Page 1 of 13 | AFAR 01

PARTNERSHIP ACCOUNTING
MARK ALYSON B. NGINA, CMA, CPA

PARTNERSHIP ACCOUNTING
MARK ALYSON B. NGINA, CMA, CPA
Syllabus
1.0 Partnership Accounting
1.1 Nature, scope, and objectives
1.1.1 Differentiate from single proprietorship and corporation accounting
1.1.2 Concepts, principles, rules, practices, and procedures
1.2 Formation
1.2.1 Initial capital contribution
1.3 Operation/Dissolution/changes in ownership interest
1.3.1 Admission of a new partner
1.3.1.1 By purchase of interest
1.3.1.2 By investment
1.3.2 Withdrawal, retirement, or death of a partner
1.3.3 Incorporation of a partnership
1.4 Liquidation of partnership
1.4.1 Lump–sum method
1.4.2 Installment method
Definition of a Partnership
A partnership is “a contract whereby two or more persons bind themselves to contribute money, property, or industry to a
common fund, with theintention of dividing the profits among themselves.”
Two or more persons may also form a partnership for the exercise of a profession. Article 1767, Civil Code of the
Philippines
Stages in the Life of the Partnership:
1. Formation –the first-time creation of the partnership
2. Operation – this is the reason why a partnership is formed, to operate and earn “profit”
3. Dissolution –changes in the partnership agreement or relations among the partners
4. Liquidation –realization of the assets of the partnership and settlement of partnership liabilities.
Partnership Formation
Primary formation issues include:
1.Valuation of contribution
2.Re-alignment of contribution with partnership agreement
Partnership Operation
Primary accounting issues include:
1. Profit or loss allocation
2. Periodic adjustment of capital after operation
Partnership Dissolution
Dissolution is the change in the relation of the partners caused by any partner being disassociated from the business or
by change in agreements of the partners. This may include:
1. Admission of a new partner 4. Assignment of interest by a partner
2. Retirement of a partner 5. Incorporation of the partnership
3. Death of a partner

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PARTNERSHIP ACCOUNTING

Partnership Liquidation
Liquidation is the winding up of the partnership business. This involves:
1. Converting non-cash assets into cash (i.e. realization)
2. Settlement of liabilities (i.e. liquidation)
3. Distribution of any remaining amount to the partners
Basic Concepts on Partnership Liquidation
1. Unlimited liability
2. Right of offset
Methods of Partnership Liquidation
When the partnership is to be liquidated by the sale of assets, the following methods may be used:
1. Lump-Sum Liquidation / Total Liquidation / Single Distribution
2. Installment Liquidation / Installment Distribution

PARTNERSHIP FORMATION
Use the following data to answer the next five questions:
On June 1, 20x1, Makati and Taguig decided to pool their assets and form a partnership, to be known as Marites
Partnership. Their statement of financial position on June 1, 20x1 before the formation was as follows:
Makati Taguig
Cash ₱ 198,000 ₱ 316,800
Accounts receivable 1,296,000 1,440,000
Allowance for doubtful accounts (32,400) (36,000)
Notes receivable 360,000 -
Merchandise inventory 115,200 108,000
Prepaid rent - 36,000
Transportation equipment 720,000 -
Accumulated depreciation (72,000) -
Computer equipment - 576,000
Accumulated depreciation - (43,200)
Total assets ₱2,584,800 ₱2,397,600
Accounts payable–trade ₱ 36,000 ₱ 43,200
Notes payable - 360,000
Capital 2,548,800 1,994,400
Total liabilities and capital ₱2,584,800 ₱2,397,600
The new partnership is to take over the business assets and assumes business liabilities of the partners. Capitals of the
partners are to be based on net assets invested after the following adjustments:
1) 4% of the accounts receivable of Makati is estimated to be uncollectible while the accounts receivable of Taguig is
estimated to be 98% realizable.
2) Interest at 15% on notes receivable of Makati dated April 1, 20x1 should be accrued.
3)The selling price less cost to sell of Makati’s merchandise inventory is ₱ 110,000. Three days after formation, the
inventory of Taguig was sold for ₱100,000.
4) 4/5 of the prepaid rent has expired.
5)The transportation equipment of Makati is appraised at ₱ 660,000.
6)The replacement cost of the computer equipment of Taguig is determined to be at ₱ 600,000.
7) Interest at 10% on notes payable of Taguig dated May 1, 20x1 should be accrued.
8)Taguig had office supplies on hand which have been charged to expense amounting to ₱ 8,000. These are still to
be used by the partnership.
9)Accrued expense of ₱ 6,000 is to be recognized in the books of Makati.
The partnership agreement provides that Makati and Taguig share profits and losses of 60% and 40%, respectively.

