SPECTRANS Module 3 - PARTNERSHIP CHANGES

SPECTRANS Module 3 - PARTNERSHIP DISSOLUTION / CHANGES IN OWNERSHIP INTEREST
3. Partnership Dissolution
Partnership Dissolution
The dissolution of a the partnership is the change in the relation of the partners caused by any partner ceasing to be associated
in the carrying on as distinguished from the winding up of the business of the partnership. On dissolution, the partnership is not
terminated, but continues until the winding up of partnership affairs is completed.
The dissolution of the partnership does not necessarily imply that business operations will come to an end. Most changes in
ownership of a partnership are accomplished without interruptions of its normal operation. A partnership dissolution should be
distinguished from liquidation. A partnership is said to be liquidated when the business is terminated; a a partnership may be
dissolved without being terminated but liquidation is always preceded by dissolution.
· Winding up is the process of settling the business or partnership affairs after dissolution.
· Termination is the point in time when all partnership affairs are wound up or completed, and is the end of the partnership
life.
Causes of dissolution
1. Admission of a partner
2. Withdrawal or retirement of a partner
3. Death of a partner
4. Incorporation of a partner
Admission of a partner
· A new partner can only be admitted into a partnership with the consent of all the continuing partners based on the
principle of delectus personae: No one becomes a member of a partnership without the consent of all the members. This is
because a partnership is based on mutual trust and confidence of the partners.
· By admission of a new partner, the old partnership has been dissolved and it is important that a new agreement be
formulated to govern the continuing business operations.
A person may become a partner in an existing partnership be either of the following:
1. Purchase of an interest from one or more of the existing partners.
2. Investment of assets in the partnership by new partner.
· The 2 situations are similar in the sense that the old partnership is legally dissolved; the capital and profit and loss ratio will
be based on new partnership agreement.
· Dissimilar in the sense that the partnership receives no new resources when a third party purchases an interest directly
from existing partners, but it does receive new resources when third party becomes a partner by investing in the partnership.
Liability of Incoming Partner for Existing Obligation
· A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership incurred before
his admission as though he had been a partner when such obligations were incurred. Such liability is limited to his capital
contribution unless otherwise agreed.
Purchase of an Interest from Existing Partners
· With the consent of all continuing partners, a person may be admitted into an existing partnership by purchasing an
interest directly from one or more of the existing partners. Payment is made personally to the partner from whom the interest is
obtained resulting to mere transfers among capital accounts.
· This type of admission will only result to a debit to the capital account of the selling partner for the interest sold and a
credit to the capital account of the buying partner for the interest purchases.
· The amount debited and credited is not affected by the actual price for the equity interest.
· Total assets, total liabilities and total partner’s equity of the partnership are not affected upon admission.
· Purchase may be:
a. Payment to old partners is equal to interest purchased.
b. Payment to old partners is less than the interest purchased.
c. Payment to old partners is more than the interest purchased.
Case 1. Payment to old partners is equal to interest purchased
Partners Elizabeth and Reynaldo San Mateo received an offer from Janet Matuguinas to purchase directly ¼ of each of their
interest in the partnership for P150,000. The partners agreed to admit Janet Matuguinas into the firm.
Elizabeth Salvador, Capital 100,000
Reynaldo San Mateo, Capital 50,000
Janet Matuguinas, Capital 150,000
Case 2. Payment to old partners is less than the interest purchased
Assume that Janet Matuguinas directly purchased 1/3 partner’s interest in the business. Matuguinas paid P160,000 for 1/3 of
each partner’s capital.

Case 3. Payment to old partners is more than the interest purchased
Partners Elizabeth Salvador and Reynaldo San Mateo received an offer from Janet Matuguinas to purchased directly 30% of
each of their interest in the partnership or P200,000. The partners agreed to admit Janet Matuguinas as a member of the firm.
Investment of Assets in a Partnership
· A person may be admitted into a partnership by investing cash or other assets in the business.
· The assets are invested into the partnership and not given to the individual partners.
· The investment will increase the total assets and total partner’s equity.
Definition of terms
· Total contributed capital. It is the sum of the capital balances of the old partners and the actual investment of the new
partner.
· Total agreed capital. It is the total capital of the partnership after considering the capital credits given to each of the
partners. Under bonus method, total agreed capital is equal to the total contributed capital though the capital credit to each other
may be equal to, greater than or less than his capital contributions.
· Bonus. It is the amount of capital or equity transferred by one partner to another partner.
· Capital credit. It is the equity of a partner in the new partnership and is obtained by multiplying the total agreed capital by
the applicable percentage interest of the partner.
Bonus to old partners
· A partnership may be exceptionally attractive because of superior earnings records such that the old partners may
demand a premium from a new partner. This premium increases the old partner’s capital interest. This premium is effected
either by allocating a portion of the investment of the new partner to the old partners. The capital accounts of the old partners
are credited for the premium according to their profit or loss ratio.
Illustration
Rebecca Miranda and Stephanie Calamba are partners with capital balances of P400,000 and P200,000, respectively. They
share profits in the ratio of 3:1. The partners agreed to admit Gualberto Magdaraog Jr., as a member of the firm. The foregoing
information will be the basis of the following cases.
Case 1. Total agreed capital is stated
• Assume that Gualberto Magdaraog Jr. invested P250,000 for ¼ interest in the business. The partners decided not to
revalue the assets of the partnership and that the total agreed capital is P850,000.
(1)
Cash 250,000
Gualberto Magdaraog Jr, Capital 250,000
(2)
Gualberto Magdaraog Jr., Capital 37,500
Rebecca Miranda, Capital 28,125
Stephanie Calamba, Capital 9,375
Case 2. Total agreed capital is not explicitly stated
• Assume that Gualberto Magdaraog Jr. invested P400,000 in the business. Out of the total cash invested P100,000 is
considered as a bonus to Partners Rebecca Miranda and Stephanie Calamba.
(1)
Cash 400,000
Gualberto Magdaraog Jr, Capital 400,000
(2)
Bonus to new partner
· A new partner may be admitted into the partnership because of his vast financial resources, extensive business network,
distinctive reputation, unique management and/or technical skills. The old partners may be willing to give a premium for all of
these exceptional qualifications by allowing a capital credit greater than the prospective partner’s investment just to ensure his
association with the partnership. This bonus will be treated as a bonus from the equities of the old partners and credited to the
new partner.
Case 1. Total agreed capital is stated
Assume that Gualberto Magdaraog Jr., invested P240,000 for a 1/3 interest in the business. The total agreed capital is
P840,000.
(1)
Cash 240,000
(2)
Gualberto Magdaraog JR., Capital 40,000
Case 2. Total agreed capital is not explicitly stated
Assume that Gualberto Magdaraog Jr., invested P300,000 for a 50% interest in the business. Rebecca Miranda and Stephanie
Calamba transferred part of their capital baance to that of Gualberto Magdaraog Jr. as a bonus.
(1)
Cash 300,000
(2)
Gualberto Magdaraog JR., Capital 150,000
Withdrawal or retirement of a partner
A partner may withdraw or retire from a partnership for various reasons. Disputes with other partners, old age, and pursuit for
better opportunities among the possible explanations. The withdrawal of a partner dissolves the old partnership. This type of
dissolution may be accomplished by either of the following ways:
a. By selling his equity interest to one or more of the remaining partners
b. By selling his equity interest to an outsider
c. By selling his equity interest to the partnership
Sale of interest to a partner or an outsider
• When a partner’s interest is sold to another partner or an outsider, the withdrawing partner is paid from the personal assets
of the buyer.
• Accounting for this sale is similar to admission by purchase of interest. The total assets of the partnership are not affected
by the consideration involved.
• The required entry will only be a debit to the seller’s capital account for his capital balance and a credit to the buyer’s
capital account for the same amount.
Sale of interest to the partnership
• When a withdrawing partner sells his interest to the partnership, the partner is paid from the assets of the partnership. He
may receive an amount equal to, greater than or less than the balance of his capital account. The effect of withdrawal is to
reduce the assets and owner’s equity of the partnership.
• The accounting issues to be encountered here will be similar to admission by investment of assets but in a reverse
manner.
• Instead of a new partner joining the partnership by investing assets into the partnership, an old partner is now leaving the
partnership with the business distributing assets to the withdrawing partner.
Illustration:
Suppose that Remedios Palaganas is retiring in midyear from the partnership of Selisana, Dela Cruz and Palaganas because of
family relocation. Physical distance will prevent her from coping with the daily rigors of their fashion and beauty consulting
business. After the books have been adjusted for the semi-annual profits but before revaluation, their capital balances are as
follows:
Jessica Selisana, Capital P540,000
Daisy Dela Cruz, Capital 430,000
Remedios Palaganas, Capital 210,000
An independent appraiser revalued their cosmetics inventory to P380,000 and their land to P1,010,000. the profit and loss ratio
of the partners is 1:2:1
The entries to record the revaluation of assets follow:
Jessica Selisana, Capital 15,000
Cosmetics Inventory 60,000
Land 460,000

