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Chapter 3
Partnership Dissolution
PROBLEM 1: TRUE OR FALSE
1. TRUE
2. FALSE
3. TRUE
4. TRUE
5. FALSE (50% before C’s admission – 25% sold to C) = 25%
6. TRUE
7. TRUE
8. TRUE
9. TRUE (7 payment – 5 capital) = 2 bonus to Mouse, treated as
reduction to Dog’s and Cat’s capital for 1 each. The entry is as
follows:
Mouse, Capital 5
Dog, Capital (2 x ½) 1
Cat, Capital (2 x ½) 1
Cash 7

10. FALSE – (₱5 cap. x 3 partners) = ₱15 net assets;

(4 sh. x ₱1 par x 3 partners) = ₱12 aggregate par value;
₱15 - ₱12 = ₱3 share premium

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. D
2. C
3. D
4. D
5. D – The remaining partners’ capital accounts were decreased.
Therefore, the bonus method must have been used.

PROBLEM 3: EXERCISES
1. Solution:
Date C, Capital (200,000 x 1/2) 100,00
D, Capital 0 100,00
0
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2. Solutions:
Requirement (a):
Date A, Capital (100,000 x 25%) 25,00
B, Capital (150,000 x 25%) 0
C, Capital (200,000 x 25%) 37,50
D, Capital 0 112,50
50,00 0
0

Requirement (b):
A B C D Totals
Capital, beg. 100,000 150,000 200,000 450,000
(Debit) 112,50
Credit (25,000) (37,500) (50,000) 0 -
112,50
Capital, end. 75,000 112,500 150,000 0 450,000

Requirement (c):
Zero.

Requirement (d):
A, B and C will divide D’s payment based on whatever they have
agreed upon or as follows:
A B C Total
25,00 37,50 50,00 112,50
Debit to capital account 0 0 0 0

Excess allocated based on

P/L ratio (150K - 112.5K credit to D) 11,25 18,75
x 20%; 30%; & 50% 7,500 0 0 37,500
32,50 48,75 68,75 150,00
Share in the payment of D 0 0 0 0
25,00 37,50 50,00 112,50
Debit to capital account 0 0 0 0
11,25 18,75
Personal gain (loss) 7,500 0 0 37,500
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3. Solutions:
Requirement (a):
Date Equipment (830K – 680K) 150,00
A, Capital (150,000 x 20%) 0 30,000
B, Capital (150,000 x 30%) 45,000
C, Capital (150,000 x 50%) 75,000
to record the revaluation of the equipment

A B C Totals
Capital, unadjusted 100,000 150,000 200,000 450,000
Share in revaluation 30,000 45,000 75,000 150,000
Capital, adjusted 130,000 195,000 275,000 600,000

Date A, Capital (130,000 x 25%) 32,500

B, Capital (195,000 x 25%) 48,750
C, Capital (275,000 x 25%) 68,750
D, Capital 150,00
to record the admission of D to the 0
partnership

Requirement (b):
A B C D Totals
Capital, adj. 130,000 195,000 275,000 600,000
(32,500 (48,750 (68,750 150,00
(Debit) Credit ) ) ) 0 -
Cap. after 146,25 206,25 150,00
adms’n. 97,500 0 0 0 600,000

4. Solution:
Date Cash 112,500
D, Capital (450K + 112.5K) x 20% 112,500

5. Solution:
Requirement (a):
Date Cash 180,00
D, Capital (450K + 180K) x 20% 0 126,00
A, Capital [(180K – 126K) x 20%] 0
B, Capital [(180K – 126K) x 30%] 10,800
C, Capital [(180K – 126K) x 50%] 16,200
27,000
 Page |4

Requirement (b):
A B C D Total
100,00
Capital before admission 0 150,000 200,000 450,000
Investment of D 180,000 180,000
Bonus to old
partners 10,800 16,200 27,000 (54,000) -
Capital after 110,80 166,20 227,00 126,00
admission 0 0 0 0 630,000

Requirement (c):
P/L ratio
A (100% - 20%) x 20% 16%
B (100% - 20%) x 30% 24%
C (100% - 20%) x 50% 40%
D 20%

6. Solution:
Requirement (a):
Date Cash 100,00
A, Capital [(110K – 100K) x 20%] 0
B, Capital [(110K – 100K) x 30%] 2,000
C, Capital [(110K – 100K) x 50%] 3,000
D, Capital [(450K + 100K) x 20%] 5,000 110,00
0