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1.The net adjustment of Taguig’s capital in its books amounted to

a. ₱12,400 debit
b. ₱360 debit
c. ₱360 credit
d. None of the choices
2. Assume the partners further agreed to bring their capital balances proportionate to their profit and loss ratio, how
much will Taguig withdraw or invest in cash?
a. ₱448,840 additional investment
b. ₱299,227 additional investment
c. ₱299,227 withdrawal
d. None of the choices
3. Assume the partners further agreed to bring their capital balances proportionate to their profit and loss ratio, how
much is the cash balance after the additional cash investment (withdrawal) by Makati?
a. ₱963,640
b. ₱514,800
c. ₱215,573
d. None of the choices
4. Assume the partners further agreed to bring their capital balances proportionate to their profit and loss ratio and they
agreed to record an unidentifiable asset, how much is the amount to be debited for the unidentifiable asset?
a. ₱448,840
b. ₱299,227
c. ₱179,536
d. None of the choices
5. Assume the partners further agreed that only Makati possess the technical expertise required by the business, so
Taguig agreed to provide 10% of his contributed capital as bonus to Makati, how much is total assets of the
partnership after formation?
a. ₱5,428,200
b. ₱5,403,200
c. ₱4,979,360
d. ₱4,680,133
6. Mandaluyong and Quezon City establish a partnership to operate a used-furniture business under the name of MQC
Furniture. Mandaluyong contributes furniture that cost ₱240,000 and has a fair value of ₱360,000. Quezon City
contributes ₱120,000 cash and delivery equipment that cost ₱160,000 and has a fair value of ₱120,000. The partners
agree to share profits and losses 60% to Mandaluyong and 40% to Quezon City.
How much is the peso amount of inequity that will result if the initial noncash contributions of the partners are
recorded at cost rather than fair market value?
a. ₱120,000
b. ₱72,000
c. ₱40,000
d. None of the choices

