AFAR ELLERY DE LEON

PARTNERSHIPS TECHNOLOGICAL INSTITUTE OF THE PHILIPPINES

LECTURE NOTES
FORMATION Partner A invested additional capital on May 1, 2016 for
P30,000 cash; contributed merchandise with a fair value of
The initial investments of the partners are recognized at P24,000 on September 1, 2016; and withdrew
FAIR VALUES and credited to the partners capital accounts permanently cash of P12,000 on December 1, 2016.
in the agreed interest ratio. Since partnership goodwill is Partner B had no additional investments nor permanent
no longer recognized under IFRS, the total contributions of withdrawals during 2016.
the partners (as agreed capital) is allocated to individual
partners. For example: They agreed to divide profits and losses as follows:
a. Interest of 6% on average capital for each partner
A and B formed a partnership on January 2, 2016 by b. Salaries of P4,000 each month to both partners
contributing the following net assets from their respective c. Bonus to A of 10% of net income after interests
proprietorships: and salaries; and
A B d. The balance is agreed to be divided equally.
Cash P 30,000 P 20,000 e. Both partners withdrew temporarily 60% of their
Non cash assets 620,000 730,000 respective salaries.
Liabilities (450,000) (530,000)
Net assets P200,000 P220,000 The reported profit of P150,000 for 2016 will be divided as
The non-cash assets of A is overstated by P24,500 while follows:
the liabilities of B is understated by P5,500 They agreed on A B TOTAL
a capital ratio of 48:52 to A and B, respectively. Interests P 12,852 P 12,168 P 25,020
Salaries 48,000 48,000 96,000
The compound journal entry to record the formation of the Bonus 2,898 2,898
partnership is Balance 13,041 13,041 26,082
Cash P 50,000 Total P 76,791 P 73,209 P150,000
Non-cash assets 1,325,500
Liabilities P 985,500 The journal entry to transfer the net income for 2016 to
A, capital 187,200 capital is
B, capital 202,800 Income Summary 150,000
A, capital 76,791
The above agreement resulted in a bonus of P11,700 from B, capital 73,209
B to A, which is the excess of B’s contribution of P214,500
against a smaller capital credit of P202,800, or the excess Average capital for Partner A is computed as follows:
of A’s capital credit of P187,200 over the amount
contributed of P175,500. This is referred to as BONUS 1/01/16 187,200 x 12/12 P187,200
METHOD. If no bonus is to be recognized, the partners 5/01/16 30,000 x 8/12 20,000
should have used their contributions ratio, 45:55 as 9/01/16 24,000 x 4/12 8,000
capital ratio to A and B, respectively. This is referred to as 12/01/16 (12,000) x 1/12 (1,000)
NET INVETMENT method. Average capital P214,200
Multiply by 6%
Interest P 12,852
OPERATIONS

During the operations of the partnership, loan by a partner Ave. capital of B : P202,800 x 6% P 12,168
to the partnership (Loans Payable) or by the partnership to
a partner (Loans Receivable) may be recognized; The financial statements prepared for partnerships are
temporary drawings in anticipation of profits may occur; similar to those prepared for corporations, except for the
additional investments may also be made by the partners; following basic differences:
and the result of operations during the period is reported. a. In the balance sheet, ownership equity for a
partnership will be partners’ capital balances; in a
Partnership income or loss is allocated to partners in many corporation, capital stock, additional paid-in
ways. Generally, agreement items for income or loss capital, and retained earnings. In lieu of a
allocation conform with the following remunerations: statement of retained earnings done for
a. income allocations on the basis of capital balances corporations, partnerships present a statement of
to reward partners in proportion to their respective partners’ capital in support of its ownership equity
investments through interests; on the balance sheet.
b. income allocations on the basis of service b. A statement of partners’ capital balances will show
contributions to reward partners for their initial or beginning balances, additional
respective service to the partnership through investments, withdrawal of capital, temporary
salaries; drawings, share of net income or net loss, and
c. income allocations on the basis of effective partners’ compensation treated as operating
management of the partnership through bonuses; expenses.
and
d. Any numerical ratio, e.g. 3:2:5 will apply to the
residual profit or loss after allocations made for (a) For example:
(b), and (c) above. Continuing with the same Illustrative Case, the
statement of Partners’ capital balances during 2016
For example: follows:
In continuation of the same Illustrative Case

