed only the merchandise salaries, and bonus; and
inventory from her sole proprietorship carried at P440,000 d. Balance to be divided in the ratio of 6:4 to Chris and
on a first-in- first-out basis. The current fair value of the Nikki, respectively.
merchandise is P420,000.
1. To consummate the formation of the partnership Baser Both partners withdrew one-fourth of their salary
should make additional cash investment or allowances in 2020.
(withdrawal) of:
a. P179,200 Required:
b. P(24,000) 1. Prepare a schedule for the division of net profit for
c. P 77,600 2020 with supporting computations when appropriate.
d. P(64,000) 2. Prepare a statement of the partners’ capital balances
for 2020.
In 2020, Sonia and Carla agreed to form a new
partnership under the following general agreements: MULTIPLE CHOICE
(1) Partners’ CONTRIBUTIONS will be on a 5:4 ratio; (2) CARA and JEREMY created a partnership to own and
PROFIT & LOSS, 5:5, and (3) CAPITAL CREDITS, 6:4 operate a health-food store. The partnership agreement
ratio, respectively to Steve and Cristy. Their provided that CARA receives an annual salary of P8,000
respective contributions will come from old and JEREMY a salary of P4,000 to recognize their relative
proprietorships they owned. time spent in operating the store. Remaining profits and
losses were divided 60:40 to CARA and JEREMY,
Sonia contributed the following items and amounts: respectively. Income of P10,400 for 2019, the first year of
Cash P599,040 operations, was allocated P7,040 to CARA and P3,360 to
Equipment (at book value per her JEREMY. On January 1, 2020, the partnership agreement
proprietorship records) 409,600 was changed to reflect the fact that JEREMY could no
longer devote any time to the store’s operations. The new
Carla contributed the following items at their carrying
agreement allows CARA a salary of P14,400, and the
amounts in the proprietorship records:
remaining profits and losses are divided equally. In 2020
Accounts receivable 76,800
an error was discovered such that the 2019 reported
Inventory 215,040
income was understated by P3.200. The partnership
Furniture and fixtures 411,648
income of P20,000 for 2020 included this P3,200 related to
Intangibles 176,640
2019.
1. In the reported net income of P20,000 for the year
All the non-cash contributions are not properly valued. The
2020, CARA would have
two partners have agreed that (a) P6,144 of the accounts
a. P17,520
receivable are uncollectible; (b) the inventories are
b. P0
overstated by P15,360; (c) the furniture and fixtures are
c. P13,680
understated by P9,216; and the intangibles include a
d. P10,000
patent with a carrying value of P10,752, which must now
be derecognized upon a court order. The rest of the
DERHA, a senior partner in a law firm, has a 30%
intangible items are fairly valued.
participation in the firm’s profit and losses. During 2020,
2. How much is the total depreciable fixed asset recorded
DERHA withdrew P104,000 against her capital but
by the partnership?
contributed property with a fair value of P20,000. DERHA’s
a. P 848,640 c. P 893,184
capital increased by P12,000 during 2020.
b. P 322,560 d. P 833,184
2. The net income of the partnership for 2020 is
a. P120,000

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EXCEL PROFESSIONAL SERVICES, INC.