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PARTNERSHIP ACCOUNTING

PARTNERSHIP OPERATION
1.Caloocan and Valenzuela formed a partnership on January 1, 20x0 by contributing ₱ 800,000 and ₱ 1,200,000,
respectively. As of January 1, 20x1, their partnership capital was ₱900,000 and ₱1,100,000, respectively.
Which of the following statements is incorrect?
a. If there is no agreed profit and loss sharing, the share of Caloocan in the ₱400,000 profit is ₱ 160,000.
b. If there is no loss-sharing agreement but the partners agreed to divide profits equally, the share of Caloocan in
the₱400,000 profit is ₱200,000, while the share of Valenzuela in the ₱400,000 loss is ₱200,000.
c. If there is no profit-sharing agreement but the partners agreed to divide losses 30:70, the share of Caloocan in the
₱400,000 profit is ₱200,000, while the share of Valenzuela in the ₱400,000 loss is ₱280,000.
d. If the partners agreed to divide profit equally and losses 30:70 and Valenzuela is guaranteed a minimum profit
share of ₱250,000,the share of Caloocan in the₱400,000 profit is ₱150,000, while Valenzuela will receive a
positiveshare of ₱250,000 if there is a ₱400,000 loss.
2. Meycauayan and Marilao are partners in a gold trading business. Their capital accounts in the Bulacan Partnership for
the year were as follows:
Meycauayan Marilao
January 1, balances ₱450,000 ₱600,000
March 1, withdrawal - 120,000
May 1, investment 240,000 -
June 1, investment - 90,000
June 30, drawings 80,000 100,000
October 1, withdrawal 180,000 -
December 1, investment - 60,000
December 31, investment 50,000 10,000
The partnership agreement provides for the following distribution of profit and losses:
• Interest of 8% on weighted average capital balances.
• Meycauayan receives a salary of ₱150,000 and a bonus of 3% of income after all bonuses
• Marilao receives a salary of ₱100,000 and a bonus of 2% of income afterall bonuses
• Profit is divided in a 6:4 ratio by Meycauayan and Marilao, respectively. Loss is divided equally by Meycauayan
and Marilao.
The income summary has a credit balance amounting to ₱315,000.
Based on the above information, which of the following is incorrect?
a. The amount of bonus to Meycauayan is ₱9,000.
b.The share of Marilao in the balance is ₱ 15,920.
c.The share of Marilao in the net income is ₱ 130,700.
d.The weighted average capital of Meycauayan is ₱ 565,000.
3. Bocaue, Balagtas and Guiguinto are partners in a glutathione trading business. Interest to be credited to each partner
is 10%. Their capital accounts in the Bulacan Partnership for the year were as follows:
Bocaue Balagtas Guiguinto
April 1, investment ₱145,000 ₱260,000 ₱250,000
May 1, withdrawal - 120,000 -
June 1, investment - - 100,000
August 1, investment 120,000 - -
October 1, investment - 90,000 -
December 1, withdrawal - - 30,000
Based on the above information, which of the following is incorrect?
a. The weighted average capital of Bocaue is ₱211,667.
b.The annual weighted average capital of Balagtas is ₱ 137,500.
c.The interest of Guiguinto is ₱ 24,333.

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d.The interest of Bocaue is ₱ 21,667.

4. Pulilan and Apalit shares profit and loss equally after providing for annual salaries of ₱ 150,000 and ₱ 180,000,
respectively, and a 10% bonus on net income after salaries and bonus to Pulilan. The profit and loss statement of the
partnership for whole year is shown below:
Sales ₱6,000,000
Less: Cost of sales 3,000,000
Gross profit ₱3,000,000
Less: Expenses 2,450,000
Net profit ₱ 550,000
Based on the above information, which of the following is incorrect?
a. If the expense is exclusive of bonus and salaries, the amount of bonus is ₱20,000.
b. The amount of bonus if the expense is inclusive of the salaries is ₱50,000.
c. If the expense includes bonus and salaries, the amount of bonus is ₱55,000.
d. The amount of bonus if the expense is inclusive of the salaries is ₱55,000.
5. On January 2, San Simon and San Fernando formed a partnership to be located in Pampanga. San Simon
contributed capital of ₱175,000 and San Fernando, ₱25,000. They agreed to share profits and losses 80% and 20%,
respectively. San Fernando is the general manager and works in the partnership full time and is given a salary of
₱5,000 a month; an interest of 5% of the beginning capital (of both partner) and a bonus of 15% of net income before
the salary, interest and the bonus. Salaries, interest and bonus is regarded as an expense of the partnership.
The profit and loss statement of the partnership for the year ended December 31 is as follows:
Net Sales ₱875,000
Less: Cost of Goods Sold 700,000
Gross Profit ₱175,000
Less: Expenses (including B.I.S.) 143,000
Net Income ₱ 32,000
Based on the above information, which of the following is incorrect?
a. The total share of San Fernando in the net income is ₱85,650.
b. The amount of bonus to San Fernando is ₱18,000.
c. The amount of income summary to be closed to capital is ₱120,000.
d. The share of San Simon in the net income is ₱25,600.
6. The Mexico Co., a partnership was formed on January 1, with four partners, C, P, A, and S. Capital contributions were
as follows: C -₱1,000,000; P-₱500,000; A-₱500,000; and S -₱400,000. The partnership agreement provides that
each partner shall receive 5% interest on the amount of his capital contribution. In addition, C is to receive a salary of
₱100,000 and P a salary of ₱60,000. The agreement further provides that A shall receive a minimum of ₱50,000 per
annum from the partnership and S a minimum of ₱120,000 per annum, both including amounts allowed as interest on
capital and their respective shares of profits. The balance of the profits to be shared in the following proportions: C -
30%; P - 30%; A - 20%; and S - 20%.
Based on the above information, which of the following is incorrect?
a.The share of partner P if the partnership earned ₱ 440,000 before salaries and interest is ₱ 102,500.
b. The amount that mustbe earned by the partnership, before any charge for interest on capital or partners’ salaries,
in order that C may receive an aggregate of ₱250,000, including interest, salary and share of profits, is ₱646,667.
c. The share of partner S if the partnership earned ₱ 646,667 before salaries and interest is ₱ 120,000.
d.The share of partner A if the partnership earned ₱ 646,667 before salaries and interest is ₱ 50,000.
7. Mr. Angeles and Ms. Mabalacat are partners in a construction business located in Pampango. The profit and loss are
distributed in the followingorder of priority:
1)Salaries of ₱ 35,000 and ₱ 40,000 for Angeles and Mabalacat, respectively.
2) A bonus to Angeles equal to 10% of net income after the bonus.

