ADVANCED FINANCIAL ACCOUNTING AND REPORTING UST LEGAZPI PRE-REVIEW
LECTURE 1: PARTNERSHIP AEMANANSALAJR
Part I. Partnership Formation (Theories)
1. Which of the following statements concerning the formation of partnership business is correct?
a. Philippine Financial Reporting Standards (PFRS) allows recognition of goodwill arising from
the formation of partnership.
b. The juridical personality of the partnership arises from the issuance of certification of
registration.
c. The parties may become partners only upon contribution of money or property but not of
industry or service.
d. The capital to be credited to each partner upon formation may not be the amount actually
contributed by each partner.
2. Under the generally accepted accounting principles in the Philippines, what is the acceptable
reason when the amount credited to a partner is greater than the amount actually contributed
by such partner during partnership formation?
a. Recognition of goodwill by virtue of special skills or reputation of said partner.
b. Receipt or transfer of capital from other partner by virtue of partner’s agreement resulting
to bonus the said partner.
c. Recognition of impairment loss on the property contributed by said partner.
d. When there is bonus given by said partner to the other partners.
3. He refers to a partner who contributed not only money and property but also industry to the
newly formed partnership.
a. Industrial Partner
b. Nominal Partner
c. Capitalist-industrial partner
d. Capitalist partner
4. Regina, Jessica and Nataly entered into a contract of partnership with a total capital contribution
of Php 5,000. The parties failed to register its articles of co-partnership with the Securities and
Exchange Commission. Which of the following statements is incorrect?
a. The contract of partnership is void because the law provides that when the capital
contribution is at least Php 3,000, it must be registered with Securities and Exchange
Commission.
b. The contract of partnership will bind third persons.
c. The contract of partnership remains to be valid.
d. The partnership business does not obtain juridical personality for failure to register with
Securities and Exchange Commission.
5. It refers to a type of partnership wherein all partners are liable to the creditors pro-rata up to the
extent of personal or separate assets after the partnership’s assets are exhausted.
a. General Partnership
b. Partnership by estoppels
c. Limited partnership
d. Particular partnership
Part II. Partnership Formation (Problem Solving)
1. On January 1, 2017, Angel, Bea and Colleen formed ABC & Co., a general professional partnership
for the exercise of their common profession. Angel contributed a building with a cost of Php 5M
and accumulated depreciation of Php 4M. Based on the city assessor’s records, the building has
an assessed value of Php 2M. The building has an annotated mortgage payable amount to Php
500,000 to be assumed by the partnership.
On the other hand, Bea contributed 10,000 shares of stocks with par value of Php 200/share and
prevailing quoted price of Php 300/share. On January 2, 2017, the building contributed by Angel
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was sold for Php 5.5M. If Colleen wants to have 20% capital interest in the newly formed
partnership, how much cash shall be contributed by her?
a. Php 875,000
b. Php 1,125,000
c. Php 2,125,000
d. Php 2,000,000
2. On July 1, 2016, Anne, Bianca and Carla formed a business partnership to be operated as an
advertising agency. Anne contributed Php 10M cash while Bianca shall have capital credit of Php
6M upon receipt of bonus of Php 1M from Anne based on the provision in Articles of Co-
Partnership. The terms of the agreement provides that Anne and Bianca shall have a combined
40% capital interest in the newly formed partnership. What is the capital contribution made by
Carla to the partnership?
a. Php 24,000,000
b. Php 22,500,000
c. Php 25,000,000
d. Php 32,000,000
3. On January 1,2016, Regina, Jessica and Nataly formed a partnership with profit or loss sharing
agreement of [Link].
Regina contributed a land with assessed value from city assessor in the amount of Php 1,000,000.
The land is subject to a real estate mortgage which is annotated to the title of the land in the
amount of PHp 800,000 and will be assumed by the partnership. The appraised value of the land
is Php 2,400,000. Jessica contributed a building with a cost of Php 2,000,000 and accumulated
depreciation of Php 1,500,000. The fair value of the building is Php 800,000. Nataly contributed
investment in trading securities with historical cost of Php 6,000,000. The trading securities have
quoted price in active market of Php 3,000,000.
The partners decided to bring their capital balance in accordance with their profit or loss sharing
agreement. The total agreed capitalization of the new partnership is Php 10,000,000. Which of
the following statement is correct?
a. The agreed capital of Nataly is Php 500,000.
b. Regina should contribute additional capital in the amount of Php 1,800,000.
c. Jessica should contribute additional capital in the amount of Php 2,200,000.
d. Nataly is entitled to withdraw in the amount of Php 1,000,000.