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A B C
BB P187,200 P 202,800 P390,000 Cash P200,000
AI 54,000 54,000 A, capital (P89,760 x ½) 44,880
Wdrwl of C ( 12,000) (12,000) B, capital 44,880
Drawings ( 28,800) ( 28,800) (57,600) C, capital P289,760
SONI 76,791 73,209 150,000
EB P277,191 P247,209 P524,400 The new profit and loss ratio would probably be
Partner A (60% x ½) 30%
c. As illustrated, per GAAP, partners’ compensation Partner B 30%
items such as interests, salaries, and bonuses are Partner C 40%
simply items selected by the partners to make the
profit distribution fair. Nevertheless, in some b. Admission by purchased interest is one in which
cases, partners’ remuneration items are treated as the new partner transfers assets directly to one or
operating expenses and accordingly included in the more partners (NOT TO THE PARTNERSHIP) in
income statement. This latter case requires consideration for the purchased interest. Thus the
additional accounting procedures and the profit net assets of the partnerships remain the same
agreement will then apply to the decreased net even after the admission of the new partner.
income as a consequence of the increased
For example:
operating expenses.
Continuing with the same Illustrative Case and
assuming that the old partners sells 40% of their
For example:
respective interests for a total consideration of
Continuing with the same Illustrative Case
P200,000, the journal entry to be recorded upon C’s
admission is
The following journal entry will be recorded to validate
the compensation items as operating expenses:
A, capital P110,876
B, capital 98,884
Interest expense 25,020
C, capital P209,760
Salary expense 96,000
Bonus expenses 2,898
The total old capital remains at P524,400 after C’s
A, capital 63,750
admission and the consideration of P200,000 is divided
B, capital 60,168
between Partner A and Partner B as follows
The balance of net income of P26,082 will be recorded
To A (P277,191 x 40%) – (P9,760 x ½) P105,996
as follows
B (P247,209 x 40%) - (P9,760 x ½) 94,004
Income Summary 26,082
Total P200,000
A, capital 13,041
B, capital 13,041
WITHDRAWAL or RETIREMENT of a PARTNER
Although the revised schedule of capital balances will
have new details, ( 2 items instead of just one over If a partner withdraws from the partnership, the
the net income) , the ending capital balances will be partnership must liquidate the withdrawing partner’s
identical since the profit and loss agreement ownership equity, as follows:
remained effectively the same. a. Payment to withdrawing partner will not come from
partnership assets-
ADMISSION OF A NEW PARTNER The withdrawing partner may just sell his interest
to the remaining partners or to an outsider with
Any major change in ownership, such as admission of a the permission of the remaining partners. In this
new partner, or withdrawal of a partner from an existing case the entry required to be recorded in the books
partnership dissolves the entity. Dissolution of a of the partnership is simply the transfer of interest
partnership entity does not however imply liquidation, for from the withdrawing partner to the buying
oftentimes the business entity continues its operations partner(s) account(s).
undisturbed. For example:
Continuing with the same Illustrative Case and
There are two ways a new partner can get admitted into assuming partner A succumbed to head injuries from a
the partnerships: car accident a day after C’s admission by investment,
a. Admission by investment is one in which the new the journal entry to be recorded by the partnership if
partner transfers net assets into the partnership. the heirs of A sold the partnership equity to D (with B
Thus, the net assets of the partnership increase by and C’s permission) for P300,000 is
the amount contributed and also increase total
capital by the same amount. Capital credits to all A, capital P232,311
partners upon admission of a new partner will D, capital P232,311
depend upon the agreement.
For example: The total capital of the partnership remains the same
Continuing with the problem, assume C was admitted at P724,400.
as a partner in the AB Partnership by investing
P200,000 for a 40% interest in capital and in profits. b. Payment to the withdrawing partner will come from
partnership assets –
The total contributions by the partners will be Under this arrangement, one of three situations
P724,400 (P277,191 + P247,209 + P200,000). The can occur:
acquired interest is P289,760 at 40%, which is i. Payment is equal to the interest withdrawn,
P89,760 excess credit over the amount contributed. which is easily recorded by a debit to the
capital account of the withdrawing partner and
The journal entry to be recorded upon C’s admission is
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a credit for the payment made, since both 10/31/16 Paid partners cash of P370,000
amounts are equal.
ii. Payment is less than the interest withdrawn, In November, 2016
which is recorded with bonus to the remaining 11/2-30/16 Realized P312,000 from the sale of