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3) Interest on weighted average capital at the rate of 8%. Annual drawings in excess of ₱ 20,000 are considered
reduction of capital for purposes of this calculation.
4) Any balance to be divided 40:60 for Angeles and Mabalacat, respectively.
Capital and drawing activity of the partners for the year are as follows:
Angeles Mabalacat
Capital Drawing Capital Drawing
Beginning balance ₱120,000 ₱ 0 ₱ 60,000 ₱ 0
April 1 20,000
June 1 15,000 20,000
September 1 30,000
November 1 . 15,000 40,000 .
Ending balance ₱170,000 ₱30,000 ₱100,000 ₱20,000
Net income for the year is ₱132,000 before any allocations.
Based on the above information, which of the following is incorrect?
a.The weighted average capital and weighted average capital of Mabalacat is the same at ₱ 66,667.
b.The share in the net income of Angeles is ₱ 62,253.
c. The ending capital of Mabalacat in the post-closing trial balance is ₱ 142,253.
d.The share of Angeles is ₱ 40,000 if the partnership’s profits is ₱ 80,000 (instead of ₱ 132,000).
8. Concepcion is trying to decide what compensation package is more beneficial:
Option 1:Bonus of 25% of net income after salaries and bonus or;
Option 2:Salary of ₱107,250 plus a bonus of 10% of net income after salaries and bonus
Salaries and bonus are regarded as a means of allocating profit among the partners. Salaries traceable to the other
partners are estimated to be ₱495,000.
The amount of net income before salaries and bonus is?
a. ₱1,388,750
b. ₱1,378,750
c. ₱715,000
d. ₱178,750
9. Tarlac and Victoria agreed to share profits and losses 40:60, respectively after providing Victoria 17% bonuses on
partnership net incomeafter tax and after bonus. Tarlac received ₱360,000 as final profit distribution. The share of the
partners on partnership profit is subject to 10% withholding tax. The partnership is also subject to 35% income tax.
The partnership operating income assuming that it equals taxable income is
a. ₱1,170,000 b. ₱1,053,000 c. ₱1,800,000 d. ₱1,620,000
PARTNERSHIP DISSOLUTION
Use the following data to answer the next five questions:
Tarlac and Victoria sells inventory through their partnership. They expand their business and decide to admit Gerona to
the partnership. Before the admission of Gerona, the statement of financial position of Tarlac and Victoria are as follows:
Cash ₱40,000 Accounts payable ₱70,000
Accounts receivable 60,000 Loan from Victoria 50,000
Inventory 140,000 Tarlac, capital (60%) 300,000
Plant assets-net 360,000 Victoria, capital (40%) 240,000
Loan to Tarlac 60,000 .
Total assets ₱660,000 Total liab. & equity ₱660,000
1.Gerona invests ₱ 139,500 for half of Victoria’s capital. The money goes to Victoria. Theamount of personal gain to be
recorded in the partnership books is
a. ₱19,500
b. ₱15,900

