ue Introduction Aparinership Is defined as an association of two or more persons Who contributes money; “property « fo.a-common fund with the intention of-dividing the profits among themselves. Accounting for partnerships should comply with the legal requirements as set forth by the Partnership Law as well as complying, with the partnership agreement itself. 1. . Partnership Formation and Capital Accounts _D\AlLassets contributed fo the partnership are recorded by the partnership at their agree K 8 Values). All liabilities that Tee €1 pariner contributes a noncash ad ntributing asget tothe v subject to mortgage. thescontributi partner's capital ac L lted for the agreed value (or fair values) of the noncash 5 ss The mortgage assumed by the partnership. tis an, nt-similar_to the shareholders’.equity accounts sea erm withdrawal: ditions in. ‘contribution’. Other important accounts include \drawing account and loarls to e drawing account Is used to.account for net income or loss and personal or inst net income. It is closed at the end of the period into n normal withdrawals, i the capital account. as additional capital in’ fs. Inv Arerereooniadamenlneesr CON er MM. _ Division of Profits and,Losses - AS a rule profils and losses are allocated based ch agreement. @ . ‘s Various tnethods exist for the division of partnership profits anc losses, including the folowing: = . < am Equally, Asbitrary ratio, . a Capital contribution ratio: : 2 Scanned with CamScannerxiginal Copia ot into! Investment ‘Soginning Coptiol of each yor ‘Average Coplial Ending Coplial of each yoor 1rest on capital bolance and/or laan balances and the balance on agreed i ee —— ola'ds 10 partners ond the bolance on agreed ratio, Beceem the bolance on agreed ratio, ©. Bonus.as.an*expense! In computing the bonus omount, Here, bonus Is ited based on net income after bonus, cou ‘a distibutlon of prolit. Here, the bonus is computed based on ‘net Income before deducting the bonus. “ee Interest on copitals and/or loan balances, salaries fo partners, and bonus to partner and the balance on agreed ratio. Lid 10 be used In any given situation Is generally the This agreement must always be consulted fist, since it Is legally ip binding n the partners. Ino prof and loss sharing arrangement Is specifiedin the porinership ‘ggreement the portnesship requies that profs ond losses.be shored according to capita! ‘contribution Capital contribution should be Interpreted 19 be original copital/beginning copial of each year in the absence of original copital; similary, if he agreement specifies ‘how profits are to be shared but Is silent as to losses, losses are to be shared in the same manner as profits. Notice that the profit and loss sharing ratio Is totally independent of the partners’ ownership interests, Thus, two partners may have ownership interests of 70% and 30% but shore profits and losses equally. 1V. Dissolution ? whe Skdmrission of a New Porter ? Anew partner may be admitted to the partnership by purchasing the interest of one ‘of more of the existing partners or by contributing cash or other assets (I investment of additional copital). These two situations are discussed below. 1. §Birchote of terest When anew parner ents the partnership by purchasing the interest of an exiting partner, the price paid fr tha interes is irelevant fo the partnership a¢counting records because itis 25 Q '~ A new partner | icc porinershipin exchange moy be gronted (e.g. business expertise, an established clientele, etc.) The adr ‘new pariner and contribution of ecorde eee ew pane on csth may be ected one Bess of he b. Scanned with CamScannerPartnership Bonus method’ This method is based _upon the erecmmennnees, Agmittance of a new partner involves Gobliag cash oro Vv Of the assels contibuted and crediting the new partner's capital for the agreed (Le.. purchased) \percentoge of foal capital. Total copital equals the ‘of he new mew § A dilference between the FMY o| “he cnet ‘contributed and the interest granted to the new partner results in the recognition of a bonus. 0. ‘No'bonu# ree0gnized® When an incoming partner's capital account (ownership interes!) is 1o be equal to his purchase price, the partnership Books merely debit cash or other assels and credit capital. b. onus'grENted to:thevold/partnersi- When the FMV oftthe assets contributed by an incoming pariner exceeds the amount of ownership Interest to be cregited to his capital account, the old partners recognize { bonus equal to this excess. This bonus is allocated on the boss of the same ratio used for Income allocation (unless otherwise specified in the partnership agreement). Recording Involves crediting the old partners’ capital accounts by the allocated amounts. — c. S8GRUS GIGAIEG to new pariner® An Incoming partner may contribute assets having a FMV smaller than the partnership interest granted to"that new partner. Similarly, the new partner may not contribute any assets at all. The incoming portner is therefore presumed to contribute an intangible ‘asset, such as managerial expertise or personal business reputation. In this ‘case, a bonus is granted to the new partner, and the capitaf{accounts of the old partners are reduced on the basis of their profit and loss ratio. Goodwill method. In PFRS No. 3, goodwill represents the elceis of the cost of the business combination over the fair value of the identifigbje net assets obtained: Therefore, the standard provides that goodwill aitaches only to a business os a whole and is recognized only when a business ls acquired. This provision of PFRS No. 3 outlawed the use of the goodwill method in partnership accounting particularly admission and retirement of @ partner because there is no’ business involved, The term "business" is defined in the Appendix A yes > OFPFRS No. 3 as: ~ _ = oe An integrated set of activities and assets conducted and managed for the purpose of providing: fa) a retum to investor, or (b) lower costs or other economic benefits directly 4nd proportionately to policyholders or participants. + A business generally consists of inputs, processes applied to those Inputs, and resulting outputs. that are, or will be, used to generate revenues. if goodwill is present in a transfered set of activities and assets, the transferred set shall be. presumed to be a business, Refer to Appendix of this chapter for further discussion and iilustration. alld Scanned with CamScanner« < 1. wikowo! ef 0 Poet ‘which a partnership con unde, * —Agrrisionofanew parnerisnat he only manner is «@.chonge in composton. Over the fe of ony Bartnesship, partners may leave ergeeton, Thus, some method of establishing on equitable Settlement of ie . wihdtawing partner's interest in the business property Is ni f For a partner to withdraw or retire from the partnership, the total interest of op ‘poner should be propery determined which includes the: following: Share in the profit and loss of the partnership. ‘Adjustments in assets and fabiltes fo reflect fair morket values. * oars fo ond from partnership. ° Drawing accounts, ond Copia interest accounts Withdrawal orefzement fom the portnership may either be: de _Seling of on interest fo on oul. This simiar to admission by purchase. ee Seling ot onintefst to r'eetng partner. the interest ofthe fetking pariner wit ‘be purchased with the personal assets of existing Partners rather than with the ‘sels of the partnership. Ge _ Selling of aninterest to the parinership/payment from partnership fund. Under this opproach, the withdrawal of a partner maybe treated as: XB Payment ot book valve {EBL Payment at less thon book valve - bonus method WG... Payment at more than book value - bonus method C. Incorporation of-a-Rorinership For a variety of reasons, Including legal and/or tax reasons, the partners of Partnership may choos fo incorperte.wo approaches ot opening ne"corparate books are in genoral vie. Ones toretcintherbooks of he partnershipand:torecord “ath asses ond Habits ofoi.martel. valve. concomitant. with:Ine:closingrof:the Partners’ copital occoun's and the opening of a Common’Stockaccoun!. The other approach Is 1 Soon In this cose, the for morket values are used as fe Pa ieran al eh and liabilities with the balancing amount credited Occosionall, "bei ee ly, aditional cash or other assels may be invested ¥. quidation Uquidation is the process of converting partnership assets Into cash and distribu th fo cect ond parnes. reqenly hee osok win povigesuttent Pay both crecitors and partners, The creditors have priofly on any dskibution. The {ule Is that no distribution is made fo any partner untl al posible losses ond tiqulciat expenses have been paid or provided for. An individual prematuely dskibuting exon 6008s Scanned with CamScannerPartnership ship 5 fo @ partner whose copital account later shows a’deticit T maybe held personally llable it the insolvent partner Is unable to repay such a distribution. The proceeds of a liquidation