Requirement (b):
A B C D Total
100,00
Capital before admission 0 150,000 200,000 450,000
Investment of D 100,000 100,000
(2,000
Bonus to D ) (3,000) (5,000) 10,000 -
Capital after 147,00 195,00 110,00
admission 98,000 0 0 0 550,000
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7. Solution:
A, Capital 100,000
B, Capital 150,000
C, Capital 200,000
Carrying amount of net assets 450,000
Revaluation (500K – 200K) 300,000
Fair value of net assets 750,000
Divide by: (100% less D’s ¼ or 25% interest) 75%
Grossed-up net assets 1,000,000
Multiply by: D’s interest 25%
Required investment of D 250,000

8. Solution:
Total capital before the admission of D 450,000
Fair value of D’s contribution 160,000
Total capital after the admission of D 610,000
Multiply by: D's interest 20%
Credit to D's capital account 122,000

Date Equipment 160,00

D, Capital 0 122,00
A, Capital [(160K – 122K) x 20%] 0
B, Capital [(160K – 122K) x 30%] 7,600
C, Capital [(160K – 122K) x 50%] 11,400
19,000

A B C D Total
100,00
Capital before admission 0 150,000 200,000 450,000
Investment of D 160,000 160,000
Bonus to old
partners 7,600 11,400 19,000 (38,000) -
Capital after 107,60 161,40 219,00 122,00
admission 0 0 0 0 610,000
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9. Solution:
A (20%) B (30%) C (50%) Total
Unadjusted balance 300,000 500,000 200,000 1,000,000
Share in profit
1.8M x 20%; 30% & 50% 360,000 540,000 900,000 1,800,000
Adjusted balance 660,000 1,040,000 1,100,000 2,800,000

Requirement (a):
July 1, C, Capital 1,100,00
20x1 A, Capital (1.1M x 20%/50%) 0 440,00
B, Capital (1.1M x 30%/50%) 0
660,00
0

Requirement (b):
A B C Total
Bal. before 1,040,00 2,800,00
660,000
withdrawal 0 1,100,000 0
(1,100,000
Withdrawal of C 440,000 660,000 -
)
Bal. after 1,100,00 1,700,00 2,800,00
-
withdrawal 0 0 0

Requirement (c):
No effect – same total capital of ₱2,800,000 before and after C’s
withdrawal.

10. Solution:
Requirement (a):
July 1, C, Capital (see computation in #9) 1,100,00
20x1 A, Capital (1.24M – 1.1M) x 20%/50%) 0
B, Capital (1.24M – 1.1M) x 30%/50%) 56,000
Cash 84,000 1,240,00
0

Requirement (b):
A B C Total
Bal. before 1,040,00
660,000 2,800,000
withdrawal 0 1,100,000
 Page |7

(1,240,000 (1,240,000
Payment to C
) )
(56,000
Bonus to C (84,000) -
) 140,000
Bal. after
604,000 956,000 - 1,560,000
withdrawal

Requirement (c):
Decrease of ₱1,240,000

11. Solution:
A
(20%) B (30%) C (50%) Total
300,00
Unadjusted balance 0 500,000 200,000 1,000,000
Share in profit
[1.8M x (20%; 30% & 360,00
50%)] 0 540,000 900,000 1,800,000
Share in revaluation
gain [(600K - 200K) x
(20%; 30% & 50%)] 80,000 120,000 200,000 400,000
740,00
Adjusted balance 0 1,160,000 1,300,000 3,200,000

The entry to record the settlement of C’s interest is as follows:

July 1, C, Capital 1,300,00
20x1 A, Capital (300,000 x 20%/50%) 0
B, Capital (300,000 x 30%/50%) 120,000
Cash 180,000 1,000,00
Equipment 0
600,000

A B C Total
Bal. before 1,160,00
740,000 3,200,000
withdrawal 0 1,300,000
(1,600,000 (1,600,000
Payment to C (1M + .6M)
) )
(120,000 (180,000
Bonus to C -
) ) 300,000
Bal. after
620,000 980,000 - 1,600,000
withdrawal
 Page |8

12. Solution:
A
(20%) B (30%) C (50%) Total
300,00
Unadjusted balance 0 500,000 200,000 1,000,000
Share in profit
[1.8M x (20%; 30% & 360,00
50%)] 0 540,000 900,000 1,800,000
660,00
Adjusted balance 0 1,040,000 1,100,000 2,800,000
Divide by: Par value 100 100 100 100
No. of shares issued 6,600 10,400 11,000 28,000

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. B (620K + 400K + 380K) x 20% = 280,000