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c. ₱15,000
d. None of the choices
2.Gerona invests ₱ 139,500 in cash for a20% interest. Tarlac and Victoria agree that the plant asset is undervalued
before Gerona’ admission. If the money goes to the original partners, the capital balance of Tarlac, Victoria and
Gerona after admission is
Tarlac Victoria Gerona
a. ₱300,000₱120,000₱120,000
b. 300,000 120,000 139,500
c. 315,600 242,400 139,500
d. 310,800 247,200 139,500
3. Gerona invests the amount needed to give him one-third interest in the capital of the partnership. If no goodwill or
bonus is recorded, the amount of investment by Gerona is
a. ₱300,000
b. ₱270,000
c. ₱240,000
d. None of the choices
4.Gerona invests ₱ 156,000 for a one-fourth interest. Tarlac and Victoria agree that some of the inventory is obsolete
before Gerona’ admission. After admission, profits and loss are to be shared by Tarlac, Victoria and Gerona 45:30:25.
The capital balance of Tarlac, Victoria and Gerona after admission is
Tarlac Victoria Gerona
a. ₱256,800₱211,200₱156,000
b. 280,800 187,200 156,000
c. 292,800 235,200 156,000
d. 232,800 235,200 156,000
5.Gerona invests ₱ 300,000 for a 1/3 interest. Profits and loss are to be shared by Tarlac, Victoriaand Gerona equally.
Capital of the partnership after Gerona’s admission is to be ₱900,000. The capital balance of Tarlac, Victoria and
Gerona after admission is
Tarlac Victoria Gerona
a. ₱300,000₱240,000₱300,000
b. 336,000 264,000 300,000
c. 264,000 216,000 300,000
d. 300,000 300,000 300,000
6.Pura and Ramos are partners who have capital balances of ₱ 300,000 and ₱ 240,000 and shares profits in the ratio of
6:4. Anao is admitted as a partner upon investing ₱250,000 for a 20% interest in the firm. Profits and loss are to be
shared 3:3:2. Given the choice between goodwill and bonus method, Anao will
a.Prefer bonus method due to Anao’s gain of ₱ 23,000
b.Prefer bonus method due to Anao’s gain of ₱ 92,000
c.Prefer goodwill method due to Anao’s gain of ₱ 92,000
d.Be indifferent because the goodwill and bonus methods are the same
Use the following data to answer the next two questions:
The following are the capital account balances and the profits and loss ratio of the partners in CRV Company on
December 31, 20x0:
Capital
Profit and
account
loss ratio
balances
Cuyapo ₱ 60,000 25%
Rosales 80,000 50%
Villasis 200,000 25%