May be distributed in a jump sum atter all assets have been sold and all creditors sotisfled, oF the proceeds may be distributed to partners in installments os excess cash becomes avaliable. A. Lump Sum Distribution - The fist step in the liquidation process is to sell all noncash sets and allocate the resulting gain or loss fo the capital accounts of the partners in accordance with their profit and loss sharing ratio. The second step Is to satisty the liabilities owing to creditors other than partners. The ‘third step is to satisty liabilities ‘owing fo partners other than for.capital and profils. The final step Isto distibute any Cosh remaining to the pariners for capital and finally for profits. Any deficiency (Le. debit balance) in a solvent partner's copital will require that partner to contribute ‘Cash equal o the debit balance. if the deficient partner Is insolventthe debit balance must be absorbed by the remaining partners (usually in accordaiice with their profit ‘andi loss sharing ratio): Note, however, that in order to achieve an equitable distribution, pariner's loan to the partnership will fist be used to offset a debit balance in his Capital account. Therefore, under this so-called right of offset doctrine, a partner's Ioan to the partnership will have distribution priority only to the extent it exceeds a debit balance in the partner's capital account. 8. Installment Distributions — The liquidation of a partnership may take place over a period of several months. installment distributions may be made to partners on the basis of a Schedule of Safe Payments or Cash Priority Program, in conjunction, with a Liquidation Schedule similor to the one used for lump sum liquidations. The Schedule of Safe Payments takes G conservative approach to the distribution by assuming that noncash assets are ‘worthless; thus distribution may be made to partners on the basis of the value of partnership assets, until the assets are sold, Scanned with CamScanner6 $$ ti MULTIPLE CHOICE PROBLEMS Note fo the Examinees: (ccording 1o PERS No.3, oodwil represents the excess of the cost of the business combination oerte wr wou ot he Wentfobe el ets obtone. Therefore, the standard provides {hat goodwil otfaches only fo a business as a whole ond is recognized only when a business 1k acquired, Ths provision of PFRS No, 3 outlawed the use of the goodwill method in partnership particulary ogmision and refzement of a pariner because there is no business involved, Buy, ‘goodwill method (sometimes known as adjustment or revaluation method) will stl be discusseq {or purposes of concep! istration and comparison with bonus (book value) method, ‘The Goodwit (Adjustment/Revalvation) Method UUncer PFRS No. 3, goodwill represents the excess of the cost of the business combination over the ft vue Othe idenfobe nel ses obtained. Therefore, the sfandard provides {nat goodwil attaches only fo a business os a whole and is recognized only when a business focqued. Ihis provision of PFRS No. 3 outlawed the use of the goodwill method in partnership Sarticulory ocmission and retement of a partner because there is no business involved. The term “business” i defined in the Appendlk A of PFRS No, 3 as: An integrated set of activites and assets conducted and managed for the purpose of providing: ‘ (0) oretum to investor or * (0) lower costs or other economic benefits crecy and proportionately fo policyholders ©* patticiponts. A business generally consists of inputs, processes applied fo those inputs, and resulting ‘outputs that ore, or will be, used to ‘generate revenues. goodwil is present in a transferred se! o! octivties ond ossets, the transferred set shall be presumed fo be a business. {hs view of recognizing goodwill attaches only fo the business as a, whole was supported by E. John Laren in is book Modern Advanced Accounting, 9 Edion (2003) invoking FASB Statement ‘No. 142, “Goodwill ond Other Intangible Asses.” par. Fl. in other words, recognizing. goodwill ‘on the oxmission of @ partner (or even relitement of a partner) in partnership Is not Considered fo be in accordance with GAAP. in cases of sole proprietor (or portnership) joining business either with sole proprietor or portnentip, then gooduil should be opproprialely recognized. The author limmly believes that accounting pronouncements of the /ASB, FASB and its predecessor organizations are intended primariy for publicly owned corporations, which ‘must folow GAAP. Most partnerships, however choose to ignore GAAP, the will of the partners ‘may prevall. Such o departure usually fal info one of the folowing ‘categories: 1. Cosh basis insteod of accrval basis, 2. Priorperiod adjustments, 3 Curent volves instead of historical cost 4. Recognition of gooowil roblems in this chapter discusses also the topic regarding goodwill (or adjustments in "el) method despite the provision of PFRS 3 outowing the use of goodwil methog when 2 business is involved in portnership formation and dissolution. Scanned with CamScannerPartnershiy Mp 7 Partnership Formation: [- Wats be tecaveel at the fait Male ket Valve ‘On December 1, 20x5, EE and FF formeda Partnership, agreeing to share in-the ratio of 2:3, respectively. EEinvested a parcel of 25, FF invested P30,000 cash. The land was sold for 6 date, three hours after formation of the partnership. How much should be the capital balance of EE right after fc ti 9. P25,000 E Pepe, on formation’ 000 1 b. 30,000 50,000 “ (AICPA) “On March 1, 20x5, Il and JJ formed a partnership with each contributing the following assets: I aa Cash. P300,000 P 700,000 Machinery and equipment 250,000 750,000 Building. = 2,250,000 Fumiture and fixtures .. 100,000 = The buildingis subject to mortgage loan of P800,000, whichis to be assumed by:the partnershi ip ‘agreement provides that ll and JJ share profits and losses 30% and 70%, respectively. On March 1, 20x5 the balance in JJ's capital Feseunt shoud be: a. P3,7004 3,050,000 b. 3,140,000 2,900,000 (AICPA) 3--ANE sameé information in Number 2, except that the mortgage loan is not assumed by the partnership. On March 1, 20x5 the balance in JJ's capital 3,700,000 c. P3,050,000 3,140,000 d. 2900000 (Adapted) of July 1, 20x5, FF and GG decided to form a partnership. Their balance sheets on this date are: = FE GG Cash P 37,500 Accounts receivable 540,000, 225,000 Merchandise Inventory .. id 202,500 i ~—Machinery and equipment _270,000 - fv! Total... Accounts Payable — FF, capital.. .— GG, capital Total Scanned with CamScannerso Chapter id equipment of FF is .4 that the machinery an i 1d that of GG by P45,000. Allowance for underdepreciated by P15,000 an 0 Ue ela oeg a i ting 10 P1204 and P45, terGet ropa ne coeerent roves fora profit and loss ratio and coptel teres ‘of 60% to FF and 40% to GG. How much cash must FF invest fo bing the partners capital balances proportionate to their profit and The partners agree loss ratio? 52,560 P142,560 See 6 172500 | (Adapted) theirassels to form a partnership, with the Tarn tetoke over fe es cats ord assume the labiities, Partners Capitals are to be based on net assets transferred after the following adjustments. (Profi and oss are alocoted equally, 88's inventory is to be increased by P4000; an allowance for doubtful ‘accounts of P1,000 ana S00 cre bese pin the books of AA and BB, respectively; and accounts payable of P4,000 is to be recognized in AA's books. The individual trial balances on August 1, before adi nents follow: aA eae P7590 P113,000 Assets 5,000 34,500 Liabilities .. What is the capital of AA and BB after the above adjustments? G. AA, P68,750; BB, P77,250 ‘AA, P65,000; BB, P76.000 b. AA. P75,000; BB, PB1,000 (2) eeaORE REEL 3 (Adapt $EC admits DD as a partner in business. Accountsin the ledger for CC on November 30, 20x5, just before the admission of DD, show the following eS: Cash. “ P 6,800 Accounts receivable 14,200 Merchandise inventory. 20,000 Accounlspayable ‘8.000 CC, capital 3000 It is agreed thal for purposes of establishing CC's interes, the folowing ‘adjustments shall be made: (a) An allowance for doubtful accounts of 3% of accounts receivable is fo be established, {o) The merchandise inventory #0 be Valued ctx, C]_ Prepaid soicry expenses of Pé00 and ccctved Ten expan rebar oy recognized. mietbense of Scanned with CamScannerPartnership DD is to invest sufficient cash to obtain a 1/3 interesf in the partnership. Compute for; (1) CC's adjusted capital before the admission of DD; and (2) the amount of cash investment by DD; a. (1) P35,347; (2) P11,971 a (1) P35,374; (2) P17.687 b. (1) 36,374; (2) 18,487 f (1) 28.174; (2) 14087 (Adapted) 7, MM, NN, and OO are partners with capital balances on’ December 31, 20x5 of P300,000, P300,000 and P200,000, respectively. Profits are shared equally. OO wishes to withdraw and it is agreed that OO is to take certain equipment with second-hand value of P50,000 and a note for the balance of OO's interest. The equipment are carried on the books at P65,000. Brand new equipment may cost P80,000. Compute for: (1) OO's acquisition of the second-hand equipment will result to reduction in capital; (2) the value of the note that will OO get from the partnership's liquidation. @. (1) P15,000 each for MM and NN, (2) P150,000. . (1) P5,000 each for MM, NN'and OO, (2) P145,000. ¢. (1) 5,000 each for MM, NN and OO, (2)P195,000. d. (1) P7,500 each for MM and NN, (2) P145,000. . (Adapted) 8.. Jones and Smith formed a partnership with each partner contributing the following items: Jones Smith Cash.. 40,000, Building — cost to Jones 300,000 - fair value 400,000 Inventory = cost to Smit 200,000 - fair value 280,000 Mortgage payable .. 