PROBLEM 5: CLASSROOM ACTIVITY

REQUIREMENTS A:
PARTNER 1 PARTNER 2 TOTALS
CASH 281,250 1,800,000 2,081,250
ACCOUNTS RECEIVABLES 430,000 800,000 1,230,000
LAND 1,500,000 1,500,000
BUILDING 1,400,000 1,400,000
TOTAL ASSETS 3,611,250 2,600,000 6,211,250
ACCOUNTS PAYABLE 330,000 400,000 730,000
NOTES PAYABLE 375,657 375,657
PROVISION FOR PROBABLE LOSS 300,000 300,000
REAL PROPERTY TAX PAYABLE 40,000 40,000
TOTAL LIABILITIES 670,000 775,657 1,445,657
ADJUSTED CAPITAL BALANCES 2,941,250 1,824,343 4,765,593

REQUIREMENTS B:
CASH 2,081,250
ACCOUNTS RECEIVABLE 1,230,000
LAND 1,500,000
BUILDING 1,400,000
ACCOUNTS PAYABLE 730,000
NOTES PAYABLE 375,657
PROVISION FOR PROBABLE LOSS 300,000
REAL PROPERTY TAX PAYABLE 40,000
PARTNER 1, CAPITAL 2,941,250
PARTNER 2, CAPITAL 1,824,343
PROBLEM 6: FOR CLASSROOM DISCUSSION
DIVISION OF PROFITS AND LOSSES

CASE 1: SUFFICIENT PROFIT

THE PARTNERSHIP EARNS PROFIT OF P100,000. COMPUTE FOR THE PARTNER'S RESPECTIVE SHARES.

A B C TOTAL
AMOUNT BEING ALLOCATED 100,000
ALLOCATION:
A. SALARIES 12,000 8,000 8,000
B. BONUS (100K - 20K) x 10% 8,000
C. INTEREST
A - (100K x 10%) 10,000 10,000
B- (60K x 10%) 6,000 6,000
C - (120K x 10%) 12,000 12,000
D. REMAINDER 44,000 17,600 13,200 13,200 44,000
47,600 19,200 33,200 100,000

CASE 2: THE PARTNERSHIP EARNS PROFIT OF P10,000. COMPUTE FOR THE PARTNER'S RESPECTIVE SHARES.

A B C TOTAL
AMOUNT BEING ALLOCATED 10,000
ALLOCATION:
A. SALARIES 12,000 8,000 20,000
B. BONUS N/A
C. INTEREST
A - (100K x 10%) 10,000 10,000
B- (60K x 10%) 6,000 6,000
C - (120K x 10%) 12,000 12,000
D. REMAINDER -38,000 -15,200 -11,400 -11,400 -38,000
6,800 -5,400 8,600 10,000

CASE 3: THE PARTNERSHIP INCURS LOSS OF P20,000. COMPUTE FOR THE PARTNERS RESPECTIVE SHARES.

A B C TOTAL
AMOUNT BEING ALLOCATED -20,000
ALLOCATION:
A. SALARIES 10,000 8,000 20,000
B. BONUS N/A
C. INTEREST
A - (100K x 10%) 10,000 10,000
B- (60K x 10%) 6,000 6,000
C - (120K x 10%) 12,000 12,000
D. REMAINDER -68,000 -27,000 -20,400 -20,400 -68,000
-5,200 -14,400 -400 -20,000

INTEREST ON WEIGHTED AVERAGE CAPITAL

CASE 1: FULL YEAR

THE PARTNERSHIP EARNED PROFIT OF P90,000, BEFORE SALARIES, BONUS AND INTEREST ON CAPITAL, FO THE YEA
REQUIREMENTS: PROVIDE THE JOURNAL ENTRY TO CLOSE THE INCOME SUMMARY ACCOUNT TO PARTNERS' RESPECTIVE CAP

