PARTNERSHIP DISSOLUTION INTEREST PURCHASED = Capital balances (per

selling partner) x Ownership Interest Purchased

- termination of the life of an existing
partnership. OR
May be followed by: INTEREST PURCHASED = Total partnership
Capital Equity x Ownership Interest Purchased
1. Formation of a new partnership
- dissolution by change in ownership
structure.
2. Liquidation PURCHASE PRICE of the Interest sold to the new
- Termination of the business activities partner may be EQUAL/LESS THAN/MORE THAN
- Winding up of partnership affairs BV of interest sold.
TRANSPER OF CAPITAL – only journal entry
Note: dissolution does not always result to
liquidation although liquidation is always required
preceded by dissolution. - From the capital account of the SELLING
PARTNER (SP) to the account of BUYING
PARTNER (BP).
CAUSES OF DISSOLUTION - Regardless of amount paid,
• Admission Capital transferred = Book Value (BV) of
• Retirement interest sold
• Death
PRO-FORM ENTRY:
• Incapacity
• Bankruptcy (name of seller), Capital xx
• Incorporation of a partnership
(name of buyer), Capital xx
Note:
ACCOUNTING FOR ADMISSION OF A NEW
- Personal gain/loss of the old partner/ SP is
PARTNER
not recorded in the partnership. (kapag
ADMISSION OF A NEW PARTNER bumili less/more than sa BV)
- Admission of a new partner by purchase
- With the consent of all partners will not affect the total assets and the total
- Firm is automatically dissolved / new capital of the partnership.
partnership is formed

PROBLEM 1.
TYPES OF ADMISSION OF A NEW PARTNER
A and B are partners w/ capital balances of
1. ADMISSION BY PURCHASE P100,000 and P50,000, respectively. They share
- Purchasing a capital equity interest directly profits and losses equally. C is a new partner.
from one/more of the old partners.
- Personal transaction of the new partner a. C purchases 1/5 interest from the old
and the selling partner partners by paying 30k.
- Terms such as purchases, sells, pays, b. C purchases 1/5 interest from A by
bought, sold, transferred paying 25k.
c. C pays P20,000 for 1/5 interest of the
old partners.
ASSET REVALUATION UPON ADMISSION OF A CAPITAL CREDIT
NEW PARTNERSHIP BY PURCHASE
- Interest/equity of a partner in the firm.
- Generally undertaken PRIOR to the
admission of a new partner. CC = AC x % of Partner’s Interest
- The adjusted capital of the old partners NEW PARTNER’S CAPITAL CREDIT (NPCC)
becomes the basis for the interest
transferred to the new partner. - initial capital of the NP

PROBLEM 2. NPCC = AC x NP %

A and B are partners w/ capital balances of ASSET REVALUATION (AR)

P100k and P50k, respectively. They share profits - Necessary adjustments in asset values upon
and losses equally. C is a new partner who admission of a NP.
purchases 1/5 interest from A and B paying
P40k. However, before the admission of C, AR = AC – TCC
partnership assets are to be revalued using as
a. Positive AR
basis the amount to be paid by C. What will be
the capital balances of the partners after C's AC > TCC
admission?
b. Negative AR
2. ADMISSION BY INVESTMENT
- Transaction between the orig partnership AC < TCC
and the new partner BONUS
- Increases the total assets and the total
capital of the partnership - transfer of capital from one partner to
- Terms like “invests” and “contributes” another
- allocated by using PL ratio
a. Bonus to New partner
AGREED CAPITAL (AC)
NP CAPITAL CREDIT > NP INVESTMENT
- Amount of new capital set by the partners
for the partnership. a bonus to the NP is given by the OP
- It may be equal, less/more than to the total
↑NP’s Capital ↓ OP’s Capital
contribution’s of the partners.
b. Bonus to Old Partners
If not indicated:
NP CAPITAL CREDIT < NP INVESTMENT
AC = INVESTMENT OF NP / NP’S FRACTION OF
a bonus to the OP is given by the NP
INTEREST
↓ NP’s Capital ↑OP’s Capital
OR
AC = INVESTMENT OF OP / OP’S FRACTION OF
INTEREST PROBLEM 3.
TOTAL CONTRIBUTED CAPITAL (TCC) Calma and Castro are partners with capital
balances of P200k and P100k, respectively. They
- Investment of all partners (OP and NP)
share profits and losses equally. Baste is to be
- Sum of capital balances
admitted in the partnership.
TCC = OP CAPITALS + NP INVESTMENT
 a. Baste invests P100,000 for a ¼ interest CHANGE IN CAPITAL STRUCTURE BY
in the agreed capital of P400,000. WITHDRAWAL OR RETIREMENT OF A PARTNER
b. Baste invests P100,000 for a 1/5 interest
in the new firm capitalization of The partnership may allow any of its partner to
P400,000. retire/withdraw from the firm. The business
c. Baste invests P60,000 for a ¼ interest in may continue after such withdrawals; on the
the total capitalization of P360,000. other hand, the interest of the
d. Baste invests P100,000 for a 1/5 interest retiring/withdrawing partner may be:
in the agreed capital of 500,000. 1. Sold to a new partner
e. Baste invests PP60,000 for a 1/5 interest 2. Sold to the continuing partners
in the agreed capital of P300,000. 3. Sold to the partnership
f. Baste invests P100,000 for a ¼ interest
in the agreed capital of 500,000. The SALE OF INTEREST TO A NEW PARTNER
assets are revalued. - With the consent of the remaining partners
PROBLEM 4. - Retiring Partner (RP) may sell his interest to
an outsider
Erwin and Hange have capital balances of P200k - Partnership only recognizes the TRANSPER
and P100k, respectively and sharing profits and OF CAPITAL INTEREST from RP to the NP.
losses in the ratio of 3:1, Levi invests P100k in - Any gain/loss from the sale is a personal
the firm and is credited for P50,000 which is to gain/loss of the RP.
be 1/8 of the new firm capital. How much will - Sale is recorded in the same manner as in
be Erwin’s capital after admissions? the admission of a new partner by
purchase.

