PARTNERSHIP FORMATION
You and your friend are entrepreneurs and have agreed to form a business partnership. Your
contributions are as follows: Additional information:
PARTNER 1 PARTNER 2
Cash 250 000 1 800 000
Accounts Receivable 430 000 1 000 000
Land 1 250 000
Building 2 000 000
Accounts Payable 330 000 400 000
Notes Payable 500 000
Capital 3 600 000 1 900 000
1. The cash contribution of Partner 1 as listed above is the peso equivalent of 6,250 foreign
currency units (FCU). The current exchange rate is P45:FCU1.
2. Partner 2’s account receivable should be written down by P200,000.
3. The land has appraised value of P1,500,000.
4. The building has an appraised value of P1,400,000.
5. Attached to the building is an unpaid mortgageof P800,000. Partner 1 agrees to settle this
mortgage immediately using his/her personal funds.
6. There is a pending lawsuit over Partner 1’s contributed properties –a claim by a third party. A
discussion with Partner 1’s legal counsel reveals that it is probable that the plaintiff will accept
an out of court settlement of not less than P300,000. The partnership shall assume the
obligation of paying the plaintiff.
7. There are unpaid real property taxes on the properties contributed by Partner 1 amounting
toP40,000. The partners agree that the partnership shall assume those obligations.
8. The notes payable above is stated at face amount. An inspection of the related promissory
note reveals that the note is a 5-year non-interest bearing note issued 2 years agoand requires
a lump sum payment at maturity date. The appropriate discount rate is 10%.
Requirements:
a) Compute for the adjusted balances of your capital accounts.
b) Provide the entry to record your contributions in the partnership books.
VARIATION #1: You and your partner agree that one of you is significantly cuter than the other. You
determined that the cuteness will bring good feng shui to the business. Accordingly, you decided to
have your capital accounts credited at equal amounts. No cash settlements or additional investments
will be made.
a) How much is the bonus?
b) Which partner receives the bonus?
c) Explain briefly how the bonus will be accounted for in the partnership books.
d) Provide the entry to record your contributions in the partnership books.
VARIATION #2: You and your partner decided to equalize your interest and make cash settlement for
the difference among yourselves. No additional or withdrawal of investments will be made.
a) Which partner shall receive cash payment from the other partner?
b) Explain briefly how the cash receipt/cash payment will be accounted for in the partnership
books.
c) Provide the entry to record your contributions in the partnership books.
VARIATION#3: You and your partner agreed that your respective interest in the partnership must be
equal. You agreed that a partner’s capital shall be increased accordingly by contributing additional
cash to bring both of your capital balances proportionate to your equity interests.
a) Which partner shall make the additional cash contribution?
b) How much is the additional contribution by that partner?
VARIATION#4: You and your partner agreed that yourespective interest in the partnership must be
equal. You agreed that the initial capital of the business should be equal to the fair value of your net
asset contributions. You further agree that a partner should provide additional investment (or
withdrawpart of his investment) in order to bring both of your capital credits equal to your respective
interests in the equity of the partnership.
a) Which partner(s) should provide additional investment (or withdraw part of his/her investment)
in order to bring both of your capital credits equal to your respective interests in the equity of
the partnership?