A B TOTAL
AMOUNT BEING ALLOCATED 90,000
ALLOCATION:
A. SALARIES (4,000 x 12mos) 48,000 48,000
B. BONUS 7,000 7,000
C. INTEREST ON WEIGHTED AVE.CAPITAL 4,140 4,140
D. REMAINDER
30,860 15,430 15,430 30,860
70,430 19,570 90,000

BONUS = 20% (90,000-48,000 - BONUS) BALANCES

20% (42,000 - BONUS) Beg. Balance 30,000
8,400 - (20% BONUS) Jul - 01 10,000
120% BONUS = 8,400 Oct - 01 -4,000
Bonus = 7,000 Nov - 30 6,000

INCOME SUMMARY 90,000

A, CAPITAL 70,430
B, CAPITAL 19,570

CASE 2: PARTIAL YEAR

THE PARTNERSHIP EARNED PROFIT OF P90,000, BEFORE SALARIES, BONUS AND INTEREST ON CAPITAL, FOR THE EIG
REQUIREMENTS: PROVIDE THE JOURNAL ENTRY TO CLOSE THE INCOME SUMMARY TO THE PARTNERS' RESPECTIVE CAPITAL A

A B TOTAL
AMOUNT BEING ALLOCATED 90,000
ALLOCATON:
A. SALARIES (4,000 x 8mos) 32,000 32,000
B. BONUS 9,667 9,667
C. INTEREST ON WEIGHTED AVE.CAPITAL 2,940 2,940
D. REMAINDER
 45,393 22,697 22,697 45,393
64,363 25,637 90,000

BONUS = 20% (90,000-32,000 - BONUS) BALANCES

20% (58,000 - BONUS) Beg. Balance 30,000
11,600 - (20% BONUS) Jul - 01 10,000
120% BONUS = 11,600 Oct - 01 -4,000
Bonus = 9,667 Nov - 30 6,000

INCOME SUMMARY 90,000

A, CAPITAL 64,363
B, CAPITAL 25,637

RECONSTRUCTION OF INFORMATION

A B TOTAL
AMOUNT BEING ALLOCATED 32,000
ALLOCATION:
A. SALARIES 20,000 20,000
INTEREST ON CAPITAL 1,200 1,200
21,200
CTIVE SHARES.

VE SHARES.
EST ON CAPITAL, FO THE YEAR ENDED DEC.31,20x1.
PARTNERS' RESPECTIVE CAPITAL ACCOUNTS.

30,000
5,000
-1,000
500
34,500
12%
4,140

EST ON CAPITAL, FOR THE EIGHT MONTHS ENDED DEC.31,20x1.

NERS' RESPECTIVE CAPITAL ACCOUNTS.
20,000
5,000
-1,000
500
24,500
12%
2,940
PROBLEM 6:
ADMISSION OF A NEW PARTNER

CASE 1: PURCHASE OF INTEREST FROM ONE PARTNER

CARROT ACQUIRES HALF OF BANANA'S CAPITAL INTEREST FOR P800,000.

CARRYING AMOUNT FAIR VALUE

CASH 30,000 30,000
ACCOUNTS RECEIVABLE 140,000 120,000
INVENTORY 200,000 160,000
EQUIPMENT 500,000 450,000
ACCOUNTS PAYABLE -80,000 -80,000
ACCRUED LIABILITIES - -20,000

60% 40%
APPLE BANANA
CAPITAL, BEG. 515,000 275,000
REVALUATION DECREASE -78,000 -52,000
ADJUSTED, BEFORE ADMISSION 437,000 223,000
SALE OF BANANA TO CARROT - 111,500
CAPITAL AFTER ADMISSION 437,000 111,500
60% 20%

BANANA, CAPITAL 111,500

CARROT, CAPITAL 111,500

CASE 2: PURCHASE OF INTEREST FROM MORE THAN ONE PARTNER

CARROT PURCHASE 20% OF APPLE'S AND BANANA'S CAPITAL INTEREST FOR P800,000.