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On January 1, 20x1, Urdaneta is admitted to the partnership under the following agreement:
a) Urdaneta is to share 1/3 in the profits and loss while the other partners continue to participate in profits and loss
ratio in their original ratio.
b)Urdaneta is to pay Rosales, ₱ 24,000 for a ¼ interest of the latter’s equity in the partnership net assets and is to
invest ₱140,000 cash in the partnership.
c)Urdaneta’s capital account after the admission is to show ₱ 150,000 and the total capital is ₱ 520,000.
7.The capital account balances of the partners after Urdaneta’s admission are:
a.Cuyapo, ₱ 73,500; Rosales, ₱ 83,000; Villasis, ₱ 213,500; Urdaneta, ₱ 150,000
b.Cuyapo, ₱ 62,500; Rosales, ₱ 65,000; Villasis, ₱ 202,500; Urdaneta, ₱ 150,000
c.Cuyapo, ₱ 69,183; Rosales, ₱ 78,372; Villasis, ₱ 209,168; Urdaneta, ₱ 150,000
d.Cuyapo, ₱ 73,750; Rosales, ₱ 82,500; Villasis, ₱ 213,750; Urdaneta, ₱ 150,000
8. The new profit and loss ratio of allpartners after Urdaneta’s admission:
a. Cuyapo, 25.00%; Rosales, 50.00%; Villasis, 25.00%;Urdaneta, 33.33%
b. Cuyapo, 18.75%; Rosales, 37.50%; Villasis, 18.75%;Urdaneta, 25.00%
c. Cuyapo, 25.00%; Rosales, 25.00%; Villasis, 25.00%;Urdaneta, 25.00%
d. Cuyapo, 16.67%; Rosales, 33.33%; Villasis, 16.67%;Urdaneta, 33.33%
Use the following data to answer the next four questions:
The partnership of Binalonan, Pozorrubio and Sison has been in business for 25 years. On December 31, Sison decided
to retire from the partnership. The statement of financial position before the retirement of Sison is presented below:
Cash ₱40,000 Accounts payable ₱ 70,000
Accounts receivable 60,000 Notes payable 80,000
Inventory 140,000 Loan from Pozorrubio 50,000
Plant assets-net 400,000 Binalonan, capital (20%) 150,000
Loan to Binalonan 30,000 Pozorrubio, capital (30%) 200,000
Loan to Sison 40,000 Sison, capital (50%) 160,000
Total assets ₱710,000 Total liab. & equity ₱710,000
9.Sison was paid by the partnership ₱ 100,000 cash upon retirement. Capital of the partnership after Sison’s retirement
is ₱400,000. The capital balance of Binalonan and Pozorrubio afterthe retirement of Sison is
a.Binalonan, ₱ 158,000; Pozorrubio, ₱ 212,000
b.Binalonan, ₱ 170,000; Pozorrubio, ₱ 230,000
c.Binalonan, ₱ 212,000; Pozorrubio, ₱ 158,000
d.Binalonan, ₱ 142,000; Pozorrubio, ₱ 188,000
10. Sisonwas paid by the partnership ₱180,000 cash upon retirement. Capital of the partnership after Sison’s retirement
is ₱290,000. The capital balance of Binalonan and Pozorrubio after the retirement of Sison is
a.Binalonan, ₱ 126,000; Pozorrubio, ₱ 164,000
b. Binalonan, ₱ 174,000; Pozorrubio, ₱ 236,000
c.Binalonan, ₱ 212,000; Pozorrubio, ₱ 158,000
d.Binalonan, ₱ 230,000; Pozorrubio, ₱ 170,000
11.Sison was paid by the partnership ₱150,000 cash upon his retirement. The portion of goodwill attributable to Sison
was recorded by the partnership. The capital balance of Binalonan and Pozorrubio after the retirement of Sison is
a.Binalonan, ₱ 162,000; Pozorrubio, ₱ 218,000
b.Binalonan, ₱ 138,000; Pozorrubio, ₱ 182,000
c.Binalonan, ₱ 150,000; Pozorrubio, ₱ 200,000
d.Binalonan, ₱ 230,000; Pozorrubio, ₱ 170,000
12. Due to the limited cash of the partnership, Sison was paid by the partnership merchandise with a fair value of
₱100,000 and a note payable for ₱50,000. The carrying amount of the merchandise was ₱60,000. Capital of the
partnership after Sison’s retirement was ₱ 360,000. The capital balance of Binalonan and Pozorrubio after the
retirement of Sison is

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a. None of the choices

b.Binalonan, ₱ 146,000; Pozorrubio, ₱ 194,000
c.Binalonan, ₱ 150,000; Pozorrubio, ₱ 200,000
d.Binalonan, ₱ 154,000; Pozorrubio, ₱ 206,000
Use the following data to answer the next three questions:
The statement of financial position of Rosario and Pugo, a partnership appears as follows:
Rosario and Pugo Partnership
Statement of Financial Position
October 31, 20x1
Assets
Current Assets:
Cash ₱ 41,100
Accounts Receivable ₱212,160
Allowance for bad debts 8,000 204,160
Inventories 241,100
Prepaid expenses 10,140
₱496,500
Plant Assets:
Furniture and Fixtures ₱241,000
Accumulated Depreciation 68,200 172,800
Total assets ₱669,300
Liabilities and Capital
Current Liabilities:
Accounts payable ₱161,400
Accrued expenses 20,000 ₱182,200
Partner’s capital:
Rosario, capital ₱260,350
Pugo, capital 226,750 487,100
Total Liabilities and capital ₱669,300
Additional information:
• Rosario and Pugo share profits and losses equally.
• The partners incorporate as Tuba Corporation with an authorized capital of 5,000 shares at ₱100 par stock, of
which 4,400 are issued to the partners in exchange for their interest in the net assets of Rosario and Pugo, and
the remainder are issued at ₱120per share for cash. The partners agree that the following adjustment should be
recorded:
Allowance for bad debts decreased by ₱4,000
Inventories increased by 12,000
Accumulated depreciation decreased by 6,200
• Goodwill is to be recognized in an amount which will cause the net assets of the partnership to equal the cash
issuance price of the shares to be issued.
13. How much is the share premium contributed by Rosario and Pugo to the new corporation?
a. ₱88,000
b. ₱80,800
c. ₱69,300
d. ₱63,900
14.How much goodwill is to be recognized in the corporation’s books?
a. ₱18,700
b. ₱17,800