2. B

B's payment 132,000

B's capital credit [(139,200 + 208,800 + 96,000) x 1/5] 88,800

Combined personal gain of A and B 43,200

3. C
Net assets before admission 300,000
Investment of C 150,000
Net assets after admission 450,000
C's interest in net assets 50%
C's capital credit 225,000
Investment of C 150,000
Bonus to C 75,000

A B C Total
Capital, before
admission 200,000 100,000 300,000
Investment of C 150,000 150,000
Bonus to C (75K x ¾ & ¼) (56,250) (18,750) 75,000 -
Capital, after 143,750 81,250 225,000 450,000
 Page |9

admission

4. A
Net assets before admission 300,000
Investment of C 125,000
Net assets after admission 425,000
C's interest in net assets 25%
C's capital credit 106,250
Investment of C 125,000
Bonus to A and B (18,750)

A B C Total
Capital, before
admission 200,000 100,000 300,000
Investment of C 125,000 125,000
Bonus to A & B (18,750.00
(18,750 x ¾ & ¼) 14,062.50 4,687.50 ) -
Capital, after 214,062.5 104,687.5 106,250.0 425,00
admission 0 0 0 0

5. B
Date Cash 18,000
Old partners’ capital 2,000
C, Capital (100K x 20%) 20,000

6. C
Solution:
Andre's investment 30,000
Andre's capital credit [(120K + 30K investment) x 1/3 50,000
interest]
Bonus to Andre 20,000

Ming Piw Andre Total

Capital, beg. 80,000 40,000 120,000
Andre's
investment 30,000 30,000
Bonus (20K x 3/5 & (12,000) (8,000) 20,000 -
 P a g e | 10

2/5)

Capital, end. 68,000 32,000 50,000 150,000

7. B
Solution:
Date A, Capital 320,000
B, Capital 320,000
to record the retirement of A from the partnership

8. A
Solutions:
April A, Capital 320,000
1,
20x1
B, Capital (360K – 320K) x 30%/50% 24,000
C, Capital (360K – 320K) x 20%/50% 16,000
Cash 360,000
to record the retirement of A from the partnership

A B C Total
Bal. before
320,000 192,000 640,000
withdrawal 128,000
(360,000
Payment to A (360,000)
)
Bonus to A 40,000 (24,000) (16,000) -
Bal. after
- 168,000 112,000 280,000
withdrawal

9. A
Solution:
<List A> [(60,000 + 20,000) / 80%] x 20% = 20,000
<List B> 20,000, unaffected

10. D (60K + 20K + 15K) = 95K total capital after admission x 20%
= 19,000

11. D
Solution:
 P a g e | 11

A B C Total
Capital, unadjusted 300,000 500,000 200,000 1,000,000
Profit
(1.8M x 20%; 30%; & 50%) 360,000 540,000 900,000 1,800,000
Revaluation
(600K - 0) x 20%; 30% & 50% 120,000 180,000 300,000 600,000
780,00 1,220,00
Capital before retirement 0 0 1,400,000 3,400,000
Payment to C (1M + . (1,600,000 (1,600,000
6M) ) )
(80,000 (120,000
Bonus to C ) ) 200,000 -
700,00 1,100,00
Capital after retirement 0 0 - 1,800,000

July 1, C, Capital 1,400,00

20x1 A, Capital (800K – 700K) x 20%/50%) 0
B, Capital (800K – 700K) x 30%/50%) 80,000
Cash 120,000 1,000,00
Equipment 0
600,000

12. C
A B C Total
800,00
Unadjusted capital 300,000 300,000 200,000
0
Share in impairment loss (5,000) (5,000) (5,000) (15,000)
(50K FV – 65K CA) ÷ 3
785,00
Adjusted capital 295,000 295,000 195,000
0

13. D
C's capital balance before retirement 200,000
Reduction in C's capital due to acquisition of furniture:
C's sh. in impairment of furniture [(65K – 50K) x
1/3] (5,000)
(50,000
Fair value of furniture ) (55,000)
Balance 145,000
(145,000
Reduction in C's capital in exchange for note )
C's capital after retirement -
 P a g e | 12

 Additional supporting analysis:

Date Impairment loss 15,000
Furniture 15,000
Date A, Capital 5,000
B, Capital 5,000
C, Capital 5,000
Income summary (i.e., the imp. loss) 15,000
Date C, Capital 195,00
Furniture 0 50,000
Note payable (squeezed) 145,00
0

5,000 + 50,000 = 55,000 reduction in C’s capital due to

acquisition of furniture

14. C
C's unadjusted capital 155,000
C’s share in impairment loss on furniture (5,000)
Fair value of furniture charged to C’s capital (50,000)
Note payable 145,000