PROBLEM 5. SALE OF INTEREST TO CONTINUING PARTNERS

(CP)
Erwin and Hange have capital balances of P200k
and P100k, respectively and sharing profits and - Partnership only recognizes the TRANSPER
losses in the ratio of 3:1. Levi invested sufficient OF CAPITAL INTEREST from RP to the
acquiring partner/s.
amount for a 1/3 interest. How much did he
invest? - Sale is recorded in the same manner as in
the sale of interest to a new partner.
SALE OF INTEREST TO THE PARTNERSHIP
- RP may sell his interest to the CP through
the partnership.
- The partnership has the obligation to make
payment to the RP either by:
a. Cash
b. Transfer of noncash assets; or
c. Recognition of liability for the full /
balance of the unpaid interest of the RP.
The purchase price or amount of settlement by
the partnership to the RP may EQUAL/LESS
THAN/ MORE THAN the interest of the RP.
If payment to the RP is less/more than than his
capital interest, the difference between the
purchase price and the capital interest may be David and Deym amount to ₱4,000, ₱5,000 and
accounted for using: ₱2,000 respectively. Profits and losses are to be
shared equally after the retirement of Deym.
a. Bonus method
b. AR method a. Deym sold his interest to Eric for P100k.
b. Deym sold his interest to Dy and David for
P75k, the interest being divided equally
CALCULATION OF RETIRING PARTNER’S by the remaining partners. Profits and
INTEREST losses after retirement of Deym will be
divided equally.
Investments c. Deym sold his interest to the partnership.
- withdrawals The partners agreed to make immediate
cash settlement to the RP. The
+ /- share in partnership’s profits or losses partnership paid Deym P76,000, which is
P6,000 less than his capital interest of
+ loans and advances to the partnership
P82,000.
- loans/advances from the partnership • Bonus Method
• AR method
+/- asset revaluation
Interest upon retirement
CHANGE IN CAPITAL STRUCTURE BY DEATH/
INCAPACITY OF A PARTNER
PROBLEM 7. - death/incapacity legally dissolves the old
The statement of financial position of the partnership
partnership of Dy, David and Deym on - remaining partners may continue
December 31, 2025 follows: operations
- interest of the deceased/incapacitated
Assets partner must be determined by the
partnership in order to make necessary
• Cash: ₱110,000
settlement w/ his legal representative.
• Other Assets: ₱30,000 - In case the business is continued w/o
Total Assets: ₱140,000 immediate settlement, the legal
representative of the deceased is
Liabilities and Capital considered as an ordinary creditor and is to
• Dy, Capital: ₱20,000 receive an amount attributable to his
interest.
• David, Capital: ₱40,000 - Accounting for settlement to the
deceased/incapacitated partner is the same
• Deym, Capital: ₱60,000
as that of withdrawal/retirement.
Total Liabilities and Capital: ₱140,000
The partners share profits and losses in the ratio
of [Link]. On July 1, 2025, Deym asked to be
allowed to withdraw from the partnership. The
partners decided to close the books as of this
date so as to determine the capital interest of
Deym. Profit for the six months ended
amounted to ₱60,000 while drawings of Dy,