After revaluation, the capital balances of the partners are shown below:
Cases: Withdrawal of a partner
Case 1: Withdrawal at book value
Assume that Remedios Palaganas, agreed to accept payment equal to her interest.
Cash 310,000
Case 2: Withdrawal at more than book value
Assume that Remedios Palaganas demanded a P400,000 settlement for her interest because she firmly believed that she has
contributed so much to the success of the business.
Cash 400,000
Case 3: Withdrawal at less than book value
Assume that Remedios Palaganas is very eager to retire and is willing to accept settlement at P280,000.
Cash 280,000
Death of a partner
• The death of a partner dissolves a partnership.
• When the death of a partner does not result to liquidation, the accounting procedures to be followed are similar in the
withdrawal of a partner.
• The deceased partner may be considered to have retired from the partnership and his heirs or estate can expect to receive
the amount of his interest from the business.
• If payment to the estate of the deceased cannot be made immediately, the balance in the capital account of the deceased
partner should be transferred to a liability account, payable to the estate
Incorporation of a partnership
• A partnership may decide to incorporate after evaluating the various advantages of having a corporate form of business
organization.
• After necessary adjusting and closing entries, the assets and liabilities of the partnership are transferred to the corporation
in exchange for shares of stock.
• The shares received by the partnership are distributed to the partners based on their equity interests.
• In the books of the corporation, the receipt of transferred assets ad liabilities will be recorded along with the issuance of
share capital to the incorporators, the “former” partners.
SPECTRANS Module 4 - PARTNERSHIP LIQUIDATION
3. Partnership Liquidation
Partnership Liquidation
The liquidation of a partnership is the winding up of its business activities characterized by sale of all non-cash assets,
settlement of liabilities and distribution of the remaining cash to the partners. The conversion of non-cash assets into cash is
referred to as realization. This may either result to gain or loss on realization and shall be divided in the profit or loss ratio of the
partners. A substantial loss on realization may yield for a partner a capital deficiency, which is the excess of a partner’s share in
losses over the partner’s capital credit balance. Partner’s interest is the sum of his capital and loan accounts in the partnership.
Rules in Settling Accounts After Dissolution
• Civil Code of the Philippines, Art. 1839
• Assets of the Partnership
The asset of the partnership consist of the following:
1. Partnership property
2. Additional contributions of the partners needed for the payment of all liabilities.
Order of Preference
The assets of a general partnership shall be applied in the following order:

1. First, those owing to outside creditors,
2. Second, those owing to inside creditors in the form of loans or advances for business expenses by the partners,
3. Third, those owing to the partners with respect to their capital contributions,
4. Lastly, those owing to the partners with respect to their share of the profits.
• Right of offset- legal right of a partner to apply part or all of his loan account balance against his capital deficiency resulting
from losses in the realization of the partnership assets.
• Insufficient Partnership Assets
in cases when the partnership assets are insufficient to settle all outside liabilities, the partners should make additional
contributions in the partnership. Any partner who contributed in excess of his share in this liability has a right to collect the
supposed additional contributions from the other partners.
Preference of Partnership Creditors and Partner’s Separate Creditors
· The creditors of the partnership shall have priority in payments over those of the partner’s separate creditors as regards
the partnership properties. On the other hand, the creditors of the partners are preferred with respect to the separate or personal
properties of the partners.
Distribution of separate properties of an Insolvent Partner
If a partner is insolvent, his personal properties shall be distributed as follows:
1. First, those owing to separate creditors,
2. Second, those owing to partnership creditors
3. Lastly, those owing to the partners by way of additional contributions when the assets of the partnership were insufficient
to settle all obligations.
Methods of Partnership Liquidation
1. Lump-sum method. Under this method, all non-cash assets are realized and the related gains or losses distributed and
all liabilities are paid before a single final cash distribution is made to the partners.
2. Installment Method. Under this method, the realization of non-cash assets is accomplished over an extended period of
time. When cash is available, creditors may be partially or fully paid. Any excess may be distributed to the partners in
accordance with a program of safe payments or a cash priority program. This process persists until all non-cash assets are sold.
Lump - Sum liquidation