120,000 Accounts payable: 60,000 Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith partnership. What is the _ bdlance:in each partner's capital account for financial accounting purposes? = Jones Smith A. P350,000 270,000 B, .P260,000 180,000 CC. P360,000 260,000 DBD. P500,000 300,000 . a.’ Option A c. Option C b. OptionB d. Option D « Scanned with CamScanner” 4 ¢. The business assets of LL and MM appear below: COS an Peer, ; 234, P 22,354 P 243,650 345,000 ting their respective nts: ‘ond P35,000 in MM's in LL's and MM's Scanned with CamScannerPartnership a 11. On March 1, 20x5, PP and QQ decide to combine their businesses and form.a partnership. Their balance sheets on March 1, before adjustments, showed the following: = PRs =o Cash.. P 9.000 P.3,750 Accounisreceivabl 18,500 13,500 Inventories 19,500 7.000 2750 3,000 51,500 Accounts payable .. P18,000 — Copital 33,500 Total. P51,500 They agreed fo have the folowing tems racer n their books: Provide 2% allowance for doubtful accounts. a ie Rector ond fidures should be P31 000, while Q's office equipmentis under-depreciated by P250. 3. Rent expense incurred previously by PP was not yet recorded ‘amounting to P1,000, while salary expense incurred by QQ was not also recorded amounting to PB00. 4, The foir market value of inventory amounted to: 29,500 21,000 Compute the net (debit) credit adjustment for PP-and QQ: . PP GQ CQ a. P 2870 P 2820 c. P(870) P 180 b. (2870) (2820) d. 870 (180) (Adapted) 12. The same information in Number 11, compute the total liabilities after formation: : a. 61,950 cc. P65,550 b. 63,750 d. 63,950 13. The same information in Number 11, compute the total assets after formation: . a. P157,985 Cc. P160,765 b. 156875 d. 152,985 Scanned with CamScannerNs, XX. YY ond 22 formed 0 partnership by combinin, hy On apt i ote busi jetorships. XX contributed cash of P75, sepgce a una F840 conying amount, c P&D).00) cost, ond PIANO for valve. The partnership accepted responsibilty. ‘eF2SDnotange chad oe propery et ate 500 origi , r SES ane. ‘pecs tna prois and losses are a jeship agreement Ind Ic wes hepa eden egording capitol contibutios, Whig ‘potnarhos the largest Api 30, 2015, copital potest Z c. b | ~ d. Allcapitol account balance, care equal (AICPA) Fes Io 17 oe based on he following data: On Jowary 1,204, Jackson and Kendall formed a partnership. Jackson, Who, ‘as mony yeors of experience in ths ine of business, contriputed P100,000 in» ‘cash. Kendat contibuted assels having the following book values ‘and foi matte! voves, Fook value -_Market value Merchondse —P 15,000 ‘P.25,000 Buling 00 150,000 Equipment e000 85,000 The pornership assumed a morigage of P40,000 on the building. Capital accounts oe se equal tonet ase invested, i 1S, TheincreoseincoptolofKendolt None -& byP160000 b. byPI00000 © byP220,000. 16, The partners have an equaintereit inthe intial total partnership capital; greta tees end ue, the increase in capital of Jackson: — 0 None byP160,000 b. byPIcoon » yeoman 17, The pariness have on equal intrest inthe inal total partnership capil ‘ partnership capital, ond the apie mathod's used, the increase in capital of Jackson: o. 'byP160,000 [ b. byPl00000 byP220000 { ve mangle A- Scanned with CamScannerPartnership Partnership Operations: 38H ond KK are partners who share it ti K Profits and losses in tt respectively, 1's solary is P60,000 and B50 000 lock. the patneseees Paid interest on their average Copital balances. In 20x5, JJ received P30,000 of interest and KK, P12.000, The profit and loss allocction f detemines after deductions for the salary and interest payments. If Kk's share in the tesidualincome r (income after deducting salaries andinterest) was P40, in 20x5, what was the total partnership income? ! oe, a. 192,000 282,000 b. 345000 387000 (Adapted) AS. The Partnership hos the following accounting amounts: 1) Salles = P70,000 U xpuL+ (2)° Cost of Goods Sold = P40,000 (3) Operating Expenses = P10,000 (4) Salary allocations to partners = P13,000 19) _ Interest paid to banks = P2,000 (6) Partners' withdrawals = P8,000 The partnership net income (loss) is: ee x cP 5000 a . 18,000 d. (3,000) (Adapted) * &. Lancelot is trying to decide whether to accept a. clary_of PA0,000 oF ay salary of P25,000 plus a bonus of 10% of net income after salary and bonus 1Gjon, GSameans ot ing profit among the partners. Salaries traceable to ___ the other partners are estimated to be P100,000, What amount of income Ls", would be necessary so that Lancelot would consider the choices to be — ” equal? ~ 165,000 . c. P265,000 u 290,000 d. 305,000 (Adapted) Peter and Renold are partners. They have shared profits and losseC 45738 for number of years. Peter has indicated that he is going to reduce his waa in the partnership so the profit and lass ratiois being modified — tol .. ALthe date of th fatio, the lip own vacant land with a market vaiue of P300,000 and a book par value of P100,000, Peter and Ronald compile a list of assets with market ‘and book the fond sot ac 0003 after the change in the profit and 450,000; = loss ratios, the land is sold How much of the gainis allocal —to Peter? ae ance 157,500 > G, P227,500 3 d. -P287,500. Scanned with CamScannerPartners eee eee i no are changing their profit and lo; fer and Robert are Pores nf the change, the partners choose Tee it aft-o 40 19.45/55 the date of tt roves! coat inmorket value different from book value. One assay il ket value ‘stand with a book value of P50,000 and a mar ol revolved I erveur aller the profit and loss ratio is changed, the land i {id for 200,000. What is the amount of change to Robert's capita) account at the date the land is sold? a ro c. P60,000 & RRO: a 44,000 d. P82,500, Shawn is ¢ managing parinerin alocal business. Part of his profit is a bonus based on the store's operating income. The bonus is 8 percent of Sprain Income ir ehceur OF P20 (000 after deducting the bonus. If ‘operating income for the years P250,000, whats Shawn's bonus jrounded to the nearest peso}? P 3,703 cc. P20,000 tw P40,000 d. — P40,000 ‘ 24-James has a bonus as part of his partner profit allocation. The bonus is based on the partnerships net income. James receives a bonus equal to 5 percent that the neTincor eds P150,000. if the net income in the current year is R120:009, how much bonus does James receive? . P30, = P7,500 a. b. P-9,000 P 1,500 25, Cherylis the manager of a local store. She's also a partnerin the company 7” and she receives a bonus as part of the profit and oss allocation. Cheryl's is based on the increase in revenues recorded during the period. The bonus arrang i eryltecenve: ‘etIncome for allocation every full percentage poi 1 growin for reverie fa-5-percent venue _During-the most Tecent-period, revenues grew from *P500,000 to P540; id net income grew from P98,000 to P120,000. How * much bonus does Cheryl receive for this period? =— a. & P3,600 S b. P1,100 i P6,000 26. ‘Nick, Joe, and Mike are partners, The company has P150,000 net income for the period. How Is this income divided to the partners if the following profit and loss allocation process is followed? Weighted average capital P200,000 paso ee probe son A 25,000 15,000 © : 35,000 onus — 1 (NI-P100,0 Residual profit/loss ratios 25 geek NY Aloo Return on invested capital 9% I z I ( Scanned with CamScannerPormerthip Nick doe Mike 43,000 46,500 60,500 45,325 50,685, 53,990 50,000 50,000. 