partners divided in the remaining profit and the remaining non-cash assets
loss ratio. 11/15/16 Paid liquidation expenses of P6,000
iii. Payment is more than the interest withdrawn, 11/25/16 Paid third-party creditors in full.
the excess is recorded as bonus to the retiring 11/30/16 Paid partners cash of P306,000 in
partner and charged to the remaining partners final settlement.
in the remaining profit and loss ratio. Lump-Sum Liquidation:
Cash NCA A/P A B
For example: BBL 185,000 645,000 96,000 366,000 368,000
Continuing with the same Illustrative Case but Sale 597,000 (645,000) ( 20,571) (27,429)
this time payment to A’s heirs will be P240,109 LQ Exp (10,000) ( 4,286) ( 5,714)
from partnership assets, the journal entry to AP Pd. (96,000) (96,000)
record A’s withdrawal by death is Pd to P(676,000) (341,143)(334,857)
Balances - - - - -
A, capital P232,311
B, capital 3,342 b. Liquidations in which there are several distributions
C, capital 4,456 during the course of liquidation, oftentimes at
Cash P240,109 points when there are unrealized non-cash assets
and unpaid third-party creditors. This is called
The total capital after the withdrawal of Partner A will be installment liquidation
P484,291, i.e. Partner B, P198,987 and Partner C,
P285,304. The bonus to Partner A of P7,798 is divided By-Installment Liquidation:
between B and C in the remaining profit ratio of 3:4. October Liquidation
Cash NCA A/P A B
BBL 185,000 645,000 96,000 366,000 368,000
LIQUIDATION OF A PARTNERSHIP NCA sale 285,000(300,000) (6,429) (8,571)
Exp pd (4,000) ( 1,714) (2,286)
A liquidation winds up all operations of the partnerships, A/P pd (50,000) (50,000)
converts all partnerships assets into cash and distributes Pd to P (370,000) (210,000)(160,000)
to creditors of the partnerships, then to accounts with Bals. 46,000 345,000 46,000 147,857 197,143
partners.
Computation for safe payments to partners
Statement of Liquidation A B TOTAL
A statement of liquidation summarizes all liquidation Balances, 10/31 357,857 357,143 P 715,000
activities, including payments to partners. There are two TPL(345,000) (147,857) (197,143) (345,000)
types of distribution in partnerships liquidation, as follows: Free interests 210,000 160,000 P370,000
a. Liquidations in which all distributions are made in a
single time following the sale of all non-cash November Liquidation
assets. This is called lump-sum, or total, Cash NCA A/P A B
liquidation. It is a summary of the entire Bals,11/1 46,000 345,000 46,000 147,857 197,143
liquidation process upon its completion. It is one in NCA sale 312,000(345,000) (14,143) (18,857)
which at the time cash is distributed to partners, Expenses (6,000) ( 2,571) ( 3,429)
noncash assets had been already disposed and the A/P paid (46,000) (46,000)
full loss or gain on realization reflected in partners’ Cash to P (306,000) (131,143) (174,857)
capital balances. Balances - - - - -
No need for safe payment computations because the
For example: partners’ capital and profit ratios have become identical
AB Partnership is to be liquidated on September by the end of October.
30, 2016. On this date, its balance sheet is as
follows: Distribution of partnership cash in liquidation must be
made to creditors first, and then to partners’ accounts
Cash P 185,000 which are always based on free-interest computations.
Non-cash assets 645,000 Loan accounts are prioritized over capital balances only if
A, loan 20,000 they belong to the same partner and only after the
Accounts payable (96,000) amount payable to that partner has been established by
B, loan (12,000) free interest calculations.
A, capital (386,000)
B, capital (356,000) Safe-payment computation is required for every
distribution to partners when non- cash assets remain
unsold (and the profit and loss ratio and the interest
AB divide profits and losses on a 3:4 ratio to A and ratio at that point are not identical). The purpose of this
B, respectively. calculation is to determine who among the partners have
the free-interests to deserve the payment from the
The following are liquidation transactions: partnerships.
In October, 2016.
Cash Distribution Program – Alternate Method
10/1-31/16 Realized cash of P285,000 from a sale To avoid preparing the calculation for safe-payment
of non-cash assets of P300,000 every time there is an installment distribution, a cash
10/10/16 Paid liquidation expenses of P4,000 distribution program to partners is prepared. This
10/15/16 Paid third-party creditors P50,000 statement is prepared just before the start of liquidation,
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i.e. before any realization of assets and replaces the 10/31/16 Payment, P370,000
safe-payment calculations by the use of just one A B TOTAL
schedule for the numerous distributions to partners Priority 1 90,000 - 90,000
normally occurring in liquidation. Priority 2 120,000 160,000 280,000
Totals 210,000 160,000 370,000
For example:
Continuing with the current illustrative case November payment of P306,000 will be paid in the original
profit and loss ratio of 3:4 to A and B, respectively:

INTERESTS PAYMENTS To A: P306,000 x 3/7 P 131,143

A B A B TOTAL B: P306,000 x 4/7 174,857
BBL 366,000 368,000
/PLR 3/7 4/7 Please note that payment to partners AFTER the first
LAA 854,000 644,000 P90,000 payment to A will henceforth be in the original
P#1 (210,000) 90,000 - 90,000 P&L ratio because the capital and profit ratios of the
LAA 644,000 644,000 90,000 - 90,000 partners have become identical after the said priority
payment.
October payment
- done –

PARTNERSHIP FORMATION 1. To finalize the partnership agreement, Abner should

Claire, Dolly, and Ellery formed the CDE Partnership on make additional investment (withdrawal) of cash in the
September 1, 2016, with the following assets, measured at amount of.
book values in their respective records , contributed by a. P( 36,000) c. P264,000
b. P(540,000) d. P(15,000)
each partner:
CLAIRE DOLLY ELLERY
In 2016, Nikki and Candy agreed to form a new
Cash P 486,000 P460,107 P231,903
partnership under the following general agreements:
Accounts
(1) Partners’ CONTRIBUTIONS will be on a 5:4 ratio; (2)
receivable 109,620 - 141,000
PROFIT & LOSS, equally, and (3) CAPITAL CREDITS,
Plant, Property, &
57:43 ratio, respectively to Nikki and Candy. Their
Equipment (PPE) 2,094,390 450,000 -
respective contributions will come from old
proprietorships they owned.
A part of Claire’s cash contribution, P324,000, comes from
personal borrowings. Also, the PPE of Claire and Dolly are
Nikki contributed the following items and amounts:
mortgaged with the bank for P1,458,000 and P108,000,
Cash P748,800
respectively. The partnership is to assume responsibility
Equipment (at book value per her
for these PPE mortgages. The fair value of the accounts
proprietorship records) 512,000
receivable contributed by Ellery is P137,700 while the PPE
contributed by Dolly at this date is P510,300 The Candy contributed the following items at their carrying
partners have agreed to share profits and losses on a amounts in the proprietorship records:
5:3:2 ratio, to Claire, Dolly, and Ellery, respectively. Accounts receivable P 96,000
1. What is the capital balance for each partner at the Inventory 268,800
opening of business on September 1, 2016? Claire, Furniture and fixtures 514,560
P________; Dolly, P________; and Ellery, Intangibles 220,800
P________.
All the non-cash contributions are not properly valued. The
2. What is the capital balance for each partner at two partners have agreed that (a) P7,680 of the accounts
September 1, 2016, instead, if the interest ratio is receivable are uncollectible; (b) the inventories are
agreed at 5:3:2 to Claire, Dolly, and Ellery, overstated by P19,200; (c) the furniture and fixtures are
respectively? Claire, P________; Dolly, P________; understated by P11,520; and the intangibles include a
and Ellery, P________. patent with a carrying value of P13,440, which must now
be derecognized upon a court order. The rest of the
3. Explain why Partner Claire was unaffected by the intangible items are fairly valued.
bonus feature in the ownership agreement among the 2. How much is the total depreciable fixed asset recorded
partners. by the partnership?
a. P1,060,800 c. P 944,000
MULTIPLE CHOICE. b. P 403,200 d. P 1,116,480
Abner and Bimbo have just formed a partnership. Abner
contributed cash of P2,346,000 and office equipment that 3. What is the capital balance of Candy after the
cost P1,170,000. The equipment had been used in the sole formation of the partnership?
proprietorship and had been 80% depreciated. The current a. P1,036,541 c. P1,325,808
fair value of the equipment is P756,000. An unpaid b. P1,339,200 d. P1,071,360
mortgage loan on the equipment of P252,000 will be
assumed by the partnership. Abner is to have a 60% PARTNERSHIP OPERATIONS
interest in the partnership net assets. On January 1, 2016, FRED and GEMMO formed a
partnership by contributing cash of P405,000 and
Bimbo is to contribute, only, merchandise with a fair value P270,000, respectively. On February 1, 2016, Partner
of P1,890,000. Both partners agreed on a profit and loss FRED contributed an additional P135,000 cash to the
ratio of 55% to Abner and the balance to Bimbo. partnership and on August 1, 2016 Partner FRED made a
permanent withdrawal of P67,500. On May 1, 2016,

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Partner GEMMO contributed machinery with a fair market partners withdrew the maximum amount of P8,000 each
value of P90,000 and a net book value of P75,000 when year.
contributed. On November 1, 2016 Partner GEMMO 2. Calculate the balance of YVES’ capital at the end of
contributed an additional P45,000 cash to the partnership. 2015
Both partners withdrew one-fourth of their salary a. P 72,700 c. P49,600
allowances in 2016. b. P 77,600 d. P64,900