15. B
Unadjusted net assets (140K + 120K) 260,000
Provision for bad debts (10,000)
Write-up of inventory (160K - 140K) 20,000
Further depreciation (3,000)
Adjusted net assets 267,000
 P a g e | 13

PROBLEM 5: CLASSROOM ACTIVITY

1. Case 1:
Date A, Capital (100,000 x 1/2) 50,000
D, Capital 50,000

2. Case 2:
Date A, Capital (100,000 x 20%) 20,000
B, Capital (60,000 x 20%) 12,000
C, Capital (20,000 x 20%) 4,000
D, Capital 36,000

A B C D Total
Capital before
admission 100,000 60,000 20,000 180,000
(20,000 (12,000 (4,000 36,00
Sale to D ) ) ) 0 -
Capital after 36,00 180,00
admission 80,000 48,000 16,000 0 0

3. Case 3:
Date Cash 70,000
D, Capital (180K + 70K) x 20% 50,000
A, Capital [(70K - 50K) x 60%] 12,000
B, Capital [(70K - 50K) x 30%] 6,000
C, Capital [(70K - 50K) x 10%] 2,000

A B C D Total
Capital before 100,00 60,00 20,00
admission 0 0 0 180,000
D's investment 70,000 70,000
Bonus to old (20,000
partners 12,000 6,000 2,000 ) -
Capital after 112,00 66,00 22,00
admission 0 0 0 50,000 250,000

New P/L ratio

A (100% - 20%) x 60% 48%
B (100% - 20%) x 30% 24%
C (100% - 20%) x 10% 8%
D 20%
 P a g e | 14

100%
4. Case 4:
Unadjusted net assets before D's admission 180,000
Revaluation increase (410K - 365K) 45,000
Adjusted net assets before D's admission 225,000
Divide by: (100% - 10%) 90%
Net assets after D's admission 250,000
Multiply by: D's interest 10%
D's required investment 25,000

5. Case 5:
Date C, Capital 20,000
B, Capital 20,000

A B C Total
100,00 60,00 180,00
Capital before retirement 0 0 20,000 0
20,00 (20,000
C's withdrawal 0 ) -
100,00 80,00 180,00
Capital after retirement 0 0 - 0

New P/L ratio

A 60%
B (30% + 10% from C) 40%
C 0%
100%

6. Case 6:
Date C, Capital 20,000
A, Capital (32K – 20K) x 6/9 8,000
B, Capital (32K – 20K) x 3/9 4,000
Cash 32,000

A B C Total
100,00
Capital before retirement 0 60,000 20,000 180,000
(32,000 (32,000
C's retirement ) )
 P a g e | 15

(4,000
Bonus to C (8,000) ) 12,000 -
56,00 148,00
Capital after retirement 92,000 0 - 0

New P/L ratio

A 60% ÷ 90% 66.67%
B 30% ÷ 90% 33.33%
C 0.00%
100.00%

7. Case 7:

Net assets of partnership (100K + 60K + 20K) 180,000

Aggregate par value of shares issued [(6K + 3K + 1K) x 10] 100,000

Share premium 80,000

PROBLEM 6: FOR CLASSROOM DISCUSSION

1. Solutions:
Case 1:
Carrying Fair Increase
amts. values (Decrease)
Cash 30,000 30,000 -
Accounts receivable 140,000 120,000 (20,000)
Inventory 200,000 160,000 (40,000)
Equipment 500,000 450,000 (50,000)
Accounts payable (80,000) (80,000) -
Accrued liabilities (20,000) (20,000)
Net assets 790,000 660,000 (130,000)

Apple Banana Carrot Total

Capital, beg. 515,000 275,000 790,000
Revaluation decrease (78,000) (52,000) (130,000)
Adjusted, before admission 437,000 223,000 660,000
Sale from Banana to
Carrot (111,500) 111,500 -
 P a g e | 16

Capital after admission 437,000 111,500 111,500 660,000

Dat Banana, Capital (223,00 x 1/2) 111,500

e
Carrot, Capital (223,00 x 1/2) 111,500

Partne Before Admission of After

r admission Carrot admission
Apple 60% 60%
Banana 40% -20% 20%
Carrot 20% 20%
100% 100%

Case 2:
Dat Apple, Capital (437K adj. cap. see above x 87,400
e 20%) 44,600
Banana, Capital (223K adj. cap. x 20%) 132,000
Carrot, Capital

Apple Banana Carrot Totals

Adjusted cap. 437,000 223,000 660,000
(Debit) Credit (87,400) (44,600) 132,000 -
Capital, end. 349,600 178,400 132,000 660,000