50,000 P44,075 P48,435, 57.490 (ore 27-Ca ond Jo ore considering forming a partnership whereby pronts will be allocated through the use of salaries and Donvses, onuses ule 1Ozof net income after tolal salaries and bonuses. Cas will receive a salary of “I receiving a salary of P40,000 JORG: ‘and a 10% bonus or simply receiving a solary of P52,000. Both partners will receive.the same amount of bonus. Determine the level of net income that would be necessary so that Jo ‘would be indifferent to the profit sharing option selected. a a. P240,000 P 94,000 b. 300,000 (<2) 34000 7 The partnership agreement of XX, YY & 22 provides for the year-end allgcation of net income in the following order: + First, XX is to receive 10% of net income up to P200,000 and 20% ‘over P200,000. z + Second, YY and ZZ each are to receive 5% of the remaining income over P300,000. + The balance of income is to be allocated equally among the three partners. ~ The partnership's 20x5 net income was P500,000 before any allocations to partners. What amount should be allocated to xXx? ‘ 202,000 cc P206,000 216000 d. 220000 (AICPA) (The partnership agreement of RR and SS provides that interest at 10% per ear is to be credited to each partner on the basis of wei ighted-aVerege— ‘capifal balances. Asummary of the copitaracc e year Fea December 31.205, sos folows: Balance, January 1 420,000 Additional investment, July 1 120,000 Withdrawal, August 1 .. (45,000) Balance, December 31 495,000 Scanned with CamScannerWhat omoun! of interest should be credited fo $S's capital account, oe P 46,125, oN we 51750 (Alcea) 0. -AA.BB,and CC are pariners with average capital balances during 20x5 », 340,000, P180,000, and P120,000, respectively. Partners receive 10%interey on their average copital balances. After deducting salaries of P90,000 ig ‘AA and P60,000 to CC the residual profit or loss is cividedl equally. In 203s the partnership sustained @ P99,000 loss before interest and salaries tg, portpess. By what amount should AA's capital account change? © 2},000 it 105,000 decrease increase ©. Sm00 Gosense d. 126000 increase (AICPA) 31. AA ond DD created a partnership to own and operate a health-food store: The partnership agreement provided that AA receive a salary of P10,000 and DD a salary of P5,000 to recognize their relative time spent in ‘operating the store. Remaining profits and losses were divided 60:40 to AA ‘and DD, respectively. income for20x5, the fist year of operations, of P13,000 ‘wos allocated P8,800 fo AA and P4,200 to DD. On January 1, 20x6, the porinership agreement was changed to reflect the fact that OD could ne longer devote any time to the store's operations. The new agreement alowsAA o salary of P18,000. and the remaining profits ~and losses are divided equally. in for was discovered such that the 20x5 r "Ome was understated by P4,000. The partnership income of P25,000 for 20xé included the P4,000 related fo year 20x5. file reported net income of P25,000 or the yeor 20x6, AA arid DD would /e AA, pp AA DD P21,900 —P.3.100 coh oo Pe 0 W100 17,100 d. 12500 12,500 (Adapted) 32. On January 1, 20%5, DD and EE decided to form a partnership, At the end of the year, the partnership made a net income of P120,000, The Capital ‘accounts of the partnership show the following transactions, D, Capital f€, Capitol ole fo; ov oe P4000 = 25000 2 = 10000 10,000 = ee. = P3,000, 5000 i000 4000 = $000 Scanned with CamScannerPartnership "7 ‘Assuming that an interest of 20% per annum is given on average capital ‘and the balance of the profits is allocated equal, the allocation of profits should be: 2x. DD, P60,000; EE, P59.400 c. DD, P67,200; EE, P52,800 (oJ 0D. P61,200:; EE, P58.800 d. OD, P68,800; EE, P51.200 {PhiICPA) 33. The partnership of DD and BB was formed and commenced operations on March 1, 20x5, with DD contributing P30,000 cosh and BB investing Cash of 10,000 and equipment with:an agreed upon valuation of P20,000. On -July_1, 20x, BB invested an additional P10,000in the partnership, DD made ‘@ capital withdrawal of P4,000 on May 2, 20x5 but reinvested the F4.000 on October |, 20x5. During 20x5, DD withdrew P800 per month and BB, the managing pariner, withdrew P1,000.per month. These drawings were Charged fo salary expense. A preclosing trial balance taken af December 31, 20x5 is as follows: Debit _Credit Cash. P. 9,000 Eetevcbie= net igo vipment - net. Other assets. 19,000 Liobiltie DD, capital _ BB, capital Service revenu Supplies expense. Ulities expense. Salaries to partners ‘Other miscelloneous expenses Total... “DD and BB in the partnership nét income Gssurning monthly. salary allowances P800 and 1,000 for DD and BB, respectively; interest allowance at a 12% annual rate on average copital bolances; and remaining profits allocated equally. . DD,P10,520;BB,P13,480 ¢. DD, P10,800; BB, 13,200 b.. DD,P12,000; BB, P12,000 d. DD, P10,600; BB, P13,400 (Adapted) Compute for the share of 34, AAand BB formed a partnership in 20x5 and made the following investments ‘and capital withdrawals during the year: : a ce AA Investments Draws Investments Draws 30,000 20,000" 10,000, 10,000 20,000 2.000 5,000 December | ... Scanned with CamScannerSS The partnership's profit and loss agreement provides for a salary of w 30,000was paid to each partner for 20x. AA is to receive a bonus an ‘on net income ofter salaries and bonus. The partners are also to rece interest of 8% on average annual capital balances affected by bol investments and drawings. Any remainirig profits are to be allocate, equaly among the partners. ‘Assuming net income of Pé0,000 before salaries and bonus, determine hoy, the income would be allocated among the pariners: ©. AAP3ILI. , P28,862 c. AA, P30,633; BB, P29,367 . AA.P33.537:BB,P26.463 —d. AA, P30,684; BB, P29,316 (Adapted: Fischer & Taylor, 35. Partner A first contributed P50,000 of capital into an existing partnership on March 1, 20x5.On June 1, 20x5, the partner contributed another P20,000 (On September 1, 205, the partner withdrew P15,000 from the partnership, Withcrowals in excess of P10,000 are charged to the partner's capital cccount. The annual weighted-average capital balance is c. 62000 cc. P60,000 b. 51467 d. 48,333 (Adapted = Fischer & Taylor) ‘36. WW and RR share profits and losses equally, WW and RR receive salary cllowances of P20,000 and P30,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are caleviaied at the beginning of each month regardless of when the . capital contributions and copital withdrawals were made, and partners Grawings are not used in determining the average capital balances. Total net income for 20xS is P120,000. Jonwary | capital botances.. Yearly drawings (P1,500 a month) Petmonent withdrawals of copital: June3 : 50,000 wnat is the weighted average capital for WW and RR respectively for 2 @.P110,867 and P119,583 ©. 100,000 and P120, b. P105,333.and P126,667 d. P2667 and Plos see (Adapted — Patterson/Shoulders) Scanned with CamScannerPormershiy : _— iB 97, HH, MM, and AA formed a partnership on January |, 20x5, and contilbuled 150,00, P200,000, and P250,000, respectively. [hel articles of co-porlnership, provide that the operating Income be shared among the partners as follows: a3 salary, P24,000 for HH, 18,000 for MM, Gnd P'12,000 for AA; Interest of 12% on the average capltal during 20x5 of the three partners; and the = remainder in the ratio of 2:4:4, respectively. The operating income for the year ending December 31, 20x5 amounted to P176,000. HH contributed additional capital of P30,000 on July 1 and made a drawing of P10,000 on October 1; MM contrlbuled additional capital of P20,000 on August | and made a drawing of P10,000 on October 1; and, AA made a drawing of P30,000 on November 1. The pariners' capital balances on December 31, 20x5 are: @. HH, P179,680; MM, P229,360; and, AA, P237,360 bb, HH, P179,740; MM, P229,520; and, AA, P239,520 c. HH, P189,680; MM, P239,360; and, AA, P269,360 d. HH, P223,180; MM, P272,060; and, AA, P280,760 (PhiICPA) 38. Merlin, a partner in the Camelot Partnership, hos a 30% participation in partnership profits and losses. Merlin's capital account has a net decrease ‘f P1,200,000 during the calendar year 20x5, During 20x5, Merlin withdrew 2,600,000 (charged against his capital account) and contributed property valued at P500,000 to the partnership. What was the net income of the Camelot Partnership for year 20x5? ‘a. P3,000,000 .P 7,000,000 b. 4,666,667 d. 11,000,000 (AICPA) 39. On Jtanuary2,20x5, BB and PP formed a partnership. 88 contributed capitol ‘of P175,000.00 and PP, P25,000.00, They agreed to share profits and losses 80% and 20%, respectively. PP is the general manager and works in the partnership ful time and is given a salary of P5,000.00 a month; an interest of 5% of the beginning capital (of both partner) and a bonus of 15% of net “income before the solary, interest and the borius. The profit and loss statement of the partnership for the year ended December 31, 20xS is as follows: 875,000 700,000 Gross profit ... 175,000 Expenses (including the salary, 143,000 Net income .. P.32,000 Scanned with CamScannerChaprey t The omount of bonus to PP in 20x5 amounted to; a. PI3304 any cc. P18,000 db. 18.456 . d. 20,700 (Philcp, A) 2. On Jonuary 1, 20x5, A. B, C and D formed Bakya Trading Co., a Partnership, ‘with Capital contributions as follows: A, P50,000; B, P25,000; C, P25,000.. ond D, P20,000. The partnership contract provided that each partner shay receive a 5 interest on contributed capital, and that A and B shall receive solaries of P5,000 and P3,000, respectively. The contract also provided that C shall receive a minimum of P2,500 per annum, and D a minimum of 6.000 per annum, which is inclusive of amounts representing interest and shore of remaining profits. The balance of the pfofits shall be distributed to A.B, C, ond D in a 3:3:2:2 ratio. What omount must be earned by the partnership, before any charge for interest and salaries, so that A may receive an aggregate of P12,500 including interest, salory and share of profits? @. P16667 c. P30,667 b. 30000 d. 32333 (PhilCPA) ‘AA. BB ond CC are partners with average copital balances during 20x5 of 472.500, P238,650, and P162,360, respectively. The pariners receive 10% interest on their average capital balances; after deducting salaries of P122.325 to AA and PB2,625 to CC, the residual profits or loss is divided equally. 