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c. ₱17,000
d. None of the choices
15. How many shares Rosario will receive?
a. 4,400
b. 2,340
c. 2,262
d. 2,060
16. On January 1, 20x1, the partnership of Baguio, La Trinidad and Tublay started with an initial contribution from the
partners of ₱100,000, ₱200,000 and ₱300,000, respectively. The partners stipulated that in case of death of any
partner, the parties will compute profits up to the nearest month and to provide for 20% annual interest for the
deceased partner interest prior to its settlement.
On July 1, 20x1, Baguio was heart-attacked and instantly died. The newly hired accountant of the partnership
prepared the following entries during the year:
7/1/20x1 Baguio, capital 100,000
Payable to Baguio’s estate 100,000
To set-up Baguio’s capital as a liability
12/31/20x1 Interest expense 10,000
Payable to Baguio’s estate 10,000
To recognize interest on Baguio’s estate
12/31/20x1 Sales 700,000
Inventory, end 50,000
Purchases 300,000
Operating expenses 160,000
Interest expense 10,000
Profit and loss summary 280,000
To close nominal accounts
12/31/20x1 Profit and loss summary 280,000
La Trinidad, capital (40%) 160,000
Tublay, capital (30%) 120,000
To close profit and loss to La Trinidad and Tublay’s remaining P&L sharing ratio.
Profits were evenly earned throughout the year.
The correct capital balances of La Trinidad and Tublay as of December 31, 20x1, respectively.
a. ₱302,333; ₱ 453,500 c. ₱298,666; ₱440,500
b. ₱332,657; ₱ 399,493 d. ₱320,000; ₱460,000
PARTNERSHIP LIQUIDATION
1. The partnership of Atok, Buguias, and Bakun was dissolved. By March 1, 20x1, all assets had been converted into
cash and all partnership liabilities were paid. The partnership statement of financial position on March 1, 20x1 (with
partner residual profit and loss sharing percentages) was as follows:
Cash ₱ 50,000 Atok, capital (30%) ₱ 4,000
Buguias, capital (20%) (60,000)
Bakun, capital (50%) 106,000
Total assets ₱ 50,000 Total equity ₱ 50,000
The value of partners' personal assets and liabilities on March 1, 20x1 were as follows:
Atok Buguias Bakun
Personal assets ₱ 74,000₱120,000₱ 56,000
Personal liabilities 72,000 80,000 60,000