Under this method, all non-cash assets are realized and all liabilities are settled before a single final cash distribution is made to
partners. The procedures below may be followed in lump-sum liquidation:
1. Realization of non-cash assets ad distribution of gain or loss on realization among the partners based on their profit or loss
ratio.
2. Payment of liabilities.
3. Elimination of partner’s capital deficiencies using one of the following methods, in the order of priority:
a. If the deficient partner has a loan balance, then exercise the right of offset
b. If the deficient partner is solvent, then he should invest cash to eliminate his deficiency
c. If the deficient partner is insolvent, then the other partners should absorb his deficiency.
4. Payments to partners, in the order of priority:
a. Loan accounts
b. Capital accounts
Installment liquidation
· Under this method, realization of non-cash assets is accomplished over an extended period of time. It is a process of
selling some assets, paying the creditors, paying the remaining cash to the partners, realizing additional assets and making
additional payments to the partners. The liquidation will continue until all non-cash assets have been realized and all available
cash distributed to partnership creditors and partners.
· Installment payments to partners are appropriate if necessary safeguards are used to ensure that all partnership creditors
are paid in full and that no partner is paid more than the amount to which he would be entitled after all losses on realization of
assets are known.
· The procedures below may be followed in installment liquidation:
a. Realization of non-cash assets and distribution of gain or loss on realization among the partners based on their profit or
loss ratio.
b. Payment of liquidation expenses and adjustment for unrecorded liabilities; both of these items will be distributed among
the partners in their profit or loss ratio
c. Payment of liabilities to outsiders
d. Distribution of available cash based on a schedule of safe payments which assumes possible losses due to inability of the
partnership to dispose of part or all the remaining non-cash assets and failure of the partners with capital deficiencies to make
additional contributions. Payments can also be made based on a cash priority program.
Illustration
Joel Feliciano, Evelyn Tria and Nick Marasigan are partners in a public relations firm and share profits and losses in the ratio of
2:2:1 respectively. They decided to liquidate their business on Dec. 31, 2020. the following is the condensed statement of
financial position prepared prior to liquidation:
Case 1: Loss on Realization fully absorbed by partner’s capital balances
Assume that the non-cash assets are sold at P2,500,000 with a resulting loss on realization of P900,000 which was distributed
in the ratio 4:4:2.
The entries are as follows:
a. Sale of non-cash assets and distribution of loss on realization
b. Payment of liabilities
c. Distribution of cash to partners
Case 2: Loss on Realization resulting to a capital deficiency with right of offset
Assume that the non-cash assets are sold at P1,850,000 with a resulting loss on realization of P1,550,000 which was distributed
in the ratio 4:4:2.
c. Exercise of the right of offset
d. Distribution of cash to partners
Case 3: Loss on Realization resulting to a capital deficiency to a personally solvent partner

in the ratio 4:4:2.
c. Exercise of the right of offset
d. Additional investment by deficient partner
e. Distribution of cash to partners
Case 4: Loss on Realization resulting to a capital deficiency to a personally insolvent partner
in the ratio 4:4:2. Evelyn Tria is insolvent.
c. Exercise of right of offset
d. Deficiency absorbed by solvent partners
e. Distribution of cash to partners
x
Case 5: Partnership insolvent but partners personally solvent
Assume that the non-cash assets are sold at P900,000 with a resulting loss on realization of P2,500,000 which was distributed
in the ratio 4:4:2. Evelyn Tria is insolvent.
The entries are as follows
c. Exercise of right of offset
d. Additional investment by partners
e. Full payment of liabilities
f. Distribution of cash to partners
SPECTRANS Module 5 - CORPORATE LIQUIDATION
3. Corporate Liquidation
Corporate Liquidation
A company may suffer from continued losses from operations, overextended credit to customers, poor management, or working
capital, failure to react to changes in economic conditions, inadequate financing, and a host of other reasons for not sustaining a
viable economic position. The most common reason why corporations liquidate is insolvency. A corporation is insolvent when its
total liabilities exceed its total assets, thereby resulting in financial difficulty in paying off debts.
Under the Insolvency Act of the Philippines, insolvency may be either:
a. Voluntary — the insolvent corporation voluntarily applies a petition to a court of law to be discharged from its liabilities; or
b. Involuntary — three or more creditors of the insolvent corporation file a petition to a court of law for the adjudicati0fl of the
corporation as insolvent.
Insolvency is different from illiquidity. Illiquidity is the inability to pay off debts because of a shortage in cash or Other liquid
assets, while insolvency is the total inability to pay off debts because of a lack of assets.
Among the possible recourse of an insolvent corporation are the following:
a. Liquidation
b. Reorganization
Corporate liquidation
Liquidation - is the termination of business operations or winding up of affairs. It is a process by which assets are into cash,
liabilities are settled, and any remaining distributed to the owners.
Measurement basis
The PFRSs are applicable only to "going concern" entities. Thus, the measurement bases prescribed in the PFRSs do not apply
to liquidating entities, For liquidating entities, the appropriate measurement bases are realizable value (estimated selling price
less disposal costs) for assets and expected net settlement the amount for liabilities.
Financial reports
Liquidating entities usually prepare the following financial reports:
1. Statement of affairs
2. Statement of realization and liquidation
Additional statements, such as note disclosures and summary of cash receipts and disbursements may also be prepared.
Statement of Affairs
A statement of affairs shows the financial position of a liquidating entity — the assets that are available for sale, the claims of
creditors to be settled and the claims of the owners. It is similar to a regular Statement of financial position or balance sheet,
except that assets are measured at realizable values (and liabilities at expected net settlement amounts), and the presentation
is different.
Assets in the statement of affairs are classified into the following:
1. Assets pledged to fully secured creditors- these are assets with realizable values equal to or greater than the
expected net settlement amounts of the related liabilities for which the assets have been pledged as security.
Example: Building with a realizable value of P1,000,000, pledged as security for a bank loan of P800,000. The bank (creditor) is
fully secured because it is guaranteed full payment for the loan. After the bank is paid, the P200,000 excess is available to
unsecured creditors.
2. Assets pledged to partially secured creditors — these are assets with realizable values less than the expected net
settlement amounts of the related liabilities for which the assets have been pledged as security.
Example: Equipment with a realizable value of P500,000 that secures a bank loan of P800,000. The bank is partially secured
because it is guaranteed only P500,000 out of the P800,000 loan balance. The deficiency on the loan payment must come from
the proceeds of other assets.
3. Free assets — these are assets that have not been pledged as security for liabilities. These also include
the excess of assets pledged to fully secured creditors over the related liabilities.
Example: Cash of P10,000 that can be used at the discretion of the entity. Another example is the “ P200,000 excess" in #1
above.
Liabilities in the statement of affairs are classified into the following:
1. Unsecured liabilities with priority — these are liabilities that although not secured by any asset, are mandated by law to be
paid first before other unsecured liabilities. Examples include payables for:
a. Administrative, expenses, e.g., filing fees, attorney's fees, referee's fees, trustee's fees, and other direct costs of the
insolvency proceedings
b. Unpaid employee salaries and other benefits
c. Taxes and assessments
2. Fully secured creditors — these are liabilities secured by assets with sufficient realizable values ( see discussion on Assets
pledge to fully secured creditors).
3. Partially secured creditors — these are liabilities secured by assets with insufficient realizable values (see discussion on
Assets pledged to partially secured creditors of the P800,000 loan, P500,00 is a secured .claim while P300,000 is an
unsecured).
4. Unsecured liabilities without priority - all other liabilities not classifiable under (1), (2) or (3) above.
Illustration
Illustration: Statement of affairs
ABC Co. has filed for voluntary insolvency and is going to liquidate. ABC's statement of financial position prior to the liquidation
process is shown below:
Additional information:
The following were determined before the start of the liquidation process:
a. Only 76% of the accounts receivable is collectible.
b. P10,000 interest is receivable on the note.
c. The inventory has an estimated selling price 420,000 of estimated costs to sell of P10,000.
d. The prepaid assets are non-refundable.
e. The land and building have fair values of P800,000, respectively, but ABC Co. at a package price of P2,600,000.
f. The equipment has an estimated net selling 200,000
g. Administrative expenses of P30,000 incurred in the liquidation process.
h. The accrued expenses include accrued salaries of P25,000
i. P15,000 interest is payable on the loan
j. All the other liabilities are stated at their expected net settlement amounts.
Requirements: Prepare the statement of affairs as of January q, 20x1.
Solution:
Step 1: Restate the assets and liabilities
Assets are restated to realizable values, and liabilities to expected net settle amounts. The difference represents the estimated
deficiency in the settlement to creditors and owners.
Book values Realizable values