Case 3:
Adjusted capital before admission 660,000
Divide by: (100% - 20%) 80%
Grossed-up amount 825,000
Multiply by: 20%
Amount of investment 165,000

Partne Before Admission of After

r admission Carrot admission
A 60% (100% - 20%) x 60% 48%
B 40% (100% - 20%) x 40% 32%
C 20% 20%
100% 100%
 P a g e | 17

Case 4:
Adjusted net assets before admission 660,000
Investment of Carrot 100,000
Net assets after admission 760,000
Carrot's interest in net assets 20%
Carrot’s capital credit 152,000
Investment of Carrot 100,000
Bonus to Carrot 52,000

Date Cash 100,000

Apple, Capital (152K – 100K) x 60% 31,200
Banana, Capital (152K – 100K) x 40% 20,800
Carrot, Capital (660K + 100K) x 20% 152,000

Banan
Apple a Carrot Total
660,00
Adj. cap., before admission 437,000 223,000 0
100,00 100,00
Investment of Carrot 0 0
(31,200 (20,800
Bonus to Carrot ) ) 52,000 -
202,20 152,00 760,00
Capital, after admission 405,800 0 0 0
 P a g e | 18

Case 5:
Adjusted net assets before admission 660,000
Investment of Carrot 180,000
Net assets after admission 840,000
Carrot's interest in net assets 20%
Carrot’s capital credit 168,000
Investment of Carrot 180,000
Bonus to Apple and Banana (12,000)

Date Cash 180,000

Carrot, Capital (660K + 180K) x 20% 168,000
Apple, Capital (12K x 60%) 7,200
Banana, Capital (12K x 40%) 4,800

Banan
Apple a Carrot Total
660,00
Adj. cap., before admission 437,000 223,000 0
180,00
Investment of Carrot 180,000 0
(12,000
Bonus to old partners 7,200 4,800 ) -
444,20 227,80 168,00 840,00
Capital, after admission 0 0 0 0

2. Solutions:
Case 1:
A B C Total
Capital - Jan. 1, 20x1 320,000 192,000 128,000 640,000
Profit 400,000 240,000 160,000 800,000
(40,000 (60,000 (30,000
Drawings ) ) ) (130,000)
Capital - before 680,00 372,00 258,00 1,310,00
retirement 0 0 0 0

Sept. A, Capital 680,000

1,
20x1
B, Capital 680,000
P a g e | 19
 P a g e | 20

A B C Total
Capital - before 680,00 258,00 1,310,00
retirement 0 372,000 0 0
(680,000
Sale from A to B ) 680,000 - -
Capital - after 1,052,00 258,00 1,310,00
retirement - 0 0 0

P/L ratio after A’s retirement:

Before Retirement of After
Partner retirement A retirement
A 50% -50% -
B 30% 30% + 50% 80%
C 20% - 20%
100% 100%

Case 2:
Sept. A, Capital 680,000
1,
20x1
B, Capital (700K – 680K) x 30%/50% 12,000
C, Capital (700K – 680K) x 20%/50% 8,000
Cash 700,000

A B C Total
Capital - before 258,00 1,310,00
retirement 680,000 372,000 0 0
(700,000 (700,000
Payment to A ) )
(12,000
Bonus to A 20,000 ) (8,000) -
Capital - after 360,00 250,00
retirement - 0 0 610,000

Partner P/L ratio

A -
30% / (30% +
B 20%) 60%
20% / (30% +
C 20%) 40%
 P a g e | 21

100%

Case 3:
Sept. A, Capital 680,000
1,
20x1
Cash 650,000
B, Capital (680K – 650K) x 30%/50% 18,000
C, Capital (680K – 650K) x 20%/50% 12,000
to record the retirement of A from the partnership

A B C Total
Capital - before 372,00 258,00 1,310,00
retirement 680,000 0 0 0
(650,000
Payment to A ) (650,000)
Bonus to B and C (30,000) 18,000 12,000 -
Capital - after 390,00 270,00
retirement - 0 0 660,000

3. Solution:
A B C Total
Adjusted capital (see #2 - Case 1) 680,000 372,000 258,000 1,310,000
Less: PS (1,000 x ₱200 par) (200,000) (200,000) (200,000) (600,000)
Remaining interest 480,000 172,000 58,000 710,000
Divide by: Par val. per OS 50 50 50 50
No. of ordinary sh. issued 9,600 3,440 1,160 14,200

A B C Total
Preference shares issued 1,000 1,000 1,000 3,000
Ordinary shares issued 9,600 3,440 1,160 14,200
Total shares issued 10,600 4,440 2,160 17,200