60% 40%
APPLE BANANA
CAPITAL, BEG. 515,000 275,000
REVALUATION DECREASE -78,000 -52,000
ADJUSTED, BEFORE ADMISSION 437,000 223,000
SALE OF BANANA TO CARROT -87,400 -44,600
CAPITAL AFTER ADMISSION 349,600 178,400
60% 20%

APPLE, CAPITAL 87,400

BANANA, CAPITAL 44,600
CARROT, CAPITAL 132,000
CASE 3: AMOUNT OF INVESTMENT
CARROT WANTS TO INVEST FOR A 20% IN THE NET ASSETS AND PROFITS OF THE PARTNERSHIP.

ADJUSTED CAPITAL BEFORE ADMISSION 660,000

DIVIDE BY: (100% - 20%) 80%
GROSSED - UP AMOUNT 825,000
MULTIPLY BY: 20%
ADJUSTED CAPITAL BEFORE ADMISSION 660,001

PARTNER BEFORE ADMISSION ADMISSION OF C

A 60% (100% - 20%) *60%
B 40% (100% - 20%) *40%
C 0 20%

CASH 165,000
CARROT, CAPITAL 165,000

CASE 4: INVESTMENT IN THE PARTNERSHIP - BONUS TO NEW PARTNER

CARROT INVEST P100,000 FOR A 20% INTEREST IN THE NET ASSETS AND PROFITS OF THE PARTNERSHIP. NO GOODW

ADJUSTED CAPITAL BEFORE ADMISSION 660,000

INVESTMENT OF CARROT 100,000
NET ASSETS AFTER ADMISSION 760,000
CARROT'S INVESTMENT IN NET ASSETS 20%
CARROTS CAPITAL CREDIT 152,000
INVESTMENT OF CARROT 100,000
BONUS TO CARROT 52,000

60% 40%
APPLE BANANA
CAPITAL, BEG. 515,000 275,000
REVALUATION DECREASE -78,000 -52,000
ADJUSTED, BEFORE ADMISSION 437,000 223,000
INVESTMENT OF CARROT
BONUS TO CARROT -31,200 -20,800
CAPITAL AFTER ADMISSION 405,800 202,200

CASH 100,000
APPLE, CAPITAL 31,200
BANANA, CAPITAL 20,800
CARROT, CAPITAL 152,000

CASE 5: INVESTMENT IN THE PARTNERSHIP - BONUS TO OLD PARTNERS

CARROT INVEST P180,000 FOR A 20% INTEREST IN THE NET ASSETS AND PROFITS OF THE PARTNERSHIP. NO GOODW

ADJUSTED CAPITAL BEFORE ADMISSION 660,000

INVESTMENT OF CARROT 180,000
NET ASSETS AFTER ADMISSION 840,000
CARROT'S INVESTMENT IN NET ASSETS 20%
CARROTS CAPITAL CREDIT 168,000
INVESTMENT OF CARROT 180,000
BONUS TO APPLE AND BANANA -12,000

60% 40%
APPLE BANANA
CAPITAL, BEG. 515,000 275,000
REVALUATION DECREASE -78,000 -52,000
ADJUSTED, BEFORE ADMISSION 437,000 223,000
INVESTMENT OF CARROT
BONUS TO APPLE AND BANANA 7,200 4,800
CAPITAL AFTER ADMISSION 444,200 227,800

CASH 180,000
APPLE, CAPITAL 7,200
BANANA, CAPITAL 4,800
CARROT, CAPITAL 168,000

WITHDRWAL, RETIREMENT OR DEATH OF A PARTNER

CASE 1: PURCHASE OF INTEREST BY REMAINING PARTNER

50% 30%
A B
CAPITAL, JAN.1 320,000 192,000
PROFIT 400,000 240,000
DRAWINGS -40,000 -60,000
CAPITAL BEFORE RETIREMENT 680,000 372,000
RETIREMENT
A, CAPITAL 680,000
B, CAPITAL 680,000