Cash 40,000 40,000
Account receivable 220,000 167,200
Note receivable 100,000 100,000
Interest receivable - 10,000
Inventory 530,000 410,000
Prepaid assets 10,000 -
Land and building 2,500,000 2,600,000
Equipment, net 300,000 200,000
Total assets 3,700,000 3,527,200
Accrued expenses 221,000 221,000

Current tax payable 350,000 350,000
Account payable 1,000,000 1,000,000
Note payable 300,000 300,000
Loan payable 2,000,000 2,000,000
Interest payable - 15,000
Estimated admin, expenses - 30,000
3,871,000 3,916,000
Estimated Deficiency (bal. figure)
Capital deficiency (171,000) (388,800)

Total liabilities and equity 3,700,000 3,527,200
· The land and building are restated to realizable values rather than fair values. Fair value favors "going concern" while
realizable value normally reflects a price in a forced sale transaction, which is the case for a liquidating entity.
· The unrecorded assets and liabilities (i.e., interest receivable, Interest payable and estimated administrative expenses) are
recognized.
· The difference between the restated assets and liabilities represents the estimated deficiency in the settlement of
unsecured non-priority creditors. If a deficiency exists, the claims of unsecured creditors without priority will not be paid in full.
Step 2: identify the classification of the assets and liabilities
Assets
Assets pledged to fully secured Realizable Available for unsecured creditors

creditors:
value
Land and building 2,600,000
Less: Loan payable (2,000,000)
Interest payable (15,000) 585,000

Assets pledge to partially secured
creditors:
Equipment, net 200,000
Free assets
Cash 40,000
Accounts receivable 167,200
Note receivable 100,000
Interest receivable 10,000
Inventory 410,000
Prepaid assets - 727,200
Total free assets 1,312,200
LIABILITIES
Unsecured liabilities with priority Secured and priority claims Unsecured liab. without priority
Estimated admin. expenses 30,000
Accrued salaries 25,000
Current tax payable 350,000
Total unsecured liab. w/ priority 405,000
Fully secured creditors:
Loan payable 2,000,000
Interest payable 15,000
2,015,000
Partially secured creditors:
Note payable 300,000
Less: equipment (200,000) 100,000
Unsecured liabilities without priority:
Accrued expenses, net of accrued salaries 196,000

(221K-25K)
Account payable 1,000,000 1,196,000
Total unsecured liabilities without priority 1,296,000
Step 3: (Optional) Estimated recovery percentage
At this point, we can compute for the estimated recoveries of the creditors and owners. Since we have identified a deficiency in
Step 2, the unsecured creditors without priority will not be paid in full. The payments to them can be determined using the
estimated recovery percentage. The formula for this percentage is as follows:
Estimated recovery percentage of unsecured _____Net free assets_____
creditors without priority = Total Unsecured Liabilities Without Priority

Less: total unsecured liabilities with priority (405,000)
Net free assets 907,200
Divide by: Total unsecured liabilities without priorities 1,296,000
Estimated recovery percentage of unsecured 70%
creditors without priority
The estimated amounts to be recovered by each class of creditor are computed as follows:
Total Recovery Estimated
claims percentage recovery

Unsecured with priority 405,000 100% 405,000
Fully secured 2,015,000 100% 2,015,000
Partially secured 300,000 200k+(100Kx70%) 270,000
Unsecured without priority 1,196,000 70% 837,200
Shareholders None 0% -
Total assets at realizable 3,527,200
values
Notes:
The computation of the estimated recovery of the partially Secured creditors is elaborated below:
Partially secured creditors 300,000

Less: Realizable value of collateral security- equipment (200,000)
Unsecured portion of claim 100,000
Multiply by: estimated recovery percentage 70%
Total 70,000
And back: realizable value of collateral 200,000
Estimated recovery 270,000
In case of liquidation, all the creditors must be paid first before the owners. In this illustration, the unsecured creditors
without priority can only be paid partially; therefore, none will be paid to the shareholders.
Alternative solution: Estimated recovery
Total assets at realizable values 3,527,200