4. On January 1, 2017, Len, May, and Nancy decided to form a business partnership to operate a
supermarket. Len and May both owned a grocery business with the Statements of Financial
Position as of December 31, 2016:
LEN MAY
Cash Php 10M Php 20M
Accounts Receivable 20M 30M
Inventories 70M 40M
Property, Plant and Equipment 50M 10M
Accounts Payable 40M 20M
Notes Payable 30M(10%) 50M ( 5%)
Capital 80M 30M
The following additional notes are provided:
Len and May will contribute all its assets and liabilities to the newly formed partnership
The parties agree to provide 10% and 20% allowance for bad debts to the accounts
receivable of Len and May respectively.
The inventories of Len and May are reported at historical cost and have net realizable value
of Php 60M and Php 45M respectively.
The PPE of Len and May have not been depreciated and should be depreciated by 40% and
30% respectively.
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The interest payable on both notes payable were unrecorded and unpaid since the date of
contract. Len’s note payable is dated April 1, 2016 while May’s note payable is dated June
30, 2016.
Nancy shall have 20% interest in the partnership upon contribution of sufficient cash.
What is the amount of cash to be contributed by Nancy on January 1, 2017?
a. Php 16,375,000
b. Php 17,625,000
c. Php 15,825,000
d. Php 18,475,000
Part III. Partnership Operation (Theories)
1. Which of the following transactions shall not affect the capital balance of a partner?
a. Share of partner in the partnership’s net loss.
b. Receipt of bonus by a partner from another partner based on the agreement.
c. Advance made by the partnership to a partner.
d. Additional investment by a partner to the partnership.
2. In the absence of agreement as to distribution of profit, how shall the partnership profit be
distributed to the partners?
a. The industrial partner shall receive a share equivalent to the least share of a capitalist
partner while the capitalist partners shall share based on capital contribution ratio.
b. The industrial partner shall receive a just and equitable share and the remainder shall be
distributed to the capitalist partners on the basis of capital contribution ratio.
c. The profit shall be distributed on the basis of loss contribution ratio which may have been
agreed upon by the partners.
d. The profit shall be distributed equally to all partners including the industrial partner.
3. In the absence of agreement as to distribution of loss, how shall the partnership loss be
distributed to the partners?
a. The loss shall be distributed equally to all partners including the industrial partner.
b. The industrial partner shall be exempted from partnership loss while the capitalist partners
will share equally.
c. The industrial partner shall be exempted from partnership loss while the capitalist partners
shall be distributed on the basis of capital contribution ratio.
d. The industrial partner shall be exempted from partnership loss while the capitalist partners
shall be distributed in accordance with profit agreement ratio.
4. Which of the following will decrease the capital balance of a partner?
a. Share in partnership profit
b. Receipt of share in revaluation surplus from a partnership property, plant and equipment.
c. Drawing made by a partner
d. Advances made by a partner to the partnership.
Part IV. Partnership Operation (Problem Solving)
1. On January 1,2021, Angel, Bea and Colleen formed a partnership with original capital
contribution ratio of [Link] for total agreed capitalization of Php 5,000,000. The profit or loss
ratio agreement provides that profit shall be distributed in the ratio of [Link] while losses shall be
distributed in the ratio of [Link].
During 2021, the partnership reported net income of Php 2,000,000 with Angel and Bea
withdrawing Php 500,000 and Php 300,000, respectively. During 2022, the partnership reported
net loss of Php 1,000,000 with Bea and Colleen withdrawing Php 200,000 and Php 400,000
respectively. What is the capital balance of Bea on December 31,2022?
a. Php 2,600,000
b. Php 2,300,000
c. Php 2,500,000
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d. Php 2,400,000
2. On January 1, 2031, Kobe, Lebron and Michael formed a partnership with respective capital
contribution of Php 2,000,000, Php 5,000,000, and Php 3,000,000. The articles of co-partnership
provides that profit or loss shall be distributed accordingly:
a. 20% interest on original capital contribution
b. Php 30,000 monthly salary for Kobe and Php 50,000 monthly salary for Michael
c. The remainder shall be distributed on the basis of original contribution ratio
On December 31, 2031, Kobe and Lebron made withdrawals of Php 500,000 and Php 1,000,000
respectively. The statement of financial position of the partnership shows that Lebron’s capital
on December 31, 2031 is Php 6,500,000. What is the capital balance of Kobe on December
31,2031?
