Professional Documents
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PARTNERSHIP FORMATION
I
On April 1, 2002, AA and BB formed a partnership with each contributing assets at fair market values:
Cash………………………………………………. 20,000 40,000.
Machinery and equipment………………………… 30,000
Land………………………………………………. 200,000
Building…………………………………………… 60,000
Office furniture…………………………………… 30,000
The land and building are subject to a mortgage loan of P 120,000 that partnership will assume. The partnership agreement
provides that AA and BB share profits and losses 3:2 respectively and partners agreed to bring their capital balances in proportion
to the profit and loss ratio and using the capital balance of BB as the basis.
Deterimine the : (1) capital account balance of BB on April 1, 2002, and (2) the additional cash investment made by AA.
II
CC and DD enter into a partnership agreement in which CC is to have a 60% interest in capital and profits and DD is to have a
40% interest in capital and profits. CC contribute the following
Cost Fair Value
Land………………………………………….. P 20,000 P 40,000
Building………………………………………. 200,000 120,000
Equipment……………………………………. 40,000 30,000
There is a P 60,000 mortgage on the building that the partnership agrees to assume. DD contributes P 100,000 cash to the
partnership CC and DD agree that DD’s capital accounts should equal DD’s P 100,000 cash contribution and that revaluation to
Bldg should be recorded.
III
EE and FF are joining their separate business to form a partnership. Cash and noncash assets are to be contributed for a total
capital of P 800,000. The non cash assets to be contributed and liabilities to be assumed are
EE FF
Book value Fair value Book value Fair value
Accounts receivable 60,000 60,000
Inventories 60,000 90,000 160,000 180,000
Equipment 100,000 80,000 180,000 190,000
Accounts payable 30,000 30,000 20,000 20,000
The partner’s capital accounts are to be equal after all contributions of assets and assumptions of liabilities
Determine the: (1) amount of cash that each partner must contribute, and (2) total assets of the partnership.