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PARTNERSHIP ACCOUNTING

The capital balance of Bakun after the final cash distribution is

a. ₱93,500
b. ₱92,000
c. ₱14,000
d. Nil
Use the following data to answer the next three questions:
On December 31, the accounting records of Buguias, Bokod and Kabayan Partnership included the following
information:
Buguias, drawings (debit balance) ₱( 24,000)
Kabayan, drawings (debit balance) ( 9,000)
Bokod, loan 30,000
Buguias, capital 123,000
Bokod, capital 100,500
Kabayan, capital 108,000
Total assets amounted to ₱478,500, including ₱52,500 cash and liabilities totaled ₱150,000. The partnership was
liquidated on December 31 and Kabayan received ₱83,250 cash pursuant to the liquidation. Buguias, Bokod and
Kabayan share net income and losses in a 5:3:2, respectively.
2. The loss on realization of noncash assets is
a. ₱78,750
b. ₱39,375
c. ₱15,750
d. None of the choices
3. The cash balance after payment of liabilities
a. ₱399,750
b. ₱249,750
c. ₱52,500
d. None of the choices
4. Cash distributed to Buguias
a. ₱106,875
b. ₱83,250
c. ₱59,625
d. None of the choices
Use the following data to answer the next four questions:
Kayapa, Dupax and Bambang are partners sharing profits in the ratio of 40:35:25, respectively. On December 31,
they agree to liquidate. The statement of financial position prepared on this date follows:
Cash ₱ 20,000 Liabilities ₱ 60,000
Other Assets 460,000 Kayapa, capital (40%) 144,500
Dupax, capital (35%) 175,500
Bambang, capital (25%) 100,000
Total assets ₱ 480,000 Total liab./equity ₱ 480,000
The results of liquidation are summarized below:
Cash W/held at
Realization Cash Expenses of end of month for
s Book Value Realized Realization estd. Future exps. Liability paid
January ₱120,000 ₱105,000 ₱5,000 ₱20,000 ₱40,000
February 70,000 60,000 7,500 12,500 20,000
March 150,000 100,000 6,000 5,000 ---
April 120,000 40,000 4,000 --- ---

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All cash available, except the amount withheld for future expenses and any unpaid liabilities, is distributed at the end
of each month.
5. The amount of cash available for distribution for the month of February is
a. ₱101,500
b. ₱60,000
c. ₱41,000
d. ₱40,000
6. The amount of theoretical loss as of March is
a. ₱270,000
b. ₱125,000
c. ₱120,000
d. None of the choices
7. The amount of cash distributed for the month of March to Dupax is
a. ₱35,525.00
b. ₱14,437.50
c. ₱10,937.50
d. None of the choices
8. The capital balance of Bambang at the end of February after the cash distribution is
a. ₱98,875
b. ₱88,750
c. ₱70,625
d. None of the choices
9. The statement of financial position for Kasibu, Bambang, and Dupax Partnership, who share profits and losses in the
ratio of 50%, 25%, and 25%, respectively, shows the following balances just before liquidation.
Cash ₱ 24,000
Other assets 119,000
Liabilities 40,000
Kasibu, capital 44,000
Bambang, capital 31,000
Dupax, capital 28,000
On the first month of liquidation, certain assets are sold for ₱64,000. Liquidation expenses of ₱2,000 are paid, and
additional liquidation expenses are anticipated. Liabilities are paid amounting to ₱ 10,800 and sufficient cash is
retained to insure the payment to creditors before making payments to partners. On the first payment to partners,
Kasibu receives ₱12,500. Determine the amount of cash withheld for anticipated liquidation expenses.
a. ₱35,200 b. ₱29,200 c. ₱33,200 d. ₱ 6,000

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PARTNERSHIP ACCOUNTING

10. The following is the condensed statement of financial position of Kasibu Company.
Cash ₱ 180,000 Accounts payable ₱ 220,000
Other assets ? Anton, Capital (4) 220,000
Bert, Capital (4) 280,000
Cris, Capital (2) 270,000
Cris is an insolvent and limited partner.
Based on the information given, which of the following statement is incorrect?
a. The partner with first priority is Cris.
b.If the partner with first priority received ₱ 150,000 as total settlement of his interest, the partner with secondpriority
received ₱40,000.
c. If the partnership was able to sell non-cash assets with a book value of ₱ 365,000, the loss on sale realized from
the sale if the partner with least priority received ₱20,000 is ₱55,000.
d. If the partner with least priority received ₱ 150,000 as total settlement of his interest and liquidation expenses of
₱15,000 was incurred, the selling price of the non-cash asset is ₱560,000.
“Make it a habit to view your failure assteppingstonesto success.”
“Success is achieved not bydoing only what is comfortable and convenient.
Success is built by doing what must be done to reach it.”
☺ -- END OF HANDOUT -- ☺

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