a. Php 3,260,000
b. Php 2,100,000
c. Php 2,360,000
d. Php 2,860,000
3. On January 1, 2017, Klay and Steph formed Splash Brother Partnership organized to train
prospective professional basketball players on how to shoot 3-pointer with splash. The articles
of co-partnership provides that profit or loss shall be distributed accordingly:
a. 10% interest on average capital balance
b. Php 50,000 and Php 100,000 quarter salary for Klay and Step respectively
c. The remainder shall be distributed in the ratio of 3:2 for Klay and Steph, respectively
d. The following transactions regarding the capital balance of the partners for year 2017
are provided:
Klay Steph
January 1, 2017 Investment 1,000,000 500,000
March 31, 2017 Investment 100,000
July 1, 2017 Drawings 200,000
Sept. 30, 2017 Drawings 200,000
Oct. 1, 2017 Investment 700,000
e. The chief accountant of the partnership reported net income of Php 1,000,000 for year
2017
What is the capital balance of Klay on December 31, 2017?
a. Php 1,951,500
b. Php 1,451,500
c. Php 2,151,500
d. Php 1,251,500
4. On July 1, 2018, Drumond and Jordan formed the Free Throw Partnership organized to train
prospective professional basketball players on how to shoot Charity Shot without accuracy with
initial investment of Php 1M and Php 2M respectively. Drumond is appointed as the managing
partner. The articles of co-partnership provides that profit or loss shall be distributed
accordingly:
30% interest on original capital contribution
Monthly salary of Php 20,000 and Php 100,000 for Drumond and Jorda
Drumond shall be entitled to bonus equivalent to 20% of net income after interest,
salary and bonus
The remainder shall be distributed in ratio of 3:2 for Drumond and Jordan respectively.
For the year ended December 31, 2018, the partnership reported net income of Php 750,000.
What is the share in net income of Drumond for the year ended December 31, 2018?
a. Php 400,500
b. Php 250,000
c. Php 350,000
d. Php 500,000
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5. Using the same data of Free Throw Partnership, what is the share in net income of Jordan
assuming the bonus is equivalent to 20% of net income after interest and salary but before
bonus for the year ended December 31, 2018?
a. Php 351,600
b. Php 398,400
c. Php 350,000
d. Php 500,000
Part V. Partnership Dissolution (Theories)
1. Which of the following statements pertains to partnership dissolution?
a. It refers to the process of converting the non-cash assets of the partnership and distributing
the total cash to the creditors and the remainder to the partners.
b. It refers to the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying of the partnership.
c. It refers to the extinguishment of the juridical personality of the partnership.
d. It refers to the end of the life of the partnership.
2. Which of the following will not result to the dissolution of a partnership?
a. Insolvency of the partnership
b. Admission of a new partner in an existing partnership
c. Assignment of an existing partner’s interest to a third person
d. Retirement of a partner
3. Which of the following statements is correct when a new partner is admitted to an existing
partnership by purchasing a portion of a capital interest of an existing partner?
a. It will result to revaluation or impairment of existing assets of the partnership.
b. The partnership will recognize gain or loss in the transfer of capital from one partner
to another partner.
c. The partnership is not dissolved by the admission of a new partner by purchase.
d. It will just result to credit to capital of newly admitted partner with corresponding
debit to capital of the selling partner.
4. In case of admission of a new partner in an existing partnership through investment to the
partnership, which of the following scenario will result to bonus to new partner and asset
revaluation?
a. The total contributed capital of all partners is equal to the total agreed capital of new
partnership while the agreed capital of new partner is higher than the amount he has
contributed.
b. The total contributed capital of all partners is more than the total agreed capital of
new partnership while the agreed capital of new partner is lower than the amount he
has contributed.
c. The total contributed capital of all partners is less than the total agreed capital of new
partnership while the agreed capital of new partner is higher than the amount he has
contributed.
d. The total contributed capital of all partners is more than the total agreed capital of
new partnership while the total agreed capital of old partners is equal to the amount
they contributed.
5. If a partner who retired from the partnership receives less than the capital balance before
retirement which also resulted to decrease in the capital balance of remaining partners, which is
correct?
a. The retiring partner receives bonus from remaining partner.
b. An impairment loss is recognized before the retirement.
c. Revaluation surplus is recognized before the retirement.
d. The retiring partner gives bonus to the remaining partner.
“Hard work beats talent, when talent doesn’t work hard.”
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