b. P320,000 A. Prepare the journal entries on the revaluation of

c. P280,000
d. P440,000
ERROL FLOR, and GAB invest P32,000, P24,000 and
P20,000 respectively, in a partnership on June 30, 2020.
They agree to divide net income or loss as follows:
a. Interest at 10% on beginning capital account
balances
b. Salaries of P8,000, P6,400 and P4,800, respectively
to ERROL, FLOR, and GAB, respectively.
c. Remaining net income or loss is divided equally
d. A minimum of P14,400 of income is guaranteed to
GAB regardless of the results of operation.
3. If the net income for the year ended June 30,2020
before interest and salary allowances to partners was
P35,200, the amount of the net income credited to
ERROL is:
a. P17,500
b. P16,000
c. P14,667.20
d. P11,600
Abner, Blanche and Donna are partners with average
capital balances during 2020 of P96,000, P48,000, and
P32,000, respectively. Partners receive 10% interest on
their average capital balances. After deducting salaries of
P24,000 to X and P16,000 to Y, the residual profit or loss
is divided equally. In 2020 the partnership sustained a
P26,400 loss before interest and salaries to partners.
4. By what amount should X’s capital account change?
a. P5,600 increase c. P 8,800 decrease
b. P28,000 decrease d. P33,600 increase
Partners JOYCE and MARIE share profits 3:1 after annual
salary allowances of P3,200 and P4,800 respectively;
however, if profits are not adequate to meet the salary
allowances, the entire profit is to be divided in the salary
ratio. Profits of P7,200 were reported for the year 2019. In
2020, it is ascertained that in calculating net income for
the year ended December 31, 2019, depreciation was
overstated by P2,880 and the ending inventory was
understated by P640.
5. The amount of the net adjustments in the books of
JOYCE and MARIE are:
JOYCE MARIE
a. P(2,959) P(14,505)
b. P 2,360 P 1,160
c. P 6,550 P 6,850
d. P 1,840 P 2,780
assets and the admission of Romy
B. Calculate the capital balances of the partners after
the admission of Romy.
C. Calculate the amounts received by Elmo and by
Lito for their respective partnership interest
transferred to Romy
D. Explain why no amount of bonus was recognized
despite the difference between Romy’s investment
and his acquired partnership interest.
2. Now assume Romy is admitted by investing the
P56,000 to the partnership for a 10% interest
A. Calculate the partners’ capital balances after the
admission of Romy.
B. Prepare the journal entry for the admission of
Romy.
MULTIPLE CHOICE
The capital accounts of the Sarah and Opel partnership on
January 1, 2020, were:
Sarah, capital (75% profit percentage) P 112,000
Opel, capital (25% profit percentage) 48,000
Total capital P 160,000
On October 1, Tina was admitted for a 40 percent interest
in the partnership when she purchased 40 percent of each
existing partner’s capital for P80,000, paid directly to
Sarah and Opel. The partnership’s net income for the year
is P66,000 and 2/3 of it was earned in the last quarter of
the year.
1. What are the capital balances of Sarah, Opel and Tina
after Tina’s admission to the partnership?
a. P 84,000; P36,000; P 80,000
b. P108,700; P44,250.40; P102,000
c. P 77,100; P32,100; P 72,800
d. P 90,000; P 40,000; P 70,000
2. Assume Tina is admitted by investing the P80,000 into
the partnership for a 40% interest, how much is the
ending capital balance of Opel after admission and the
bonus (given)/received to/from Tina?
a. P55,000; (P 5,000)
b. P63,250.40; (P10,500)
c. P71,250.40; P 4,250.40
d. P47,300; (P 6,200)
Albert, Berto, Carlo, and Dindo have become partners in
the ABCD Partnership under the following circumstances:

PARTNERSHIP DISSOLUTION On August 1, 2020 Partners Albert and Berto had the
A. ADMISSION OF A NEW PARTNER following ownership balances in the AB Partnership:
Elmo and Lito are partners sharing profits and losses in ALBERT BERTO
the ratio of 60% and 40%, respectively. The partnership Capital P250,000 P200,000
balance sheet at April 30, 2020 follows: Loan (30,000) 10,000
Total P220,000 P210,000
Cash P 40,000 Accounts Payable P 90,800 In the morning of this date, Carlo was admitted as a
Inventory 60,000 Elmo, Loan 4,400 partner with an investment of P150,000 for 20% interest
Land 64,000 Elmo, capital 380,000 in capital and in profits or losses.
Buildings 404,000 Lito, capital 104,800
Lito, Loan 12,000 In the afternoon of the same day, over snacks, Dindo
Total P 580,000 Total P580,000 learned about the nature and objectives of the ABC
Partnership and insisted that he became a partner and was
The partners agreed to admit Romy for a one-tenth willing to contribute P120,000 under acceptable terms
interest for a P56,000 consideration. At the time of determined by the old partners.
admission, the fair market value of the land is appraised at
P144,000 and the market value of the inventory is The old partners, in a caucus, have agreed to allocate 15%
P120,000. of existing total capital, as well as 15% of profits or losses
to Dindo. Over dinner, Dindo accepted the admission
1. Assume Romy is admitted by purchase of each of the arrangement without any change. On the other hand, the
original partners’ interest and paid the partners : old partners will each transfer 15% of their respective

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EXCEL PROFESSIONAL SERVICES, INC.

interest to Dindo. Under the old AB Partnership, profit or 2. What will be the balance of Liza’s capital account after
loss was 60% and 40% to Albert and Berto, respectively. the retirement of Tony?