'n20x5, the partnership had a net loss of P125,624 before the interest and 4 salaries to poriners. By what amount should AA's and CC's capital account change - increase (docrease)? : AA cc AA cc 30267 (40,448) c. Pl40844) 31,235 b. 24% 17,536 d. 28358 32,458 (PhiiCPA) 42. The some information in Number 41, except the partnership had a loss of P125,624 otter the interest and salaries to pariners, by what amaunt should B's capital account change - increase (decrease)? a. P(115.443) ©. PI41875) b. B86s d. (18010) Scanned with CamScannerPartnership 2 43. XX, YY and ZZ formed a partnership on January 1, 2015. Each contributed P120,000. Salaries were to be allocated as follows: xx yy Z 30,000 30,000, 45,000 Drawings were equal to salaries and be taken out evenly throughout the yeor. With sufficient partnership net income, XX and YY could spiif a bonus equal to 25 percent of partnership net income after salaries and bonus (in no event could the bonus go below zero). Remaining profits were to be split as follows: 30% for XX; 30% for YY. and 40% for ZZ. For the year, partnership net income was P120,000. Compute the ending capital for each partner: Q. XX, P155,100; YY, P155,100; b. _XX,P126,000; YY, P126,000; ZZ, ©. _XX,P125,100; YY, P125,100; ZZ, P124,800 . cd. XX, P125,500; YY, P125,500; 22, P124,000 (Adapted) 44. CC, PP,.and AA, accountants, agree to form a partnership and to share Profits in the ratio of 5:3:2. They also agreed that AA is to be allowed a salary of P28,000, and that PP is to be guaranteed P21,000 as his share of the profits. During the fist year of operation, income from fees are P180,000, while expenses total P96,000. What amount of net income should be credited fo each partner's capital account? G. CC, P28,000, PP, P16,800, ‘AA, P11,200 b. - CC, P25,000, PP, P21,000, AA, 38,000 CC, P24,000, PP, P22,000, AA, P38,000 dl. CC,P25,000, PP, P21,000, AA, P39,000 : (Adapted) ee 45. Hunt, Rob, Tuman, and Kelly own a publishing company that they operate ‘as a partnership. The partnership agreement includes the followin ‘= Hunt receives a salary of P20,000 and a bonus of 3% of income offer all bonuses. : * Rob receives a salary of P10,000 and a bonus of 2% of income after all bonuses. ; : + Allparners are to receive 10% interest on their average capital balances. The average capital balances are as follows:" ” “P5000 ‘ a Scanned with CamScannerAnyremoining profits andloss are to be divided equally among the. Detemrine how a prof of 105,000 would be allocated among the Paring” 0. Hunt, Pal,450; Rob, P29,950; Turman,P15,450; Kelly, P18,150 b. Hunt, 28,000; Rob, P14,500; Turman,P 2,000;Kelly, P. 4.700 c._ Hunt, P39,700; Rob, P29,200; Turman,P16,700; Kelly, P19.400 ¢. Connot be determined. (Acaptegys BR and PP share profits after the provision of annual salary allowances g P1440 and P13,200. respectively in the ratio of 6:4. However, if partnership, net income is insuificient to provide for said allowances in full amoun}, thenetincome shai be divided equally between the partners. In 20xS, the), following errors were discovered: Depreciation for 20x5 is understated by, 2,100, and the inventory on December 31, 20x5 is overstated by P11,400, ‘The partnership net income for 20x5 was reported to be P19,500, The capital accounts of the partners should be increased (decreased) by: . RR, P(6,540); PP,P(6,540) c.--RR, P(6,960); PP, P 6,540 b. RR,P 3,000; PP,P 3000 d. RR, P(6,750); PP, P( 6,750) (Adapted) 47, Sond KK cre partners sharing profits 60% and 40% respectively. The average Profits for the past two yeors are fo be capitalized at 20% per year (for ‘of admiting anew partner in determining the aggregate capital of JJ ond KX. affer adjusting the profits for the following items omitted trom the books: Omissions at Year-End 205 20x * P1,600 1,200 P1,400 1,000 ‘Other pertinent information are as follows: 2x5 * _ 20x65 ‘Net income of partnership. , Copital accounts, end of tt A ee q ~ 45,400 54,000 45000 55,000 The aggregate copital of 1) and kK after capitalizing the average profits at 20% per oanum is: a. Ee. cc. P69,000 b. a. 7100 Phi (PhilCPA) Scanned with CamScannerPartnership 23 48. MM, NNand 00 partners, share profits on a 5:3:2 ratio, On January 1, 20x6, PP admittedinto the partnership with a 10% share in profits. The old partners continue to participate in profits in their original ratic For the year 20x6, the net income of the partnership was reported as P12,500. However, it was discovered that the following items were omitted in the firm's books: Unrecorded at yearend 205206 Prepaid expense. 800 Accrued expense Pé00 Uneamed income .. 0 ey Accrued income {1)_ The new profit and loss ratio for N, and (2) the share of partner OO in the 20xé net income: a. (1) 30%; (2) P2.214 cc. (1) 27%; (2) P2,286 b. (1) 27%; (2) P2.214 e d.° (1) 30%; (2) P2286 (PhilCPA) 49. A,B, and C are partners in an accounting firm: Their capital account balances at year-end were A P90,000; B P110,000 and C P50,000.They share Bro and losses on a 4:4:2 ratio, after the following special terms: Pariner‘C is to receive a bonus of 10% of net income after the bonus. 2. _ Interests of 10% shall be paid on that portion of a partner's capital in excess of P100,000. 3. Salaries of P10,000 and P12,000 shall be paid to partners A & C respectively. Assuming a net income of Pad, 000 for the year, the total profit share of Partner C was: a. P 7,800 cc. P19,400 b. 16800 d. 19,800 (PhilCPA) 50. X, Y and Z, a partnership formed on Januaty L 20x5 had the following itial investments: x 2 P 100,000 ¥: oa 150,000 Z & 225,000 The partnership agreement states that profits and losses are to be shored equally by the partners after consideration is made for the following: = Salaries allowed to partners: P60,000 for X, P48,000 for Y and 36,000 forZ. - Average partner's capital balances during the year shall be allowed 10%, Scanned with CamScannertr Adsitional information: gis ‘On June 30, 20x5 X invested an additional P60,000 withdrew P70,000 from the partnership on September 20, 25,. ‘Shore in the remaining partnership profit was P5,000 for egg, partner. ‘he toa partneship capital on December 31, 20x5 was: PASO) cc. P480,000 b 67500 d. 672750 | (PhIICR, §) Xond Y of in partnership, sharing profits equally and preparing the. ‘occounis #0 31 December each year. On | July 20x5, Z joined in the ernest, ond tom that date profits are shared X 40%, Y 40%, and Z 203, Inthe yeor ended 31 December 20x5, profits were: ‘months fo 31 June 20x5, ‘months to.31 December: ttwos ogeed that X and Y only should bear equally the expense for a bod debt of P40,000 written-off in the six months,to 31 December 20xS in arriving 2 the P0000 prof. Which of the following correctly states X's profi 200,000 300,000 ‘share for the year? 216000 c. P220,000 b. 200000 d. . 224000 (ACCA) 52 SondTarein partnership and prepare their accounts to 31 December \ gee yer. On Jy 2x8; joined the Partnership. Profit sharing p é months to 6 months to 31 30June20x5 December 20x5 SOY on s ‘Shere olboiance in prot § ee ra i Mh 40% 2h The partners prof for the year ended 31 December 20x5 was 350,000 caccting evenly ove forth ea ended December Majer? Me Patines fotal prof shares $ r Fare u a. PIM PI — b. 27660 er Feet cc. 155000 130000 aa, od. 175000 145000 ay (acca) Scanned with CamScanner54. Partnership 2s 53, AA and BB entered inio a partnership as of March 1, 20x5 by investing 125,000 and P75,000, respectively. They agreed that AA, os the managing partner, was to receive a salary of P30,000 per year and a bonus computed at 10% of the net profit after adjustment for the salary; the balance of the Profit was to be distributed in the ratio of their original capital balances. On December 31, 20x5, account balances were 4s follows: 70,000 Accountspayable. P 60,000 Accountsreceivable. 67,000 ital 125,000 Fumiture and fixtures. 