The partnership reported a net income of P257,400 in 3. Calculate the balance of Ernest’s capital at the end of
2016 and the profit and loss agreement are as follows: 2016.
a. Interest at 6% is allowed on average capital a. P 82,080 c. P81,760
balances; b. P 44,076 d. P77,600
b. Salaries of P2,700 per month to each partner;
c. Bonus to FRED of 10% of net income after interest, PARTNERSHIP DISSOLUTION
salaries, and bonus; and A. ADMISSION OF A NEW PARTNER
d. Balance to be divided in the ratio of 6:4 to FRED and HERBERT and IRENEO are partners sharing profits and
GEMMO, respectively. losses in the ratio of 60% and 40%, respectively. The
partnership balance sheet at August 30, 2016 follows:
Required:
1. Prepare a schedule for the division of net profit for Cash P Accounts payable P 13,500
2016 with supporting computations when appropriate. 12,150
2. Prepare a statement of the partners’ capital balances Other assets 119,700 Herbert, Loan 5,850
for 2016 under the following assumptions: Ireneo, Loan 9,000 Herbert, capital 81,000
a. Partners’ interests and salaries are treated as Ireneo, capital 40,500
factors to fairly distribute the net income; and Total P 140,850 Total P140,850
b. Partners’ interests and salaries are to be treated as
operating expenses. At this date, JOSHUA was admitted as a partner for a
consideration of P43,875 cash for a 40% interest in capital
MULTIPLE CHOICE and in profits.
The partnership agreement of ROBERT, ROY and BOBBY 1. Assume JOSHUA is admitted by purchase of 40% each
provides for the division of net income as follows: of the original partners’ interest:
 ROY, who manages the partnership is to receive a A. Prepare the journal entry to record the admission
salary of P35,200 per year. of JOSHUA.
 Each partner is to be allowed interest at 20% on B. Calculate the amounts received by HERBERT,
beginning capital. P_________ and IRENEO, P________ for their
 Remaining profits are to be divided equally. respective partnership interest transferred to
During 2016, ROBERT invested an additional P12,800 in JOSHUA.
the partnership. ROY and BOBBY had permanent capital
withdrawals of P16,000, and P12,800, respectively. ROY 2. Assume JOSHUA is admitted by investing the P43,875
had a temporary drawing of P4,500. No other investments to the partnership:
or withdrawals were made during 2016. On January 1, a. Prepare the entry for the admission of JOSHUA.
2016, the capital balances were ROBERT, P208,000; ROY,
P240,000; and BOBBY, P224,000.Total capital at year-end MULTIPLE CHOICE
was P806,400. MYRNA and NORMA are partners sharing profits and losses
in the ratio of 60% and 40%, respectively. The partnership
1. Compute the capital balance of each partner at year- balance sheet at August 30, 2016 follows:
end:
ROBERT ROY BOBBY Cash P 27,000 Accounts payable P 30,000
a. P257,500 P297,800 P251,100 Other assets 266,000 MYRNA, Loan 13,000
b. 258,300 297,000 251,100 NORMA, 20,000 MYRNA, capital 180,000
c. 250,665.6 292,800 244,266.4 Loan
d. 258,300 297,000 251,100 NORMA, capital 90,000
Total P 313,000 Total P313,000
The YES Partnership started operations on January 2, 2016
with the following capital balances: At this date, OLGA was admitted as a partner for a
YVES P 88,000 consideration of P97,500 cash for a 40% interest in capital
ERNEST 64,000 and in profits.
SERGE 90,000 1. Assume OLGA is admitted by purchase of 40% each of
the original partners’ interest, determine how the
Their profit and loss agreement has the following P97,500 will be apportioned to MYRNA and NORMA
provisions: a. MYRNA, P65,700 and NORMA, P31,800
 YVES will be given an annual salary of P16,000 and b. MYRNA, P64,800 and NORMA, P32,700
SERGE P8,000. c. MYRNA, P65,500 and NORMA, P32,000
 All partners will be given 10% interest on beginning d. MYRNA, P65,900 and NORMA, P31,600
capital balances every year.
 The balance of the profit, or the loss, will be divided 2. Assume OLGA is admitted by investing the P97,500
on a 5:2:3 to YVES, ERNEST, and SERGE, into the partnership, determine the effects of any
respectively. bonus over the capital balances of the original
 Each partner is allowed to withdraw up to P8,000 partners:
every year a. MYRNA, P(19,800) and NORMA, P(29,700)
b. MYRNA, P 18,000 and NORMA, p 29,700
In 2016, partnership operations resulted in a net loss of c. MYRNA, P(29,700) and NORMA, P(19,800)
P16,000, while in 2017, it was a net profit of P32,000. All d. MYRNA, P(18,675) and NORMA P(12,450)

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The equity accounts of the partnership of KARDO and