3. Determine the capital balance of Carlo upon his

admission to the AB Partnership on August 1. MULTIPLE CHOICE
a. P116,000 c. P120,000 The balance sheet at December 31, 2020, for the Beth, Daisy,
b.P122,000 d. P118,000 and Maya partnership is summarized as follows:

4. Determine the capital balance of Blanche under the Assets P 800,,000 Liabilities P200,000
ABCD Partnership in the late evening of August 1, 2020. Loan to Daisy 100,000 Beth capital (50%) 300,000
Daisy capital (40%) 300,000
a. P 27,800 c. P108,000
Maya capital (10% 100,000
b.P180,200 d. P 90,000 P 900,000 P900,000
Daisy is retiring from the partnership. The partners agree that
The following are the capital balances of ABC Partnership partnership assets, excluding Daisy’s loan, should be adjusted
at August 30, 2020: to their fair value of P1,000,000 and that Daisy should receive
P304,000 for her capital balance net of the P100,000 loan.
Alfie (40% P&L) P 176,000 1. How much are the capital balances of Beth and Maya
Bar (40% P&L) 128,000 immediately after Daisy’s retirement.
Carl (20% P&L) 88,000 a. P380,000; P116,000
Dick invests P216,000 in cash for a 30% partnership b. P400,000; P120,000
interest. The payment goes to the original partners. c. P385,000 P117,000
d. P308,333 P101,667
Revaluation in asset is to be recognized upon Dick’s
admission.
A, B, and C formed a partnership on January 2, 2019 with the
5. How much adjustment in net assets is to be recorded
following contributions:
and what is the new partner’s beginning capital? A P100,000
a. P328,000 & P216,000 c. P112,000 & P151,200 B 200,000
b. P112,000 & P216,000 d. P 328,000 & P151,200 C 300,000
The partners agreed on a capital ratio of 1:2:3 upon formation
and P&L ratio of 3:3:4, respectively. The partnership reported
The following is the condensed balance sheet of G & N
a net loss of P20,000 for 2019. Also, at the end of 2019, C has
partnership at August 30, 2020, at which date Ella is to be decided to withdraw from the firm and was paid P250,000
admitted with a 30% interest in capital and in profits for from partnership cash.
an investment of P44,000.
Book Value Fair Value On April 1, 2020, D was admitted as a partner with an
investment of P160,000. He is given a share in capital of
Cash P 16,000 P 16,000 40%and in profits, 30% the old partners have agreed to retain
Other assets 402,400 333,600 their old ratio over the remaining profit and loss share of
Current liabilities (43,200) (43,200) 70%. The partnership reported a net profit of P21,000 for
Non current liabilities (215,200) (220,000) 2020, one-third of which is deemed earned as of the end of
the year’s first quarter’s operation.
Greg, capital ( 96,000)
2. Determine the capital balances of A and B, respectively, as
Nick, capital ( 64,000) of December 31, 2019.
Greg and Nick share profits and losses 60% and 40%, a. P 94,000 & P194,000 c. P 194,000 & P115,000
respectively. b. P 115,000 & P215,000 d. P 165,000 & P215,000
6. What will be the capital balances of Greg and Nick after
3. Determine the capital balances of A, B, and D, respectively
Ella’s admission? on December 31, 2020.
a. P54,768 and P36,512 c. P36,512 and P54,768 a. P 98,500, P 75,720 & P 113,840
b. P39,120 and P52,512 d. P51,888 and P39,392 b. P 93,640, P 70,820 & P 109,640
c. P100,990.40 78,170.40 & P 120,140
d. P104,000, P204,000 & P 203,000
B. RETIREMENT OF A PARTNER
On June 30, 2020, the balance sheet for the partnership of
The following balances as at October 31, 2020 for the D, E and F, together with their respective profit and loss
Partnership of Tony, Liza, and Cory were as follows: ratios, is summarized as follows:
Cash P 66,000 Liabilities P 65,000 Assets, at cost P300,000 D, loan P 15,000
Liza, Loan 19,000 Tony, loan 20,500 D, capital (20%) 70,000
Other Assets 500,000 Tony, capital 167,000 E, capital (20%) 65,000
Liza, capital 107,500 F, capital (60%) 150,000
Cory, capital 225,000 P300,000
Totals P585,000 Totals P585,000 D has decided to retire from the partnership, and by
mutual agreement the assets are to be adjusted to their
Tony has decided to retire from the partnership on October fair value of P360,000 at June 30, 2020. It is agreed that
31. Partners agreed to adjust the non-cash assets to their the partnership will pay D P102,000 cash for his
fair market value of P620,000. The estimated profit to partnership interest exclusive of his loan, which is to be
October 31 is P120 ,000. Tony will be paid P252,500 for repaid in full.
his partnership interest exclusive of his loan which is 4. After D’s retirement, what are the capital account
repaid in full. Their profit and loss ratio is 4:2:4 to Tony, balances of partners E and F, respectively?
Liza and Cory, respectively. a. P65,000 and P150,000 c. P 97,000 and P246,000
1. Prepare entries for the retirement of Tony from the b. P72,000 and P171,000 d. P 77,000 and P186,000
partnership.
B. INCORPORATION