Less: unsecured creditors with priority (405,000)
Fully secured creditors (2,025,000)
Realizable value po assets pledge to partially secured
creditors
(200,000)
Unsecured creditors without priority 1,196,000
Deficiency of assets pledge to partially secured creditors (200K
equipment 300K note payable)
100,000
Total unsecured liabilities without priority 1,296,000
Estimated recovery percentage = (907,200/ 1,296,000)= 70 %
The formula for estimated recovery percentage is derived as follows: the proceeds from the sale of assets are used to
settle first all secured and priority claims any remaining amount (i,e, net free assets ) is use to pay unsecured non-
priority liabilities. That remaining amount divided by the unsecured non-priorities represent the estimated recovery
percentage. Sometimes, this estimated recovery is stated in peso ratio, e.g, 70% recovery means that for every peso
claim only 70 centavos will be paid.
Step 4: Statement of affairs
The statement of affairs is prepared as follow
ABC CO.
Statement of affairs as of January 1 20x1
Book values ASSETS Realizable values Available for unsecured

creditors
Assets pledge to fully secured creditors:
2,500,000 Land and building 2,600,000
Loan payable (2,000,000)
Interest payable (15,000) 585,000
Assets pledge to partially secured creditors:
300,000 Equipment, net 200,000
Note payable (300,000)

Free assets:
40,000 Cash 40,000

220,000 Accounts receivable 167,200
100,000 Note receivable 100,000
- Interest receivable 10,000
530,000 Inventory 410,000
10,000 Prepaid assets - 727,2000
Less: unsecured liab. w/ (405,000)
priority (see below)
Estimated deficiency 388,800
(squeeze) (1.296M-907.2K)
3,700,000 1,296,000
BOOK VALUES LIABILITIES AND EQUITY REALIZABLE VALUES UNSECURED NON-PRIORITY

LIABILITIES
Unsecured liabilities with priority:
- Administrative expenses 30,000

25,000 Accrued salaries 25,000
350,000 Current tax payable 350,000
Total 405,000
Fully secured creditors:
2,000,000 Loan payable 2,000,000

- Interest payable 15,000
Partially secured creditors:
300,000 Note payable 300,000

Equipment, net (200,000) 100,000
Unsecured creditors:
196,000 Accrued expenses, net of 196,000

Accrued salary
1,000,000 Account payable 1,000,000 1,196,000
Total unsecured creditors 1,296,000
(171,000) Shareholders’ equity
3,700,000 1,296,000
Statement of realization and liquidation
The liquidation process may take some time before it is completed. Therefore, there is a need to provide periodic
financial reports that show information on the progress of the liquidation process, most especially when the winding
up of affairs is entrusted to a receiver. These financial reports take the form of a statement of realization and
liquidation.
The statement of realization and liquidation is depicted like a T-account. This presentation originated in the U.S as a
legally oriented form.
Debits Credits
· Assets to be realized · Assets realized
· Assets acquired · Assets not realized
· Liabilities liquidated · Liabilities to be liquidated
· Liabilities not liquidated · Liabilities assumed
· Supplementary expenses · Supplementary income
· Assets to be realized — represents the total non-cash assets available for disposal as at the beginning of the
period. This is measured at book value (carrying amount).
· Assets acquired — represents previously unrecorded assets that were recognized during the period. Similar
terms are "additional assets" or "new assets."
· Assets realized represents the actual net proceeds from the conversion of non-cash assets into cash during the
period.
Assets not realized — the unsold non-cash assets as at the end of the period, measured at book value.
· Liabilities to be liquidated represents the total liabilities to be settled as at the beginning of the period. This is
measured at book value.
· Liabilities assumed represents previously unrecorded liabilities that were recognized during the period. Similar
terms are "additional liabilities" or "new liabilities."
· Liabilities liquidated — represents the actual net settlement amounts of liabilities paid during the period.
· Liabilities not liquidated — the unpaid liabilities as at the end of the period, measured at book value.
· Supplementary expenses / income income and expenses realized/incurred during the period.
Assets and liabilities transferred to the receiver/trustee are presented separately from newly acquired (assumed)
assets (liabilities) in order to highlight the receiver/trustee's accountability. Actual amounts received (paid) on the sale
of assets (settlement of liabilities) are also presented.
The assets and liabilities are measured at book values in order to highlight the actual gains or losses from sale of
assets and settlement of liabilities (i.e., actual receipt/payment less carrying amount of asset/liability equals gain or
loss).
Because the beginning and ending balances of the assets and liabilities and the additions there to are stated at book
values, while disposals and settlements are stated at actual amounts, the total debits and total credits in the T-account
will naturally not balance. The difference (balancing figure) represents the net gain or loss on the sale of assets and
settlement of liabilities during the period. This is similar to the procedure applied to an "income summary" account.
Illustration: Statement of realization and liquidation
ABC Co. is going to liquidate. A receiver/trustee will administer the liquidation. ABC's financial position on Jan. 1,
20x1, before the start of the liquidation process, is summarized below
Book value
Cash 40,000
Account receivable 220,000
Inventory 530,000
Prepaid assets 10,000
Land 500,000
Building, net 2,000,000
Equipment, net 300,000
Total assets 3,700,000
Accrued expenses 221,000
Accounts payable 1,000,000
Note payable (secured by equipment) 300,000
Loan payable (secured by land and buildings) 2,000,000
Total liabilities 3,871,000
Share capital 500,000
Retained earnings (deficit) (671,000)
Capital deficiency (171,000)
Total liabilities and equality 3,700,000
Additional information
a. P10,000 interest is receivable on the note and P15,000 interest is payable on the loan.
b. Administrative expenses of P30,000 are expected to be incurred in the liquidation process.
The entry in the books of the receiver to record the transfer of custody over the assets and liabilities of ABC Co. is as
follows:
Jan 1, Cash 40,000
20x1 Accounts receivable 220,000
Inventory 530,000
Land 500,000
Building 2,000,000
Equipment 300,000
Estate deficit (squeeze) 171,000
Accrued expenses 221,000
Accounts payable 1,000,000
Note payable 300,000
Notes:
· The receiver records the assets and liabilities at book values rather than realizable values and expected net
settlement amounts.
· The unrecorded interests are not included in the opening entry above. These are recorded separately and
identified as "new" assets and liabilities as follows:
Jan. 1,20x1 Interest receivable- new Estate deficit 10,000
10,000
Jan. 1,20x1 Estate deficit 15,000
Interest payable-new 15,000