DIANA at March 31, 2016 are as follows: KATHY has decided to retire from the partnership on
KARDO, capital P512,000 October 31. Partners agreed to adjust the non-cash assets
DIANA , capital 256,000 to their fair market value of P490,000. The estimated
KARDO, loan (credit) 48,000 profit to October 31 is P100,000. KATHY will be paid
DIANA, loan (debit) 24,000 P173,000 for her partnership interest inclusive of her loan
which is repaid in full. Their profit and loss ratio is 3:3:4 to
The partners share profits and losses in the ratio of 3:2, KATHY, LILIA, and MINDA, respectively.
respectively. The partnership is in desperate need of cash, 1. Prepare entries for the retirement of Kathy from the
and the partners agree to admit JACK as a partner with a partnership.
1/3 interest in the capital and profits and losses upon his 2. What will be the balance of LILIA’s capital account
investment of P192,000. after the retirement of KATHY? P__________.
3. Immediately after JACK’s admission, what should be
the capital balances of KARDO, DIANA, and JACK,
respectively: MULTIPLE CHOICE
a. P598,000; P222,000; P410,000 The following balances as at October 31, 2016 for the
b. P480,000; P480,000; P480,000 Partnership of WILMA, XELYN , and YSKA were as follows:
c. P544,000; P256,000; P400,000 Cash P 80,000 Liabilities P 24,000
d. P435,200; P204,800; P320,000 XELYN, 24,000 WILMA, loan 36,000
Loan
The following are the capital balances of ABC Partnerships Non-cash 640,000 WILMA, 168,000
at August 1, 2016: assets capital
Albert (40% P&L) P220,000 XELYN, 156,000
Bernard (40% P&L) 160,000 capital
Conrad (20% P&L) 110,000 YSKA, capital 360,000
Totals P744,000 Totals P744,000
Dennis invests P270,000 in cash for a 30% ownership
interest. The payment goes to the original partners. WILMA has decided to retire from the partnership on October
Revaluation/adjustment in asset is to be recognized upon 31. Partners agreed to adjust the non-cash assets to their fair
Dennis’ admission. market value of P784,000. The estimated profit to October 31
4. How much adjustment in asset should be recorded and is P160,000. WILMA will be paid P276,800 for her partnership
interest inclusive of her loan which is to be paid in full. Their
what is Dennis’ beginning capital balance.
profit and loss ratio is 3:4:3 to WILMA, XELYN, and YSKA,
1. P410,000 and P270,000
respectively.
2. P140,000 and P270,000 1. What will be the balance of XELYN’s capital account after
3. P140,000 and P189,000 the retirement of WILMA.
4. P410,000 and P189,000 a. P 258,888 c. P 264,114
b.
The following are the condensed balance sheets of G&N
Partnership at August 30, 2016, at which date Ellery is to Partnership of COCO, PIOLO, and DANIEL and their profit and
be admitted with a 30% interest in capital for an loss ratios were as follows: Assets P
investment of P55,000. 1,200,000
Book Value Fair Value Coco, loan P 60,000
Cash P 20,000 P 20,000 Coco, capital (30%) 280,000
Other assets 503,000 417,000 Piolo, capital (30%) 260,000
Total assets P523,000 437,000 Daniel, capital (40%) 600,000
Current liabilities P 54,000 P 54,000 Total equities P 1,200,000
Non current liabilities 269,000 275,000
Gemmo, capital 120,000 COCO decided to retire from the partnership and by mutual
agreement, the assets were adjusted to their current fair
Norma, capital 80,000
value of P1,440,000. The partnership paid P408,000 cash for
Total equities P523,000
COCO’s equity in the partnership, exclusive of the loan which
was repaid in full.
Gemmo and Norma share profits at 60% and 40%, 2. The capital balances of PIOLO and DANIEL, respectively,
respectively. after COCO’s retirement from the partnership was:
5. What will be the respective capital balances of Gemmo, a. P360,000; P855,000 c. P300,000; P675,000
Norma, and Ellery after the new partner’s admission. b. P288,000; P684,000 d. P308,000; P664,000
a. P68,460, P45,640, and P48,900
b. P48,900, P45,640, and P68,460 The MORICATA Partnership has the following capital balances
c. P45,640, P68,460, and P48,900 and P&L ratio at August 4, 2016.
d. P64,860, P49,240, and P48,900 Mora, capital (30%) P129,750
Rico, capital (30%) 108,750
B. RETIREMENT OF A PARTNER Cara, capital (20%) 80,000
IV Tano, capital (20%) 71,500
The following balances as at October 31, 2016 for the P390,000
Partnership of KATHY, LILIA, and MINDA were as follows:
Cara has decided to withdraw from the partnership and by
Cash P 50,000 Liabilities P agreement of all the partners, will be paid P90,000 from
15,000 partnership cash.
Lilia, Loan 15,000 Kathy, loan 22,500 3. Immediately after Cara’s retirement, the capital ratio of
Non-cash 400,000 Kathy, 105,000 Mora, Rico, and Tano, respectively will be
assets capital a. 33-1/3%, 33-1/3%, and 33-1/3%
Lilia, capital 97,500 b. 40 %, 34 %, and 26 %
Minda, 225,000 c. 37-1/2%, 37-1/2%, and 25 %
capital d. 42 %, 35 %, and 23 %.
Totals P465,000 Totals P465,000

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A, B, and C formed a partnership on January 2, 2015 with the 1. LUMP-SUM