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EXCEL PROFESSIONAL SERVICES, INC.

Partners Boba and Tess, who share profits and losses equally, Required: Prepare general journal entries to record the sale
have decided to incorporate the partnership at December 31, of the other assets and the distribution of the cash to the
2020. The partnership net assets after the following proper parties. Show supporting computations in good form.
adjustments will be contributed in exchange for shares of
stocks from the corporation.
i. provision of allowance for doubtful accounts, P6,250.
ii. adjustment of overstated equipment by 2,500
iii. adjustment of understated inventory by P20,000 and MULTIPLE CHOICE
iv. recognition of additional depreciation of P5,000. Partners EDMAN, SALLY and ZARAH decided to liquidate their
partnership on November 30, 2020. Their capital balances
The corporation’s ordinary shares is to have a par value of and profit and loss ratio are as follows:
P312.50 each and the partners are to be issued corresponding Capitals P & L Ratio
shares equivalent to 70% of their adjusted capital balances. Edman P 480,000 40%
The partnership balance sheet at December 31, 2020 Sally 627,200 40%
follows: Zarah 192,000 20%
Cash P 112,500 Liabilities P 107,500
Accts rec 62,500 Acc. Dep 5,000 The net income from January 1, 2020 to November 30, 2020
Inventory 87,500 Boba, cap. 106,250 is P524,800. On November 30, 2020, the cash balance is
Equipment 50,000 Tess, cap. 93,750 P416,000, and that of liabilities is P928,000..
Total P 312,500 Total P 312,500
1. Determine the total credit to APIC upon incorporation of Edman is to receive P565,248 in the settlement of his interest.
the partnership 1. Calculate: (1) The loss on realization, and (2) the amount
a. P 61,875 c. P 60,000 to be realized from the sale of non-cash assets?
b. P 144,375 d. P 140,000 a. (1) P311,680; (2) P2,024,320
b. (1) 248,000; (2) 5,100,000
2. The number of ordinary shares issued to Partner Tess is c. (1) 620,000; (2) 3,860,000
a. 210 c. 238 d. (1) 552,000; (2) 3,860,000
b. 245 d. 217
The partnership of MIKEE and ROSA is in the process of
Lexy and ACE partnership’s balance sheet at December 31, liquidation. On January 1, 2020, the ledger shows account
2019 reported the following balances. balances as follows:
Total assets P187,500 Cash P 6,400 Accounts payable P 9,600
Total liabilities 37,500 Accounts receivable 16,000 MIKEE capital 25,600
Lexy, capital 75,000 Lumber inventory 25,600 ROSA capital 12,800
Ace, capital 75,000
On January 10, 2020, the lumber inventory is sold for
On January 2, 2020, LEXY and ACE dissolved their P16,000, and during January, accounts receivable of
partnership and transferred all assets and liabilities to a P13,440 are collected. No further collections on the
