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Chapter 2
Partnership Operations

NAME: Date:
Professor: Section: Score:

QUIZ:
1. A and B formed a partnership on March 1, 20x1. The partnership agreement stipulates the
following:
 Monthly salary allowances of ₱10,000 for A and ₱6,000 for B. Salary allowances are to be
withdrawn by the partners throughout the period and are to be debited to their respective
drawings accounts.
 The partners share profits equally and losses on a 60:40 ratio.

During the period the partnership earned profit of ₱100,000 before salary allowances. How much is
the share of Partner B in the partnership profit?
a. 64,000
b. 60,000
c. 36,000
d. 0

2. The partnership agreement of A and B states the following:

 Monthly salary of ₱10,000 for A.
 20% bonus to A, before deductions for salary, interest, and bonus.
 10% interest on the weighted average capital of B.
 Balance is shared equally.

B’s weighted average capital balance is ₱200,000. The partnership reported profit of ₱60,000 for the
year, net of salaries, bonus and interest. How much is the share of B in the profit?
a. 50,000
b. 151,300
c. 48,700
d. 200,000

3. Mr. A, a partner in ABC Co., is deciding on whether to accept a salary of ₱8,000 or a salary of
₱5,000 plus a bonus of 10% of profit. The bonus shall be computed on profit before salaries and
bonus. Salaries of the other partners amount to ₱20,000. What amount of profit would be
necessary so that Mr. A would be indifferent between the choices?
a. 30,000
b. 33,000
c. 48,000
d. 58,000

4. A and B formed a partnership. The partnership agreement stipulates the following:

 Monthly salaries of ₱6,000 for A and ₱2,000 for B.
 20% bonus to A, after deductions for salary, interest, and bonus.
 10% interest on the weighted average capital of B.
 Any remaining amount is shared equally.
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The partnership’s records show the following:

Revenues 150,000
Expenses (including salary, interest, and bonus) (120,000)
Profit 30,000

The movements in B’s capital account are as follows:

B, Capital
60,000 beg.
Aug. 1 withdrawal 30,000 20,000 Mar. 31 additional investment
40,000 Oct. 1 additional investment
10,000 Dec. 31 additional investment
end. 100,000

How much is the share of B in the partnership profit?

a. 93,000
b. 52,250
c. 46,250
d. 45,000

5. The partnership agreement of partners A, B and C stipulates the following:

 A shall receive a salary of ₱40,000.
 Interest of 10% shall be computed on the partners’ capital contributions of ₱40,000, ₱100,000 and
₱200,000.
 Balance is divided among the partners on a 2:3:5 ratio. However, C is guaranteed a minimum
share of ₱40,000, inclusive of interest, if the partnership earns profit.

How much is the minimum level of profit necessary so that A shall receive a total of ₱50,000,
inclusive of salary, interest and share in remaining profit, and C shall also receive his guaranteed
minimum share?
a. 109,000
b. 110,000
c. 112,000
d. 120,000

6. The partnership agreement of AAA, BBB and CCC provides for the year-end allocation of net
income in the following order:
 First, AAA is to receive 10% of net income up to ₱100,000 and 20% over ₱100,000
 Second, BBB and CCC each are to receive 5% of the remaining income over ₱150,000
 The balance of income is to be allocated equally among the three partners

The partnership’s 2009 net income was ₱250,000 before any allocations to partners. What
amount should be allocated to BBB?
a. 71,000
b. 68,000
c. 108,000
d. 110,000

7. A, B, and C’s partnership agreement requires the partners to maintain average investments
₱2,500,000, ₱1,250,000, and ₱1,250,000, respectively. Six percent (6%) interest per annum is to be
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computed on any excess or deficiency in the contributions. After the interest allowances, any
remaining profit or loss is shared in the ratio of 5:3:2. Average amounts invested during the first
six months were as follows: A, ₱3,000,000; B, ₱1,375,000; and C, ₱1,000,000. Loss of ₱62,500 was
incurred for the first six months. How is the loss distributed among the partners?
A B C
a. 12,500 10,000 49,500
b. 18,375 21,875 22,250
c. 21,875 18,375 22,250
d. 31,250 18,750 12,500

8. A has a 25% participation in the profits of a partnership. During the year, A’s capital account has
a net decrease of ₱40,000. A made contributions of ₱160,000 and capital withdrawals of ₱240,000
during the year. How much profit did the partnership earned during the year?
a. 120,000
b. 560,000
c. 480,000
d. 160,000