· The estimated administrative expenses are not recorded. These are recorded only when actually paid.
· Actual liquidation costs and gains and losses are subsequently recorded directly to the "estate" account. If this
account has a debit balance, it is referred to as "estate deficit;" if credit balance, as "estate equity."
A statement of realization and liquidation shows information on the progress of the liquidation process. Accordingly, it
is prepared at the end of each period (contrast this to the statement of affairs).
The following transactions occurred during the period:
a. Only P165,000 were collected on the accounts receivable. The remainder was written-off.
b. The interest on the note was collected in full, but only 90%??} was collected on the principal. The remainder was
written-off'
c. Half of the inventory was sold for P300,000. Actual costs to sell were P5,000.
d. The prepaid assets were written-off.
e. The land and building were sold for
f. The equipment was sold for P220,000.
g. Of the total accrued expenses, only the accrued salaries of P25,000 were paid. The balance remains outstanding.
h. The current tax payable was paid in full.
i. The interest and the principal on the loan were paid in
j. The note payable was settled for P220,000. The lender canceled the balance.
k. Administrative expenses of P27,000 were paid.
Journal entries (books of the receiver):
a. Cash 165,000
Estate deficit 55,000
Accounts receivable 220,000

b. Cash [10K+(100K x 90%)] 100,000
Estate deficit
Interest receivable 100,00
10,000
c. Cash (300K sale price – 5K cost to sell) 295,000
Inventory (530K x 50%)

30,000
d. Estate deficit 10,000

e. Cash 2,600,000
Land 500,000
Building 2,000,000

f. Cash 220,000
Equipment 300,000
g. Accrued expenses 25,000
Cash 25,000
h. Current ta payable 350,000
Cash 350,000
i. Interest payable 15,000
Cash 2,015,000
j. Note payable 300,000
Cash 220,000

k. Estate deficit 27,000
Cash 27,000
The amounts to be presented in the statement of realization and liquidation are identified as follows:
· Assets to be realized are P3,660,000 the book value of non-cash assets transferred by ABC Co. to the receiver
(P3.7M total assets less P40,000 cash).
· Assets acquired are P10,000, the unrecorded interest receivable.
· Assets realized are equal to the actual net proceeds from the conversation of the non- cash assets into cash
, 165,000
100,000
295,000
2,600,000
220,000
3,380,000
· Assets not realized are P265,000, the book value of the unsold inventory (P530,OOO x 50%).
· Liabilities to be liquidated are P3,871,000, the book value of the liabilities transferred by ABC Co. to the receiver.
· Liabilities assumed are P15,000, the unrecorded interest payable.
· Liabilities liquidated are equal to the actual payments on the' liabilities:
e. Payment for accrued salaries 25,000
f. Payment for current tax payable 350,000
g. Payment for interest and loan 2,015,000
h. Payment for note payable 220,000
Liabilities liquidated 2,610,000
· Liabilities to be liquidated is equal to the book value of the unpaid liabilities:
Accrued expenses (221K – 25K accrued salaries) 196,000
Account payable
Liabilities to be liquidated 1,000,000
1,196,000
· Supplementary expenses is P27,000 the administrative expenses paid during the period .
· There is no supplementary income during the period.
· The net gain (loss) during the period computed as follows:
· The statement of realization and liquidation is prepared as follows:
· Additional Analyses and Reconciliations
Breakdown of net gain using separate T-accounts
(a) Excess of total debits (book value) over total credits (net proceeds)
(b) Excess of total credits (book value) over total debits (amount paid)
x
Net Loss on Sale of Assets (25,000)

Net Gain on Settlement of Liabilities 80,000
Net Expenses (27,000)
Net Gain During the Period 28,000
Breakdown of net gain on a per account basis:
Ending Balance of Cash
Ending Balance of Estate Equity (Deficit)
Additional illustrations:
The succeeding illustrations aim to provide the serious student additional learning materials on the accounting for
corporate liquidation. If you are not that type of student, you are still welcome to study these illustrations.
Illustration 1: Recovery of claims by order of priority
ABC Co.'s statement of affairs indicates that unsecured creditors without priority with total claims of P180,000 can
expect to recover P72,000 if all the assets were sold. Among the creditors of ABC Co. are the following:
· Government: taxes payable of P100,000, inclusive of P20,000assessments and surcharges.
· XYZ bank: loan payable of P1,000,000 and accrued interest of P50,000, backed by collateral security with
realizable value of P1,200,000.
· Alpha Financing Co.: loan payable of P800,000 backed collateral security with realizable value of P500,000.
· Mr. Bombay: loan payable of P250,000 and accrued interest P50,000. No collateral security.
Requirements: how much is the expected recovery of each of the creditors listed above?
Solution:
Claim Recovery percentage Estimated recovery

· Government – unsecured liability with
priority
100,000 100% 100,000
· XYZ Bank – fully secured 1,050,000 100% 1,050,000
· Alpha financing co. – partially secured

creditors
500K+(300K x 40%)
· Mr. Bombay – unsecured liability without
priority 800,000 620,000
40%
300,000 120,000
v (estimated recovery percentage= 72,000 / 180,000 = 40%)
Illustration 2: Recovery of claims
ABC Co. is undergoing liquidation. Information on ABC Co.’s assets and liabilities is shown below:
ASSETS Book value Realizable value

Assets pledge fully secured creditors 90,000 120,000
Assets pledge to partially secured creditors 52,000 48,000
Free assets 150,000 144,000
292,000 312,000
LIABILITIES
Unsecured liabilities with priority 72,000 72,000
Fully secured creditors 96,000 96,000
Partially secured creditors 60,000 60,000
Unsecured creditors without priority 108,000 108,000
336,000 336,000
Requirements:
a. If the assets are sold at realizable values, how much cash is available to pay unsecured creditors without
priority?
b. What is the estimated recovery percentage of unsecured creditors without priority?
c. How much is the total estimated deficiency to unsecured creditors?
d. How much can each class of creditors expect to recover from their respective claims?
Requirement (a): Cash available to unsecured creditors without priority
Total assets at realizable values 312,000

Less: Unsecured creditors with priority (72,000)
Fully secured creditors (96,000)
Realizable value of assets pledge to partially secured

creditors
(48,000)
Requirement (b): Estimated Recovery Percentage
Estimated Recovery Percentage of Unsecured Creditors without priority= Net free Assets /Total Unsecured Liabilities
Without Priority
Unsecured creditors without priority 108,000
Deficiency of assets pledge to partially secured creditors
(60K-48K) 12,000
Total unsecured liabilities without priority 120,000
Estimates recovery percentage = 96,000 (see previous computation)/ 120,000 =80%
Requirement (C): Estimated deficiency to unsecured creditors
Less: Total unsecured liabilities without priority (120,000)
Estimated deficiency (24,000)
Or
Total assets at realizable value 312,000
Less: total liabilities at realizable value (336,000)