45,000 60,000 Inventories on December 31, 20x5 were as follows: supplies, P2,500, merchandise, P73,000. Prepaid insurance was P950 while accrued expenses were P1,550. Depreciation rate was 20% per year. The paiiners' capital balances on December 31, 20x5, after closing the net profit and drawing accounts, were: - AA BB a. P135,940 —pA7,960 c. P139,680 —P4B,680 b. 139,540 49,60 d. P142350 —-PA7,670 {PhilCPA) There and Craig are partners. Their curent profit and loss ratios (70/30) are being ‘changed to (60/40). The partners decide to adjust their capital ‘accounts at the date of the change in the profit and loss ratios to reflect the difference between market value and book value.of assets and liabilities. At the date of the change, land has a market value of P250,000 ‘and a book value of P120,000. How much will Craig's capital account be adjusted at the date of the change iin.the profit and loss ratios? a. P52,000increase ¢. P52,000decrease b. P13,000increase d. P13000decrease .. James and Bruce aré partners. They have shared profits and losses 70/30 for several years. The partnership profit allocation agreement is currently being modified to 60/40. At the date of the change, the partners choose fo revalue assets with market valve different from book value. One asset fevalued is building with a book value of P370,000 and a market value ‘of P520,000, One year after the profit and loss ratio is changed the building Is sold for P650,000. What is the amount of change to Bruce's capifal account at the date the building is revalued? a. P105,000 c, P4500 b. P91,000 - dd. P39,000 Scanned with CamScannerUsing the some information in No. $5, what is the amount of choy ® SS) iia occount at he date the building is sole "oe o. P9100 cc, P39,000 b P7800 d, P52,000 ‘ter $7 ond 58 ore based on the following information: §?. Jotnson and Pritchard are partners. They are changing the profit andy, ‘ates fom the current 60/40 to 70/30. At the date of the change, vac, Jon owned by the partnership has a book value of P50,000 and a mae vole of 40,000. The partners choose to prepare an itemized list of ase wih market valves different from book values. If the land is sold in thy ‘ulure for P80,000, how much of the gain will be assigned to Johnson? o. 18000 cc. P21,000 b. px d.P27,000 SB. 1 the lond is sod in the future for P80,000, how much of the gain will be ‘assigned to Pritchord? P9000 cc. P12,000 b. Prago d. P13.000 SF. Korenand Andrea are curently changing their partnership profit and lossy ‘ottos tom 75/25 to 60/40. They have created alist of assets that haves marke! and book vaive differences. One of the assets isa building witha 300000 mattet value ond P200,000 book valle. Two years after changing ‘the profit and loss ratios, the building is sold for P380,000. .How much of the profs olocoted fo Koren? co. 108000 c. P135,000 b. PI23000 d. — P183,000 #0. fie ond Phifiphave been partners for severalyears. During that time they nove shared pros and losses (60/40), They are currently revising the profit (ond los ratios fo (70/20). fic and Philip decide to adjust the capital ‘accounts at the dote of the change to reflect the difference between ‘mattel valve and book valve of assets and liabilities. At the date of the ‘change, the partnership owns a building with a book value of P350,000 ‘ond amartet value of 600.000. How much wil Eric's capital account be ‘adjusied ot the dale of the change in the profit and loss ratios? fae aee © P2500 decrease d. 50,000 decrease Scanned with CamScannerPartnership 2 Assignment of Interest to a Third Party: 61. Capital balances and profit k D in the BIG Entertainment GSUGry ors os | oe ropes of ie Poa ee a) Betty, capital (50%) .. Iggy. capital Puen O08 bey Coal (20%) 000 Total Betty needs money and agrées to assign half of herinterest in the partnership to Yessirfor P90,000 cash. Yess ty. Yessi become fateesttor FROM ir pays directly to Betty. Yessir does not What is the total capital of the BIG Partnership immediately after the ee ct the interest fo Yessr? ‘c, P490,000 b: 200000 d. 400,000 (Adapted) 62. _Jennaiis about to purchase some of Cynthia's partnership interest. Cynthia currently has partnership equity of P84,500. If Jenna pays Cynthia 30,000 for 30 percent of her capital, what amount will be recorded in the partnership accounting records? a. —P30,000 credit b.- .P credit Be ‘ d. P25,350 credit Partnership Dissolution: Admission of a New Partner - Purchase or Investment 63. Presented belowis the condensed balance sheet of the partnership of KK, LL and MM who share profits and losses in the ratio of 6:3:1, respectively: P 85,000 Liabiitie 415000 KK, capi LL capital MM, capital 500,000 - Total . The partner agree to sell NN 20% of their respective capital and profit and loss interests for a total payment of P90,000. The payment by NN is to be made directly to the individual partners. The capital-balances of KK, LL and'MM, respectively after admission of NNare: uy | 198,000; 99,000: 000, SY UY ® 201,600; 733,600. 216,000; 36,000. J d. P2585, 42,600. ¥ (AICPA) Scanned with CamScannerBe 64, Wing ine some ntomation i No. 8, bsuing that implied goody reveuation of assel is fo be recorded prior to the acquisition by NN. ‘Coptols of KK, LL, and MM, respectively after admission of NN are: 3. P198,000: ; ¢. 216,000; P108,000; P36,009 |. P255,600; P127,800; P42,600 ‘©. P201,400; P100,800; P33.400 4&5. XX. YYond ZZ are partners who share profits and losses in the ratio of 5:39. respectively. They agree fo sell a25% of their respective capital and profi ond lesses ratio fa total payment irectly to the pariners in the amoun, ‘ofP 140,000.00. They agree that goodwil orrevaluation of assets of P60,00)\ 's tobe recorded prior to admission of AA. The condensed balance shee} of the XYI porinership is 0s follows: P 60000" Liobilties. XX, Capital YY; Capital. 71, Capital Total The capital of XX, YY and ZZ respectively after the payment and admission Aware: 2 2. P187,500; P112,500; and P75,000 ¢. P280,000; P1.68,000; and P112,000 '. P210,000; P126,000; and 84.000 . 250,000; P150,000; and'P100,000 P150,000 90,000 60,000 West and Tem share profit and losses at c 60:40 ratio, respectively. They ‘agreed fo take in Cuba as a new pariner, who purchases 1/8 interest of - West and Tem for P25,000, What's the amount of Cuba's capital to be faken up in the partnership books if book value method is used? 12.500 c. P2500 18,750 4 31250. (Adapted) $7 PP contributed P24,000 and cc. i ccontibuted P48,000 fo form a partnership, hd they agreed to share profs inthe ratio of thelr ighel copital Spnitibutions. During the fist yeor of operations, they made a profit of 270; PP withdrew P5,050 and CC P8.00, Mt the stat of the following Year, they agreed to admit GG into ihe partnership. He was lo receive SRe-fourth interest in the capital and profits uoon payment of P30,000 fy Grand CC. whose capital accounls were o be reduced by tranters 9 int of ar i SIRS! account of amounts suticien! fo bing them back to they Scanned with CamScannerx How SOU he AQAA BNA by GG De GRRL Deteay PR and COF & PEWS Oo PIN Ee NARIOAN CO PAY, DR ARPA CO. PAD a NAP SAN COPAY) (Adapted Tne Capitol cooouint of the portnerahp of NN, WV, ond Aon done b ANS FO Presented Dabo with ther Ramectve HOtit ana KG FATE ~ PRN: AWAY i ec essay WOO YS ‘On June 1, AAS, Lis aaimitted to the party wien LL purchased, for PIS2,000, a propartonate Interest fron wrens nife tet asrels and a NSC % y AS @ result of a transaction LL aaquked @ one: ats of the Srintorest In the net assets and profits of the fam, What is the combed realted by NN and JW upon the sate of a portion of thei interest hy the partnership to Le ape Oo P8RAOO BN BA a 82000 (aicra) 69, Sam and Ray are partners with capital accounts of P1S0,000 and P225,0X, atlawing Richard to purchave M0 percent respectively, Tey are consdering of Ray's equity, At the date of the proposed transaction, Sam and Ray want torevaive the partnership's assets and allocate any differences based ‘on their 40/60 profit sharing agreement, Assume that the net market versus book value differences is, P100,000, What amount would Richard pay for te - a, P67,500 c P97,500 bb, P78,500 a. The amount cannot be determined: from the Information provided 70. °On Jan 31, 20x5, pariners of Lon, Mac & Nan, LLP, had the followin loan ‘and contal ‘eecountbalanees fatter closing enitles for January): i Loan recelvable from Lon... MM Nan, capital... The partnership's Income sharing ratio was Lon, 50%; Mac, 20%, and Nan, 30%. On January 31, 20x5, Ole was admitted to the barineanip tora 20% interest In total capital of the partnership in exchange for an Investment ‘of P40,000 cash. Prior to Ole’s admission, the existing partners agreed to Increase the carying amount of the partnership's Inventories to current fair value, a P60,000 increase. The capital account to be credited to Ole! a. P80,000 c 32,000 b. — P40,000 dd, P46,000 (Adapted) Scanned with CamScannereS ee re partners with capital balances of P50,000 and P79, a ee ‘ond fney share profits and losses equally. The partners age! to foke PP into the partnership for a 408 interest in capital and prot while MM ond 00 each retain a SOR interest. P pays P60,000 cash direct to MM ond 00 for his 408 interest, and goodwill implied by PP's paymer) is recognized on the partnership books. If MM and OO transfer equa) amounts of capital to PP, the capital balances after PP’s admittance wal Be . MM, P35,000; OO, P55,000; PP, P60,000 MM, 00, P45,000; PP, P0,000 00, P36,000; PP, P48,000 00, P46,000; PP, 48,000 72. Using the same information in Number 71, and the partner's decided tp have a cash settlement among themselves right after the admission of PP, ie., the capital balance should be made in accordance with the new Profit and loss ratio, what would be the capital balances after such transaction? x MM, P35,000; OO, 55,000; PP, P60,000 MM, P45,000; OO, P.45,000; PP, P60,000 MM, P36,000; OO, P36,000; PP, P.48,000 MM, P26,000; OO, P46,000; PP, P48,000 (Adapted) pose 73, The following condensed balance sheetis presented for the partnership ot LL PP, and QQ, who share profits and losses in the ratio of 4:3:3, respectively: ‘Accounts payable 210,000 QQ, loan 000 LL, capital 310,000 PP, copital.. 