9. The ABC Co., on which A, B and C are partners, reported profit of ₱360,000 during the year. If
partners A, B and C have a profit sharing agreement of 2:3:4, respectively, how much is the share
of A in the profit?
a. 60,000
b. 72,000
c. 80,000
d. 84,000

10. AB Partnership was formed on February 28, 20x1. Partner A invested ₱150,000 cash while
Partner B invested land that he originally bought for ₱70,000 but has a current fair value of
₱180,000. Because of cash shortage, B invested additional cash of ₱60,000 on November 1, 20x1.
The partnership contract states the following:
A B
 Monthly salary (recognized as expenses 10,000 20,000
and withdrawn periodically)
 Interest on beginning capital 12% p.a. 12% p.a.
 Bonus on profit before salaries 20%
and interest but after bonus
 Remaining profit or loss 50% 50%

AB Partnership earned profit of ₱120,000 in 20x1 before deducting the bonus and interests. What is
the capital balance of A on December 31, 20x1?
a. 243,500
b. 226,500
c. 193,500
d. 266,500

“Do not be anxious about anything, but in everything by prayer and supplication with thanksgiving let your requests be made
known to God. And the peace of God, which surpasses all understanding, will guard your hearts and your minds in Christ Jesus.”
(Philippians 4:6-7)
- END -
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SOLUTIONS:
1. C
Solution:
A B Total
Amount being allocated 100,000
Allocation:
1. Salaries (10K x 10 mos.); (6K x 10 mos.) 100,000 60,000 160,000
2. Allocation of remaining loss
(100K profit – 160K salaries) = -60K
(-60K x 60%); (-60K x 40%) (36,000) (24,000) (60,000)
As allocated 64,000 36,000 100,000

2. A
Solution:
A B Total
Amount being allocated 250,000(b)
Allocation:
1. Salaries (10,000 x 12 mos.) 120,000 - 120,000
2. Interest on capital (200K x 10%) - 20,000 20,000
3. Bonus (a) 50,000 - 50,000
4. Allocation of remainder
(250K – 120K - 20K – 50K) = 60K;
30,000 30,000 60,000
(60K x 50%); (60K x 50%)
As allocated 200,000 50,000 250,000

Profit (given) 60,000

Add back: Annual salary (10,000 x 12 mos.) 120,000
Add back: Interest on capital (200K x 10%) 20,000
Profit before annual salary and interest but after
bonus 200,000

Profit before salary and interest but after bonus 200,000

Divide by: (100% less 20% bonus rate) 80%
(b)
Profit before salary, interest and bonus 250,000
Multiply by: Bonus rate 20%
(a)
Bonus (bonus before bonus scheme) 50,000

3. A
Solution:
Let: X = profit before salaries and bonus
10%X = bonus before bonus

Choice #1 Choice #2
8,000 salary = 5,000 salary + 10%X

X is computed from the equation above:

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8,000 = 5,000 + 10%X

10%X = 8,000 – 5,000
X = 3,000 / 10%
X = 30,000

4. C
Solution:
Profit (given) 30,000
Add back: Annual salaries (6,000 x 12) + (2,000 x 12) 96,000
Add back: Interest on B’s capital * 7,250
Add back: Bonus to A (30,000 x 20%) 6,000
Profit before salaries, interest and bonus 139,250

*The interest on B’s Capital is computed as follows:

Months outstanding ÷ Weighted
Balances Total months in a year average
Beg. Balance 60,000 12/12 60,000
April 1 additional investment 20,000 9/12 15,000
July 31 withdrawal (30,000) 5/12 (12,500)
Sept. 30 additional investment 40,000 3/12 10,000
Dec. 31 additional investment 10,000 0/12 -
Weighted average capital balance 72,500
Multiply by: 10%
Interest on capital 7,250

A B Total
Amount being allocated 139,250
Allocation:
1. Salaries (6,000 x 12) + (2,000 x 12) 72,000 24,000 96,000
2. Interest on weighted ave. capital
- 7,250 7,250
balance
3. Bonus 6,000 - 6,000
4. Allocation of remaining loss
(139,250 – 96K – 7,250 – 6,000)
15,000 15,000 30,000
= 30,000 (x 50% & 50%)
As allocated 93,000 46,250 139,350

5. A
Solution:
First step: Allocate the fixed amounts of salaries and interests to the partners.
A (20%) B (30%) C (50%) Total
Salaries 40,000 40,000
Interest 4,000 10,000 20,000 34,000

Second step: Reconstruct the profit sharing column of partner A to his needed share of ₱50,000.