newly formed corporation. At the date of incorporation, the receivables are expected and the partners have incurred
fair value of the net assets was P22,500 more than the P2,560 of liquidation expenses. Profits are shared 60
carrying amount on the partnership’s books. Of which percent to Mikee and 40 percent to Rosa.
P12,500 was assigned to tangible assets and P10,000 was 2. How much cash will partner Mikee and Rosa receive
assigned to patent. LEXY and ACE were each issued 5,000 upon liquidation?
shares of the corporation’s P12.50 par common stock. a. P18,304; P7,936 c. P20,960; P 8,640
3. Immediately following incorporation, additional paid-in b. P37,600; P18,400 d. P20,500; P20,500
capital in excess of par should be credited for
3 a. P160,000 c. P 25,000 The accounts of the Partnership of R, S, and T at the end of its
fiscal year on November 30, 2020 are as follows:
b. P 47,500 d. P137,500
Cash P 106,240 Loan from S P 20,480
Other non-cash R, capital (30%) 272,640
assets 724,480
PARTNERSHIP LIQUIDATION. Loan to R 15,360 S, Capital (50%) 139,520
1. LUMP-SUM Liabilities 268,800 T, capital (20%) 144,640
3. If in the first cash distribution, S received P51,200, which
DONNA, JANICE and ELLERY plan to liquidate their of the following statements is incorrect?
partnership. They have always shared losses and gains in a a. Total amount distributed to partners is P344,320.
2:3:5 ratio, and on the day of the liquidation their balance b. Total amount paid to creditors is P268,800.
sheet appeared as follows: c. Total amount realized from the non-cash assets is
P613,120
DONNA, JANICE, and ELLERY d. R received an amount equal to 192,000.
Balance Sheet
December 31, 2020 The partnership ABC is currently liquidating and on
Assets Liabilities and Capital
February 15, 2020, their balances in capital and their
Cash P68,750 Accounts payable P130,370
profit and loss (P&L) ratios are shown below:
ELLERY, loan 5,000
Other assets 451,250 DONNA, Capital 76,250
Apple, capital (P&L 40%) P17,600
JANICE, loan 50,000 JANICE, capital 250,880
Bryan, capital (P&L 20%) 11,200
_______ ELLERY, capital 107,500
Cecile, capital (P&L 40%) ( 9,600)
Total assets P570,000 Total equities P570,000
Assume non-cash assets have been all disposed and Cecile
has promised to pay his deficiency in a week’s time,
The other assets are sold for P212,500, and assume the
following information on partners’ net assets, exclusive of
4, Calculate the amount to be received by one of the partners
their respective partnership interests at that point.
if cash is paid immediately on February 15, 2020.
a. Apple, P22,000 c. Bryan, P 8,000
DONNA JANICE ELLERY
b. Bryan, P12,000 d. Apple, 12,000
Assets P687,500 P375,000 P 167,000
Liabilities 562,500 350,000 161,875

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EXCEL PROFESSIONAL SERVICES, INC.