200,000 QQ, capital 190,000 940,000 Assume that the assets and liabilities are fairly valued on the balance sheet Gnd that the partnership decides fo admit FF as a new partner, with a 20% interest. No goodwill or bonus is fo be recorded. How much should FF contribute in cash or other assets? a. P 140,000 c. —P175,000 b. 142000 d. 177,500 (AlcPa) Scanned with CamScannerPannen e es 74, CC and DD are'pariners who share profits and losses in the ratio of 7:3, respectively. On October 21, 202, theirrespective capital accounts were 35,000 30,000 On that date they agreed to admit EE as a partner with a one-third interest in the capital ond profits and losses, and upon his investment of P25,000. The new partnership will begin with a total capital of P90,000: Immediately after EE's admission, what are the capital balance of CC, DD, and EE, respectively? ‘ 2. P30,000; P30,000; P30,000; c. P3167; P28,333; P30,000; tb. P31,500; P28,500; P30,000; -d. 35,000; P30, 5,000; (AICPA) 75. The capital accounts for the partnership of LLand MM at October 31, 20x5 are as follows: LL, capital P 80,000 MM. capital. 40,000 120,000 The partners share profits and losses in the ratio of 3:2 respectively. The parinership is in desperate need of cash, and the partners agree to admit NN os a partner with one-third in the capital and profits and losses upon his investment of P30,000. Immediately after NN's admission, what should be the capital balances of LL, MM and NN respectively, assuming bonus is to be recognized? a. —P50,000; P50,000; P50,000. c. Pé66,6¢ 33,333; P50,000. b. —P60,000; P60,000; P60,000. d. 68,000; P32,000; FnceA) (AICPA) 76. OO and TI are partners with capital balances P60,000 and P20,000, respectively. Profits and losses are divided in the ratio of 60:40. 00 and TT decided to form a new partnership with GG, who invested land valued at P15,000 for a 20% capital interest in the new partnership. GG's cost of the land was P12,000. The partnership elected fo use the bonus method to record the admission of GG into the partnership. GG's capital account should be credited for: a. P12,000 ‘ c. P16,000 b. 15,000 d. 19,000 (AICPA) Scanned with CamScannerio of Marisa ond Olgais being dissolved, and the asses Feet of bosk valve and far value and profit and loss ratios at Janis 1, QxS are as follows: Book Value Fair Value P 20,000 100,000 200,000 120,000. 440,000 P. 50,000 Olga, capital (50%). azissa ond Olga agree to admit Trent into the partnership for a one-third interest. rent invests P95,000 cash and a building fo be used in the business with @ book value to Trent for P100,000 and a fair value-of P120,000, Compute the copital balance of Olga atter the admission, assuming that ‘the assets are revolued and goodwill is recognized. 0. PI75000 c. P195,000 S b. 155000 d. 205,000 (Adapted) ® 78. _Aond BB entered into o partnership on May 31, 20x5, contributing cash of 48,000 ond P32,000, respectively, and agreeing to divide earings in the ‘lig of thet initial investments after allowing annual salary allowance of 12,000 each. On December 31, 20xS, the Income Summary account had © credit balance of P34,000, while the drawing accounts showed debit bolonces of P14,000 for AA and P10,000 for BB, $ At the beginning of the next year, CC was admitted into thefirm as a new pariner with o 33-1/3% interest for a capital crédit equal to his cash investment of P60,000. AA and BB then effected a private cash settlement between themselves in order to make the capital balances conform to a new potion ratio of 4:2:3, respectively, with salary allowances scrapped. How much of the amount of the private cash effected between the old pamers? nt Te. a. P5000 ¢ P12000 b. 9,000 d. 15,000 (Adapted) Scanned with CamScannerPartnership” a 79. AA, BB, and CC are partners sharing profits in a 5:3:2 ratio, and with capital balances Of P95,000,P80,000, and P60,000, respectively, on December 31, sone: Ue Partners decided to admit DD as anew partner on January 1. x6. DD will contribute Cash of P80,000 fo the partnership and also pay P10.000 for 15% of BB's share. DD is to have a 20% share in profits. After the admission of DD, the total capital wil be P330,000 and BD's capital wi be P70,000. After the admission of DD. re aoe DD's coptiol wi , BB's capil 7 Zo Atte Bs copied beanies ‘would be: b. 74600 d. 81,100 (Adapted) . Jesse, Joseph, and Leslie are partners with capital accounts of P70,000, 120,000, and P90,000, respectively, The partnership share profis ond losses 45%, 30%, and 25%, respectively. They are considering allowing Hans to join the partnership by investing directly into the partnership. The partners intend to revalue the assets before Hans’ admission. Neither. bonus nor goodwill are required. If the asset's market value exceeds book value P150,000, how much will Hans invest to acquire a 20% eauity interest in the partnership? a. P107,500 c. PB6,000 b. P100,000 dP 81. Sandra and Joshua are partners. They have capital account balances of 250,000 and P200,000, respectively, and they share profits and losses 70/ 30. The partners are considering admitting Judy as a new pariner with a 25 percent equity interest for arvinvestment in the partnership of P180,000. Before admission, Sandra and Joshuawillrevalue the partnership's assets. If the net increase in the partnership's assets is P125,000, what will be the balance in Sandra's capital account immediately before Judy's admission? "a P262,500 cc. 528,500 'b. P337,500 d.P575,000 82; The following are capital account Sslanges and profit and loss ratios of the partners in Precious Company. One Capital Ratio Li a They agree to admit RR as a partner with a 25% interest in capital upon her investment of P1,000,000. LL, OO and RR are to share profits 5:3:2, respectively. Subsequently, TT joins the partnership by investing P1,200,000 for a 20% interest in profits and capital,the old partners are to share profits In their original ratio. Assuming the goodwill method is used, how much is the goodwill fo be recorded upon the admission of TT? a. 800,000 cc. P400,000 b. 600,000 d. 240,000 {PhiCPA) Scanned with CamScannerOe aa EE COE Rap cece formed a partnership and agreed fo divide initial capital be ent Opa aod PIS000 ond ik contributed P21,68 enable ose. Under the bonus approach fo adjust the cag coccounks x's unidentifiable ossets should be debited for: Ik a, PI;600 c. P2,000 b 4000 a0 (AICP, 84, In the AD porinesshio, Alen's capitol is P140,000 and Daniel's is P40,0q, ‘ond they share income in a 3:1 ratio, respectively. They decide to admis Dovid to the partnership, Each of the following questions is independeny ithe others, len and Daniel agree that some of the inventory is obsolete Theinventory account's decreased before David is admitted. David invests 40,000 for a one-fifth interest. What is the amount of inventory written down? 9. P4000 c. P1500 b. Plo sd. 20,000 85. Using the same information in No. 84, David directly purchases a one-fifth interest by paying Allen P34,000 and Daniel P10,000. The land account is increased before David is admitted. By what amount is the land account a. 40,000 cc. P20,000 b. 36,000 d. 10,000 86. MM ond NN ore poriners who have capitals of P4,000 and P4,800 and shore proftsin the rato of 3:2. 00 is admitted as a partner upon investing Cash of P5000, with profs fo be shared equally, Assume that OO is allowed a 25% interest int he fim, (1) the capital balance of MM after the admission of OO using goodwill method, and (2) how: such will NN gain or lose by the use of bonus method over goodwill method. (0. 