Or
Total unsecured liabilities without priority 120,000
Multiply by: (80% recovery – 100% claim) -20%

Requirement (d): Recovery by each class of creditors
Claim Recovery percentage Estimated recovery

Unsecured liability with priority 72,000 100% 72,000
Fully secured creditors 96,000 100% 96,000
Partially secured creditors 60,000 48K + (12K x 80%) 57,600
Unsecured liability without 108,000 80% 86,400

priority
Total 312,000
To check the accuracy of our answer, notice that the total estimated recovery of P312,000 is equal to the total assets
at realizable value of P312,000.
Illustration 3: Recovery percentage of shareholders
Information on ABC Co.’s liquidation is a follows
Gain on realization of assets 180,000

Losses on realization of assets 350,00
Additional assets realized during liquidation 50,000
Additional liabilities settled during liquidation 30,000
Share capital (at original book value) 700,000
Retained earnings – (deficit) (at original book value) 300,000
Requirements: compute for the recovery percentage of the shareholders based on the book value of shareholders’
equity.
Solution :
We need to reconstruct information on assets and liabilities using the basic accounting equation:
Assets minus Liabilities (at book value) = Equity (at book value)
400,000 (squeeze) = 400,000(700K-300K) (start)
The recovery percentage of shareholders is computed as follows:
Assets less liabilities at book value 400,000

Gains on realization of assets 180,000
Losses on realization of assets (320,000)
Additional assets realized during liquidation 50,000
Additional liabilities settled during liquidation (300,000)
Net assets available to shareholders 280,000
Divide by: Book value of shareholders’ equity 400,000
Recovery percentage of shareholders 70%
Illustration 4; Recovery of shareholders' claims
ABC Co. owns 80% of XYZ, Inc., a liquidating entity. ABC has an unsecured receivable of P1,000,000 from XYZ, and an
investment (in subsidiary) of P5,000,000 XYZ's statement of affairs shows 100% recovery for outside creditors and
20% recovery for inside creditors.
Requirements:
a. How much can ABC expect to recover from its receivable?
b. How much can ABC expect to recover from its investment?
Solutions:
Requirement (a): Inter-company receivable
Answer: P200 000 (1M x 20% recovery of inside creditors)
Requirement (b): Investment in subsidiary
Answer: None — Since 'inside' liabilities are not paid in full, none is paid for the owners' equity claims.
Illustration 5: Errors
ABC Co. has voluntarily filed a petition for bankruptcy. ABCs inexperienced accountant determined that the expected
recover percentage of unsecured creditors without priority is 20%. The unsecured creditors have refuted this and
demanded an audit of the accountant's computations. The following information was determined from the accountant's
working papers:
· Assets and liabilities before the start of liquidation process:
Total assets – at book value 2,000,000

Unsecured creditors with priority 260,000
Fully secured creditors 900,000
Partially secured creditors 520,000
· During the period, assets with total book value of P1,000,000 were sold for P940,000. A portion of the proceeds
were use to settle 'fully secured liabilities' of P540,000 and 'partially secured liabilities' of P370,000.
· The remaining unsold assets have the following realizable values:
Assets pledged to fully secured creditors 320,000

Assets pledged to partially secured creditors 140,000
All other assets 515,000
· Further investigations revealed the following:
a. Estimated liquidation expenses amounting to P40,000 were not yet recorded.
b. Additional unsecured liability without priority of P50,000 should be accrued.
Requirement: Compute for the correct estimated recovery percentage of unsecured creditors without priority.
Solution:
ERROR: The liabilities described in the accountant's working papers as fully secured are actually only
"partially secured (also, the related assets are pledged to partially secured creditors, not to fully secured creditors) as
shown in the computations below:
Liabilities RV of assets Unsecured portion

“fully” secured 360,000 320,000 40,000
(900K-50K payment)
Partially secured 150,000 140,000 10,000
(520K-370K payment)
Total deficiency of pledge assets 50,000
The net free assets are computed as follows:
Amount realized from sale to assets 940,000

Amount paid out of the proceeds (540K+370K) (910,000)
Realizable val. Of remaining assets (320K+140K+515K) 975,000

TOTAL ASSETS AT REALIZABLE VALUES
1,005,000
Less: partially secured creditors:
Erroneous ‘fully’ secured cr. (R.V. of collateral)(a) (320,000)
R.V. of collateral to partially secured creditors (140,000) (460,000)
Total free assets 545,000
Less: Unsecured creditors w/priority (260K+ 40K liq. Exp.) 300,000

The total unsecured liabilities without priority are computed as follows:
Unsecured creditors without priority (440K + 50K additional) 490,000
Total deficiency of pledge assets (see computation above)
50,000
Total unsecured liabilities 540,000
Estimated Recovery Percentage of Unsecured Creditors without priority= Net free Assets /Total Unsecured Liabilities
Without Priority
=(245,000/540,000)= 45.37%
Alternative solution:
Proceeds from sale of some assets 940,000

Assets pledge to fully secured creditors 320,000
Assets pledge to partially secured creditors 140,000
All other assets 515,000
Total assets at realizable value (before payment of liabilities) 1,915,000
Unsecured creditors with priority 260,000
Fully secured creditors (before partial payment) 900,000
Partially secured creditors (before partial payment) 520,000
Additional liabilities (40K+50K) 90,000
Total liabilities 2,210,000
Deficiency to unsecured creditors w/o priority 295,000
Deficiency to unsecured creditors w/o priority (295,000)

Divide by: Unsecured liabilities w/o priority (see above) 540,000
Non-recoverable portion of unsecured liab. w/o priority -54.63%
100%-54.63%=45.37% estimated recovery percentage
Illustration 6: Receivership – journal entry
ABC Co.’s liquidation is entrusted to a receiver. Relevant information follows.
Book value Realizable value

Asset 300,000 250,00
Liabilities :
Unsecured liabilities with priority 20,000 20,000
Fully secured creditors 120,000 120,000
Partially secured creditors 40,000 40,000
Unsecured liabilities with outpriority 140,000 140,000
320,000 320,000
Unrecord items
Dividend receivable 5,000
Interest payable 2,000
Estimated administrative expenses 10,000
Requirements:
a. How much is the estate equity (deficit) in the opening journal entry in the receiver's books?
b. How much is the estimated deficiency to unsecured creditors without priority in the statement of affairs?
Solution
Date Various assets (at book value) 300,000
Estate deficit (squeeze) 20,000
Various liabilities (at book value) 320,000