following contributions: V
A P100,000 PEDRO, ROGER, and TONIO plan to liquidate their
B 200,000 partnership. They have always shared losses and gains in a
C 300,000 2:3:5 ratio, and on the day of the liquidation their balance
sheet appeared as follows:
The partners agreed on a capital ratio of 1:2:3 upon formation
and P&L ratio of 3:3:4, respectively. The partnership reported PEDRO, ROGER, and TONIO
a net loss of P20,000 for 2015. Also, at the end of 2015, C has Balance Sheet
decided to withdraw from the firm and was paid P250,000 December 31, 2016
from partnership cash. Assets Liabilities and Capital
Cash P68,750 Accounts payable P130,370
On April 1, 2016, D was admitted as a partner with an TONIO, loan 5,000
investment of P160,000. He is given a share in capital of Other assets 451,250 PEDRO, Capital 76,250
40%and in profits, 30% the old partners have agreed to retain ROGER, loan 50,000 ROGER, capital 250,880
their old ratio over the remaining profit and loss share of _______ TONIO, capital 107,500
70%. The partnership reported a net profit of P21,000 for Total assets P570,000 Total equities P570,000
2016, one-third of which is deemed earned as of the end of
the year’s first quarter’s operation. The other assets are sold for P212,500, and assume the
4. Determine the capital balances of A and B, respectively, following information on partners’ net assets, exclusive of
as of December 31, 2015. their respective partnership interests at that point.
a. P 94,000 & P194,000 c. P 194,000 & P115,000
b. P 115,000 & P215,000 d. P 165,000 & P215,000 PEDRO ROGER TONIO
Assets P687,500 P375,000 P 167,000
5. Determine the capital balances of A, B, and C, Liabilities 562,500 350,000 161,875
respectively on December 31, 2016.
a. P98,540, P75,720 & P113,840 Required: Prepare general journal entries to record the sale
b. P93,640, P70,820 & P109,640 of the other assets and the distribution of the cash to the
c. P100,990, P78,170 & P120,140 proper parties. Show supporting computations in good form.
d. P104,000, P204,000 & P203,000
MULTIPLE CHOICE
GYLIN, MARIA, and CARLA decided to liquidate their
C. INCORPORATION partnership on November 30, 2016. Their capital balances
Partners JOJO and MAR, who share profits and losses equally, and profit and loss ratio are as follows:
have decided to incorporate the partnership at December 31, Capitals P & L Ratio
2014. The partnership net assets after the following GYLIN P 800,000 40%
adjustments will be contributed in exchange for shares of MARIA 960,000 30%
stocks from the corporation. CARLA 320,000 30%
i. provision of allowance for doubtful accounts, P6,000,
ii. adjustment of understated inventory by P10,000, and The net income from January 1, 2016 to November 30, 2016
iii. recognition of additional depreciation of P2,000. is P704,000. On November 30, 2016, the cash balance is
P640,000, and that of liabilities is P1,440,000.
The corporation’s ordinary shares is to have a par value of
P200 each and the partners are to be issued corresponding GYLIN is to receive P883,200 in the settlement of her interest.
shares equivalent to 80% of their adjusted capital balances. 1. Calculate: (1) The loss on realization, and (2) the amount
The partnership balance sheet at December 31, 2016 to be realized from the sale of non-cash assets?
follows: a. (1) P496,000; (2) P3,088,000
Cash P 60,000 Liabilities P 86,000 b. (1) 248,000; (2) 5,100,000
Accounts Acc. c. (1) 620,000; (2) 3,860,000
receivable 50,000 depreciation 4,000 d. (1) 552,000; (2) 3,860,000
Inventory 70,000 Jojo, capital 70,000
Equipment 40,000 Mar, capital 60,000 The accounts of the Partnership of R, S, and T at the end of its
Total P 220,000 Total P 220,000 fiscal year on November 30, 2016 are as follows:
1. Determine the total credit to APIC upon incorporation of Cash P 166,000 Loan from S P 32,000
the partnership Other non-cash R, capital (30%) 426,000
a. P 13,500 c. P 12,000 assets 1,132,000
b. P 26,400 d. P 132,000 Loan to R 24,000 S, Capital (50%) 218,000
Liabilities 420,000 T, capital (20%) 226,000
2. The number of ordinary shares issued to Partner Mar is 2. If in the first cash distribution, S received P80,000, which
a. 568 c. 244 of the following statements is incorrect?
b. 600 d. 660 a. Total amount distributed to partners is P538,000.
b. Total amount paid to creditors is P420,000.
On January 2, 2016, VENUS and WILMA dissolved their c. Total amount realized from the non-cash assets is
partnership and transferred all assets and liabilities to a P958,000
newly formed corporation. At the date of incorporation, the d. R received an amount equal to P300,000.
fair value of the net assets was P12,000 more than the
The following condensed balance sheet is prepared for SAMMY
carrying amount on the partnership’s books. Of which
and JOKER, who share profits and losses in the ratio of 60:40,
P7,000 was assigned to tangible assets and P5,000 was
assigned to patent. VENUS and WILMA were each issued respectively:
5,000 shares of the corporation’s P1 par common stock. Other assets P 720,000 Accounts P192,000
payable
3. Immediately following incorporation, additional paid-in
Sammy, loan 32,000 Sammy, capital 312,000
capital in excess of par should be credited for
Joker, capital 248,000
a. P68,000 c. P77,000
Total P 752,000 Total P 752,000
b. P70,000 d. P82,000 3. The partners have decided to liquidate the partnership. If
the other assets are sold for P770,000, what amount of
PARTNERSHIP LIQUIDATION. the available cash should be distributed to Sammy?