1) P7120; (2) NN villlose P140 b. (1) P7.120; 2) NN vil gain P1260 c. {I} P8,520; (2) NN vil ose P1260 os d, {1} P8,520; (2) NN will gain P140 (Adapted) 87, AAond 8 ore parthers who have capital of Pé00,000 and 480,000 sharin. protisin the ratio of32.CC admitted as pariner upon investing PS00,000 for 25% interes in the fir, prtoits to be shared equally. Given the choice between goodwill and bonus method, CC wil ‘0... Prefer bonus method cue fo CC's gain of P35,000, b. Prefer bonus method due to CC's gain of P1 40,000, ¢. Prefer goodwill method due to CCs'gain of p140,000, Be indiferent for he goodwilanc Borusmethods ore the same, (Adapteqy Scanned with CamScannerPartnersinip 35 Retirement or Withdrawal of a Partner 88. On June 30, 20x5, the statement of financial position for the partnership of CC, MM, and PP, together with their respective profit and loss ratios, were as follows: Assets, at cos! CC, loan CC, capital (20%) MM, capital (20%) PP; capital (60%) . Total... CC decided to retire from the partnership. By mutualagreement, the assets are to be adjusted to their fair value of P214,000 at June 30, 20x5. It was agreed that the partnership would pay CC P61,200 cash for CC's partnership interest, including CC's loan which is to be repaid in full. No goodwill is to be recorded. After CC's retirement, what is the balance of MM's Capital account? a. P36,450 cc. PA5,A50 b. 39,000 d. 44,200 (AICPA) 89. The December31; 20x5, statement of financial position of the BB, CC, and DD partnership is summarized as follows: Cash, P100,000 CC, loan Other assets, at cost... 500000 BB, capital .. CC, capital DD, capital 000 The partners share profits and losses as follows: BB, 20%; CC, 30%; and DD, 50%, CC is retiring from the partnership and the partners have agreed that “other assets" should be adjusted to their fair value of P600,000 at December 31, 20x5. They further agree that CC will receive P244,000 cash for his partnership interest exclusive of the loan, which is to. be paid in full. No goodwill implied by CC's payment will be recorded. After CC's retirement, the capital balances of BB and DD, respectively, will be: a. P116,000 and P240,000 cc. P100,000 and P200,000 b. —P101,714.and P254,286 d. P 73,143. and P182,857 : (Adapted) Scanned with CamScannerLe 3 condensed balance sheet for the partnership ofy, On June 30,205, th b ; 8 nee eMogather wih Ine respective profit Gnd Toss shel percentages was as follows: Heses netof Riles» £320,000 0, cata! (50%) FF. copital (30%) 6, copitel (208). D0 decided to retire from the partnership and by mutual agreement is, ‘be paid P180,000 out of partnership funds for his interest. Total goodwill odjusiment in assets implicit in the agreement is to be recorded. Aftem: 00's retirement, what are the capital balances of the other partners? F 2. P 84000 —P56,000 c. 108,000 — P72,000 b. 02000 48,000 d. 120000 80,000 (AICPA) 91. PP.RRand SS were partners with capital balances as of January 1, 20xS, of 20,000, P30,000 and P40,000 respectively, sharing profit and losses on ay 532 ratio, : . On Jy 1, 20%5 PP withcraw from the parinership. Partners agreed that at {ne fme of withdrawal, certain inventories had fo be revalued at 74,000 ‘omits cost of 10,000. For the six month petiod ending June 30, 20x5, the Partnership generated a net income of P28,000. Further, partners agreed 40 pay PP, P39,000 for his interest and that the remaining partners’ capital ‘2ccounts, would be adjusted for whatever goodwill the settlement would Qenerate, The payment of PPincluded a goodwill of 2. P3000 cc. P10,000 b. 5000 d, 8500 (Adapted) 92. The condensed balance sheet of the porinership of EE, FF and GG with Corresponding profit and loss sharing percentage as of June 30, 20x5 was Qs follows: Net assets EE, copital (50%) FF, copia (30%) . GG, copital (20%) Scanned with CamScannerPartnership 2 As of said date, EE retired from the partnership. By mutual agreement, he was paid P270,000 for his interest in the parinerhsip. Partial goodwill or adjustment in assets was to be recorded. After E€'s retirement, the total net assets of the partnership was: a. 300,000 cc. P240,000 b. 210,000 d. 270,000 (Adapted) 93. Using the same information in Number 92, except that total goodwill or adjustments in assets was to be recorded, What will be the total net assets of the partnership after EE's retirement? a. 300,000 cc. P240,000 b. 210,000 5 d. 270,000 (Adapted) 94. A. Smith, a partner in an accounting fim, decided to withdraw from the partnership, Smith's share of the partnership profits and losses was 20%. Upon withdrawing from the partnership he was paid P88,800 in final settlement for hisinterest. The total of the partners’ capital accounts before recognition of partnership goodwill prior to Smith's withdrawal was 252,000. After his withdrawal the remaining pariners' capital accounts, excluding their share of goodwill, totalled P192,000: The total goodwill of the firm was: a. P144,000 c. —P192,000 - b. 168,000 d. 300,000 (AICPA) 95. Bob, Claire, and Jack are partners who share profits and losses 30 percent, 25 percent, and 45 percent, respectively. Bob informed Claire and Jack that he is withdrawing from the partnership. The partners’ capital accounts at the date of Bob's withdrawal are P150,000, P135,000, ‘and P225,000, respectively. The partnership agreement states that the goodwill, if any, of the withdrawing partner will be recognized for all partners immediately Prior to the withdrawal of any partner. In this instance, the partners determine that the goodwill associated with Bob is P22,500. Assuming that Bob's equity is purchased by a new partner (Deborah) approved by Claire and Jack, what is the amount of | eon ‘sinitial capital account? 150,000 : 170,000 P172,500 The amount cannot be determined because the amount Deborah paid for Bob's equity is not known aoo0 Scanned with CamScanner$i ore partners who share profits and losses 30 per, wn Sey mayo respecivey. Bob informed Claie ea a ‘athe s withdrawing from the partnership. The partners’ capital acag,** ct the date of Bob's withdrawal afe P150,000, P135,000, and Poasoit respectively. The partnership agreement states that the goodwill if gn.” ‘of the withdrawing partner will be recognized for all partners immediak, rior to the withdrawal of any partner. In this instance, the partn determine that the goodwill associated with Bob is P22,500, ‘Assumi ‘ that Bob's equityis purchased by Claire (60 percent) and Jack (40 percent) what is the amount of Claire's capital account at the date of Bob’; withdrawal? co. Px07.500 cc. P186,750 b. P238.500 d. P180,000 97. Bonnie, Gwen, and Saly are partners with capital account balances of 350,000, P260,000, and P200,000 respectively. Sally informed Bonnie and ‘Gwen that she is withdrawing from the partnership. The partners’ share Profits and losses 45 percent, 30 percent, and 25 percent, respectively. The Partnership agreement states that the goodwil, i any, of the withdrawing ariner willbe recognized at the date of withdrawal. In this instance, the ariness determine that the goodwill associated with Sally is P40,000. Assuring that Saly's equiyk purchased by Bonnie (60 percent) and Gwen (40 percent), what is the amount of Gwen's capital account at the date of Sal's witharawale o. Pé4000 ec. P424,000 b. 446000 d. 376,000 ¥%8. Bonnie, Gwen, and Sally are partners with capital account balances of 'P350,000, P280,000, and P200,000 respectively. Sally informed Bonnie and - Gwen that she is withdrawing from the partnership. The partners’ share profits ondlosses 45 percent, 30 percent, and 25 percent, respectively. The porinership agreement states that the goodwill of the partnership will be recognized al the dote of withdrawal, In this instance, the partners determine that the porinership's goodwil/revaluation of assets P150,000, ‘Assuming that Sally's equity is purchased by a new partner (Mary) approved by Bonnie and Gwen, what's the amount of Mary'sinifial capital account? 0, P 87,500 b, 237500 FIOM) = d. The amount cannot be determined becaust paid for Saly’s equly isnot known, Ibe crmount cry 4 Scanned with CamScannerPartnershi 2 9 Items 99 to 102 are based on the following Information; Erika, Fredric and Gustav are partners in a manufacturing concei. Relevant data regarding income-sharing relationships and capital balances are as follows: Partner Capital Balance Income Share Erica P 150,000 3% Fredric 100,000 0% Gustav 200,000 35% Fredric decides to retire and receives P145,000 in cash from the Partnership, 99. If the bonus method is used to account for the retirement, Erica's capital balance subsequent to Fredric's retirement will be: a. 105,000 c. P134,250 b. P127,500 d. —-P150,000 100. If the excess payment is attributed entirely to goodwill and the partial goodwill approach is used, goodwill will be recognized at: a. P 45,000 cc. P100,000 b, P55,000 d.. P150,000 101. If the excess payment is attributed entirely to goodwill, and the total goodwill approach Is used, Gustav's capital balance after Fredric's departure will be: : a. P200,000 : cc. P263,000 b. P252,500 d— P275,000 102. Using the partial goodwill approach, Erica's capital balance, atter Fredric's “departure, will be: a. P127,500 : . c.-P150,000 b. P134,250 d. P165,750 103. CC, DD and EE shared profit and losses based on 5:3:2. EE was allowed to withdraw from the partnership on 31 December 20x5 with, P600,000 cash as full settlement. The condensed balance sheet of the partnership as of that date was as follows: a Assets Due from EE Scanned with CamScanner