Recall that under receivership accounting: assets and liabilities are recorded at book values, new assets and liabilities
are recorded separately, and administrative expenses are recognized only when actually paid.
Requirement (b): Estimated deficiency to unsecured creditors
Total assets at realizable value (250K +5K dividend receivable) 255,000

Total liabilities (320K +2K int. payable + 10K estimated adm. exp.) (332,00)
Estimated deficiency to unsecured cr. Without priority (77,000)
Illustration 7: Statement of realization and liquidation
ABC Co.’s statement of realization and liquidation shows the following:
Assets
Assets to be realized DR 2,000,000

Assets acquired DR 15,000
Assets realized CR 1,180,000
Assets not realizedCR 220,000
Liabilities
Liabilities liquidated DR 2,130,000

Liabilities not liquidatedDR 1,190,000
Liabilities to be liquidated CR 2,870,000
Liabilities assumed CR 32,000
Supplementary items
Supplementary expensesDR 25,000
Supplementary income CR 18,000
Requirements:
1. How much is the net gain (loss) for the period?
2. if the estate deficit at end of the period is P870,000, how much is the ending balance of cash?
Requirement 1- Net gain (loss for the period)
Requirement 2- Ending Balance of Cash
Reorganization
Reorganization
Reorganization, in its broadest sense, means the implementation of a business plan to restructure or rehabilitate a
corporation with the hopes of increasing company value. In most cases, reorganization involves changing the entity's
capital structure.
There are various ways on how corporate reorganization is carried out, and various reasons why corporations undergo
reorganization. Insolvency is only one of those many reasons. Examples of situations where corporate reorganization
may occur:
a. Buyouts and takeovers, or threats thereof
b. Business combinations, reverse acquisitions, sale or transfer of subsidiaries, and demergers
c. c. Formation of new holding company, e.g., when the new holding company is a vehicle for enlisting shares in a
stock market while the business remains with the subsidiaries
d. Recapitalization
e. An insolvent corporation enters into a corporate rehabilitation program
Types of corporate reorganization
The following are some of the types of corporate reorganization:
a. Group reorganization - ownership within a group of companies changes due to new acquisitions, formation of
new holding company, buyouts, takeovers, reverse acquisitions, disposal of subsidiaries, demergers, and other forms
of changes in ownership.
b. Recapitalization- refers to the change in capital structure through the replacement of old shares with new shares,
e.g.,
(a) change from par to no-par, or vice-versa, (b) decrease in par or stated value; and (c) share split.
c. Quasi-reorganization — an accounting procedure where by a financially troubled corporation revalues its assets
and liabilities and realigns its equity, subject to the provisions of relevant regulations, in order to establish a "fresh
start" in accounting sense.
d. Corporate rehabilitation — a process where by a financially troubled corporation is administered by another party
in order to try to bring back the corporation to its former financialcondition. In the Philippines, corporate rehabilitations are governed under R.A.
No. 10142 a.k.a “Financial Rehabilitation and Insolvency (FRIA) OF 2010
e. Troubled debt restructuring — involves the settlement of obligation at other than the originally agreed method of settlement. It is an instance whereby the creditor, for economic
or legal reasons related to the debtor's financial difficulties grants the debtor concession that would not otherwise be granted in a normal business relationship.

SPECTRANS Module 3 - PARTNERSHIP CHANGES

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SPECTRANS Module 3 - PARTNERSHIP CHANGES

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SPECTRANS Module 3 - PARTNERSHIP DISSOLUTION / CHANGES IN OWNERSHIP INTEREST

2. Withdrawal or retirement of a partner

A person may become a partner in an existing partnership be either of the following:

1. Purchase of an interest from one or more of the existing partners.

2. Investment of assets in the partnership by new partner.

Purchase of an Interest from Existing Partners

· Purchase may be:

a. Payment to old partners is equal to interest purchased.

b. Payment to old partners is less than the interest purchased.

c. Payment to old partners is more than the interest purchased.

Case 1. Payment to old partners is equal to interest purchased

Elizabeth Salvador, Capital 100,000

Reynaldo San Mateo, Capital 50,000

Janet Matuguinas, Capital 150,000

Case 2. Payment to old partners is less than the interest purchased

Elizabeth Salvador, Capital 133,333

Reynaldo San Mateo, Capital 66,667

Janet Matuguinas, Capital 200,000

Elizabeth Salvador, Capital 133,333

Reynaldo San Mateo, Capital 66,667

Janet Matuguinas, Capital 200,000

Investment of Assets in a Partnership

Bonus to old partners

Gualberto Magdaraog Jr, Capital 250,000

Gualberto Magdaraog Jr., Capital 37,500

Rebecca Miranda, Capital 28,125

Stephanie Calamba, Capital 9,375

Case 2. Total agreed capital is not explicitly stated

Gualberto Magdaraog Jr, Capital 400,000

Gualberto Magdaraog Jr., Capital 100,000

Rebecca Miranda, Capital 75,000

Stephanie Calamba, Capital 25,000

Bonus to new partner

Case 1. Total agreed capital is stated

Gualberto Magdaraog Jr., Capital 240,000

Rebecca Miranda, Capital 30,000

Stephanie Calamba, Capital 10,000

Gualberto Magdaraog JR., Capital 40,000

Case 2. Total agreed capital is not explicitly stated

Gualberto Magdaraog Jr., Capital 300,000

Rebecca Miranda, Capital 112,500

Stephanie Calamba, Capital 37,500

Gualberto Magdaraog JR., Capital 150,000

Withdrawal or retirement of a partner

a. By selling his equity interest to one or more of the remaining partners

b. By selling his equity interest to an outsider

c. By selling his equity interest to the partnership

Sale of interest to a partner or an outsider

Sale of interest to the partnership

Jessica Selisana, Capital P540,000

Daisy Dela Cruz, Capital 430,000

Remedios Palaganas, Capital 210,000

The entries to record the revaluation of assets follow:

Jessica Selisana, Capital 15,000

Daisy Dela Cruz, Capital 30,000

Remedios Palaganas, Capital 15,000

Cosmetics Inventory 60,000

Jessica Selisana, Capital 115,000

Daisy Dela Cruz, Capital 230,000

Jessica Selisana, Capital 640,000

Daisy Dela Cruz, Capital 630,000

Remedios Palaganas, Capital 310,000