A (20%)
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Salaries 40,000
Interest 4,000
Allocation of balance 6,000 (squeeze)
As allocated 50,000

The total amount of remaining profit for allocation to the partners is computed as follows:
Allocation to A (from above) 6,000
Divide by: A's P/L ratio 20%
Total amount for allocation 30,000

Third step: Allocate the computed remaining profit for allocation to partners.
A (20%) B (30%) C (50%) Total
Salaries 40,000 40,000
Interest 4,000 10,000 20,000 34,000
Allocation of balance 6,000 9,000 15,000 30,000
As allocated 50,000 19,000 35,000 104,000

Fourth step: Adjust the share of C to the guaranteed minimum amount of ₱40,000.
A (20%) B (30%) C (50%) Total
Salaries 40,000 40,000
Interest 4,000 10,000 20,000 34,000
Allocation of balance 6,000 9,000 15,000 30,000
Additional profit
5,000 5,000
(squeeze)
As allocated 50,000 19,000 40,000 109,000

Answer: From the table above, the partnership needs to earn profit of ₧109,000 so that A shall receive a
total share of ₧50,000 while C shall also receive his guaranteed minimum share of ₧40,000.

6. A
Solution:
AAA BBB CCC Total
Amount being allocated 250,000
Allocation:
1. Bonus to AAA
First 100K (100K x 10%) 10,000 10,000
Over 100K [(250K - 100K) x 20%] 30,000 30,000
2. Bonus to BBB and CCC
(250K - 10K - 30K - 150K) x 5% 3,000 3,000 6,000
3. Allocation of bal. (204K / 3) 68,000 68,000 68,000 204,000
As allocated 108,000 71,000 71,000 250,000

7. C
A B C
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Actual average balance 3,000,000 1,375,000 1,000,000

Capital balance to be maintained 2,500,000 1,250,000 1,250,000
Excess (Deficiency) 500,000 125,000 (250,000)
Multiply by: Interest rate 6% 6% 6%
Multiply by: Months outstanding 6/12 6/12 6/12
Interest to (from) 15,000 3,750 (7,500)

A B C Total
Amount being allocated (62,500)
Allocation:
1. Interest to (from) 15,000 3,750 (7,500) 11,250
2. Allocation of bal.
(-62.5K -11.25K) = -73.75K
(36,875) (22,125) (14,750) (73,750)
-73.75K x 50%; 30% & 20%
As allocated (21,875) (18,375) (22,250) (62,500)

8. D
Solution:
A, Capital
40,000 beg.
Withdrawal
s 240,000 160,000 Additional investment
40,000 Share in profit (squeeze)
end. -

A's share in profit 40,000

Divide by: A's P/L ratio 25%
Partnership's profit 160,000

9. C (360,000 x 2/9) = 80,000

10. A
Solution:
Profit (after deduction of monthly salaries) 120,000
Add back: Monthly salaries recognized as expenses
(10K x 10 mos.) + (20K x 10mos.) 300,000
Profit before salaries (Amount to be allocated) 420,000

The profit before salaries, interest and bonus is allocated as follows:

A B Total
Amount being allocated (see computation above) 420,000
Allocation:
1. Salaries 100,000 200,000 300,000
a
2. Bonus 70,000 - 70,000
3. Interests (150K x 12% x 10/12);
15,000 18,000 33,000
(180K x 12% x 10/12)
4. Alloc. of remaining profit
(420K - 300K - 70K - 33K) ÷ 2 8,500 8,500 17,000
As allocated 193,500 226,500 420,000
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a
The “bonus after bonus” is computed as follows:
P
B = P -
1 + Br
420,000
B = 420,000 -
1 + 20%
B = 420,000 - 350,000
B = 70,000

The ending balances of the partners’ respective capital accounts are computed as follows:
A B
Capital, beg. 150,000 180,000
Additional investment - 60,000
Share in profit 193,500 226,500
Drawings (monthly salaries) (100,000) (200,000)
Capital, end. 243,500 266,500