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a. P310,000 c. P342,000 partnership. On this date the partnership condensed

b. P312,000 d. P390,000
balance sheet was as follows:
2. BY INSTALLMENT Cash P 80,000 Liabilities P 96,000
VI Other assets 400,000 Carlo, capital 128,000
Diego, capital 144,000
, the balance sheet of CDO
On December 31, 2016 Edgar, capital 112,000
Partnership is as follows: Total P 480,000 Total P 480,000
On January 15, 2016, the first cash sale of other assets with a
Assets Liabilities
carrying amount of P240,000 realized P192,000. Safe
Cash P 15,360 Account Payable P51,200
installment payments were made the same date.
SlryPyble, Cherry 10,240
Noncash assets 271,360 Dorie, Loan 20,480
3. How much cash should be distributed to each partner?
Loan to Oscar 10,240 Cherry, Capital 38,912
CARLO DIEGO EDGAR
Dorie, Capital 73,728
a. P 30,000 P102,000 P 88,000
_______ Oscar, Capital 102,400
b. P 80,000 P 90,000 P 70,000
P296,960 P 296,960
c. P 24,000 P 81,600 P 70,400
d. P120,000 P 72,000 P48,000
Profit and losses were shared as follows; CHERRY, 30%;
DORIE, 30%; OSCAR, 40%. It was decided to liquidate the
The partnership ABC is currently liquidating and on February
business. The following is a summary of the realization and
15, 2016, their balances in capital and their profit and loss
liquidation activities.
(P&L) ratios are shown below:
Book
Value Cash Paid
Ariston, capital (P&L 50%) P19,000
of Asset Cash Expense Liabiliti to
Bernardo, capital (P&L 30%) 18,000
Realized Collected s es Partners
Conrado, capital (P&L 20%) (12,000)
Paid Paid
1st
Assume non-cash assets have been all disposed and Conrado
Period 133,120 81,920 4,100 40,000 41,980
has promised to pay his deficiency in a week’s time,
2nd
Period 76,800 51,200 4,800 11,200 40,000
4. Calculate the amount to be received by one of the
3rd
partners if cash is paid immediately on February 15, 2016.
Period 61,440 35,840 3,600 - 38,640
a. Ariston, P13,000 c. Bernardo, P14,000
Total 271,360 168,960 12,500 51,200 120,620
b. Bernardo, P12,000 d. Ariston, P11,500
Required:
Claudia, Petra, Mona, and Hilda are partners who share profits
1. Prepare a statement of liquidation for each period.
and losses at 40%, 30%, 20%, and 10%, respectively. Since
2. Prepare a program to show how cash is to be distributed
two of them have given intention to withdraw, they have
to partners.
decided to liquidate the partnership instead. At this point, the
capital balances of the partners are as follows:
MULTIPLE CHOICE
Claudia P 48,000
The accounts of the partnership of PBA at December 31, 2016
Petra 21,600
are as follows: Mona 34,400
Cash P 132,000 Liabilities P 100,000 Hilda 16,000
Non-cash Loan from B 32,000 5. Which of the following statement is true?
assets 1,166,000 a. The first available P1,600 will go to Hilda
Loan to P 24,000 P, capital 330,000 b. Claudia will be the last to receive cash
B, capital 586,000 c. The first available P2,400 will go to Mona.
A, capital 274,000 d. Claudia will collect a portion of any available cash
Total P1,322,000 Total P1,322,000 before Hilda receives anything.

They divide profits and losses 3:5:2 to P, B, and A ASSER, JING, and TONY are in the process of liquidating their
respectively. They have decided to liquidate the partnership at partnership. They have the following capital balances and
this date. profit and loss percentages:
1. Determine the amount payable to Partner A if cash is paid Capital Balance Profit and Loss %
just before the start of liquidation on December 31, 2016. ASSER 8,000 debit 20%
a. P 28,286 c. P 35,357 JING 28,800 credit 50%
b. P 35,300 d. P 35,120 TONY 9,600 credit 30%

2. Determine the amount Partner P and Partner B would The partnership balance sheet shows cash of P8,000, non-
have received by the time Partner A would have received cash assets of P22,400, and no liabilities.
a cumulative amount of P72,000.
a. R, P3,000 and S, P113,000 6. Assuming no liquidation expenses, what safe payments
b. R, P3,516 and S, P140,530 could be made?
c. R, P3,750 and S, P141,250 a. P8,000 split between JING and TONY by a ratio of
d. R, P3,516 and S, P145,200 5:3, Respectively
b. P8,000 to JING only
On January 1, 2016,the partners CARLO, DIEGO, and c. P1,600 to ASSER, P4,000 to JING and P2,400 to TONY
d. P28,800 to JING only.
EDGAR, who share profits and losses in the ratio of
5:3:2, respectively, decided to liquidate their

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