2. BY INSTALLMENT b.P 0 P80,000 P20,000

c. P20,000 P 0 P 0
On December 31, 2020, the balance sheet of CDO Partnership d.P 0 P 0 P16,000
is as follows:
Assets Liabilities 3. If the firm is dissolved and liquidates and A receives a
Cash P 15,360 Account Payable P51,200 total of P2,400 in full settlement of his interest, then C
SlryPyble, Celia 10,240 would have received a total of
Noncash assets 271,360 Dave, Loan 20,480
a. P56,000 c. P 48,400
Loan to Oleg 10,240 Celia, Capital 38,912
b. P 31,000 d. P 59,000
Dave, Capital 73,728
_______ Oleg, Capital 102,400
P296,960 P 296,960
The accounts of the partnership of PBA at December 31, 2020
Profit and losses were shared as follows; Celia, 30%; Dave, are as follows:
30%; Oleg, 40%. It was decided to liquidate the business. Cash P 105,600 Liabilities P 80,000
The following is a summary of the realization and liquidation Non-cash assets 932,800 Loan from B 25,600
activities. Loan to P 19,200 P, capital 264,000
Book B, capital 468,800
Value Cash Paid A, capital 219,200
of Asset Cash Expense Liabiliti to Total P1,057,600 Total P1,057,600
Realized Collected s es Partners
Paid Paid They divide profits and losses 3:5:2 to P, B, and A
1st respectively. They have decided to liquidate the
Period 133,120 81,920 4,100 40,000 41,980 partnership at this date.
2nd
Period 76,800 51,200 4,800 11,200 40,000 4. Determine the amount payable to Partner A if cash is
3rd paid just before the start of liquidation on December
Period 61,440 35,840 3,600 - 38,640 31, 2020.
Total 271,360 168,960 12,500 51,200 120,620 a. P 22,628.80 c. P 28,285.60
b. P 28,240 d. P 28,096
Required:
1. Prepare a statement of liquidation for each period. A condensed balance sheet with profit sharing percentages
2. Prepare a program to show how cash is to be distributed for the E, F, and G partnership on January 1, 2020, shows
to partners. the following:
MULTIPLE CHOICE
Cash P 80,000 Liabilities P 64,000
The balance sheet for CHESTER, JOANA and JOHN
Other assets 400,000 E, capital (40%) 80,000
Partnership, who share profits and losses in the ratio of
F, capital (40%) 200,000
50%, 25%, and 25%, respectively, shows the following
G, capital (20%) 136,000
balances just before liquidation.
P480,000 P480,000
Cash P 19,200
Other assets 95,200
On January 2, 2020, the partners decide to liquidate the
Liabilities 32,000
business, and during January they sell assets with a book
Chester, capital 35,200
value of P240,000 for P136,000.
Joana, capital 24,800
John, capital 22,400
On the first month of liquidation, certain assets are sold for
5. How much cash will the partners receive if all available
P51,200. Liquidation expenses of P1,600 are paid, and
cash, except for a P8,000 contingency fund, is
additional liquidation expenses are anticipated. Liabilities
distributed immediately after the sale.
are paid amounting to P8,640 and sufficient cash is
a. All partners will receive P60,000
retained to insure the payment to creditors before making
b. Partners F and G will both receive P72,000
payments to partners. On the first payment to partners, c. Partner F will receive P96,667 and partner G will
Chester receives P10,000. receive P93,333
1. Determine the amount of cash withheld for anticipated d. Partner F will receive P190,000
liquidation expenses.
a. P35,200 c. P33,200
b. P29,200 d. P 4,800 Claudia, Petra, Mona, and Hilda are partners who share
profits and losses at 40%, 30%, 20%, and 10%,
The following balance sheet for the partnership of A, B, respectively. Since two of them have given intention to
and C was taken from the books on December 31, 2020. withdraw, they have decided to liquidate the partnership
Assets Liabilities and Capital instead. At this point, the capital balances of the partners
Cash P 32,000 Liabilities P 80,000 are as follows:
Other Assets 288,000 A, Capital (40%) 59,200 Claudia P40,800
B, Capital (40%) 104,000 Petra 17,280
C, Capital (20%) 76,800 Mona 27,520
Total Assets P 320,000 Total Liab & Cap P 320,000 Hilda 13,600
6. Which of the following statement is true?
2. If the firm is dissolved and liquidates by installment, a. The first available P1,920 will go to Claudia..
the first sale of the other assets having book value of b. Hilda will be the last to receive cash
P144,000 realized P64,000 and all cash available are c. The first available P320 will go to Mona.
distributed, the amount to be received by A, B, and C d. Petra will collect a portion of any available cash
respectively would be before Hilda receives anything.
A B C
a. P 0 P18,000 P40,000

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