A B
CAPITAL BEFORE RETIREMENT 680,000 372,000
SALE FROM A TO B -680,000 680,000
CAPITAL AFTER RETIREMENT 0 1,052,000

NEW P/L RATIO

PARTNER BEFORE
A 50%
B 20%
C 30%
100%

A B
CAPITAL BEFORE RETIREMENT 680,000 372,000
LESS: PS (1,000 X P200) -200,000 -200,000
REMAINING INTEREST 480,000 172,000
DIVIDE BY: PAR VALUE PER OS 50 50
NO.OF ORDINARY SHARE ISSUED 9,600 3,440

A B
PREFERENCE SHARE 1,000 1,000
ORDINARY SHARES ISSUED 9,600 3,440
TOTAL OF SHARES ISSUED 10,600 4,440

CASE 2: SETTLEMENT OF INTEREST BY PARTNERSHIP

THE PARTNERSHIP PAYS PARTNER A P700,000 FOR HIS INTEREST

A B
CAPITAL BEFORE RETIREMENT 680,000 372,000
PAYMENT TO A -700,000
BONUS TO A 20,000 -12,000
CAPITAL AFTER RETIREMENT 0 360,000

NEW P/L RATIO

A
B 30%/(30% + 20%) 60%
C 20%/ (30% + 20%) 40%
 100%

A, CAPITAL 680,000
B, CAPITAL 12,000
C, CAPITAL 8,000
CASH 700,000

CASE 3: SETTLEMENT OF INTEREST BY PARTNERSHIP

THE PARTNERSHIP PAYS PARTNER A P650,000 FOR HIS CAPITAL.

A B
CAPITAL BEFORE RETIREMENT 680,000 372,000
PAYMENT TO A -650,000 -
BONUS TO A -30,000 18,000
CAPITAL AFTER RETIREMENT 0 390,000

NEW P/L RATIO

A -
B 30% (30% + 20%) 60%
C 20% (30% + 20%) 40%
100%

A, CAPITAL 680,000
CASH 650,000
B, CAPITAL 18,000
C, CAPITAL 12,000

INCORPORATION OF A PARTNERSHIP
fv 60 per share
Cash 1,452,000
Preference share 600,000
Ordinary share 710,000
share premium 142,000
INCREASE (DECREASE)
0
-20,000
-40,000
-50,000
0
-20,000

_ 100%
CARROT TOTAL
- 790,000
- -130,000
- 660,000
111,500 0
111,500 660,000
20% 100%

- 100%
CARROT TOTALS
- 790,000
- -130,000
- 660,000
132,000 0
132,000 660,000
20% 100%
E PARTNERSHIP.

AFTER ADMISSION
48%
32%
20%
100%

TS OF THE PARTNERSHIP. NO GOODWILL IS REQUIRED.

- 100%
CARROT TOTAL
- 790,000
- -130,000
- 660,000
100,000 100,000
52,000 -
152,000 760,000
TS OF THE PARTNERSHIP. NO GOODWILL IS RECOGNIZED.

- 100%
CARROT TOTAL
- 790,000
- -130,000
- 660,000
180,000 180,000
-12,000 -
168,000 840,000

20%
C TOTAL
128,000 640,000
160,000 800,000
-30,000 -130,000
258,000 1,310,000
 C TOTAL
258,000 1,310,000
0 0
258,000 1,310,000

RETIREMENT AFTER
-50% 0%
50% 80%
0 20%
0% 100%

C TOTAL
258,000 1,310,000
-200,000 -600,000
58,000 710,000
50
1,160 14,200

C TOTAL
1,000 3,000
1,160 14,200
2,160 17,200

C TOTAL
258,000 1,310,000
-700,000
-8,000 0
250,000 610,000
 C TOTAL
258,000 1,310,000
- -650,000
12,000 0
270,000 660,000