Advanced Financial Accounting & Reporting
AdFAR.701_Partnership Accounting
LECTURE NOTES
PARTNERSHIP FORMATION AND OPERATIONS
1. A partnership is an association of two or more “persons”
for the purpose of carrying a business and to divide the
profits among themselves. The “persons” maybe
individuals or proprietorships, or partnerships.
2. Accounting for the ownership of the partners in a
partnership requires the establishment of a pair of
accounts for each partner - the capital account and the
drawing account. The capital account recognizes the
initial investment, additional investment, withdrawal of
capital, as well as partner’s share in net income or loss
for the period. The drawing account is a temporary
owner’s equity account to record the partner’s
withdrawals of cash and other assets in anticipation of
share in net profits. Excess drawings over the agreed
amount are however directly charged to the capital
account.
The initial investments of the partners are recognized at
FAIR VALUES and credited to the partners capital
accounts in the agreed INTEREST RATIO. When the
interest ratio is not specified nor implied, it is deemed
to be the CONTRIBUTION RATIO. This is known as the
NET INVESTMENT METHOD. The only other method is
the BONUS METHOD, because the GOODWILL METHOD
is deemed obsolete in partnership accounting due to
specific IFRS provisions.
3. During the operations of the partnership, loan by a
partner to the partnership (Loans Payable) or by the
partnership to a partner (Loans Receivable) may also be
recognized in the partnership records. In unusual
situations, unpaid compensation items to partners
treated as operating expenses rather than as
distribution of net profit are carried as items payable to
partners. The capital account, the drawing account,
loans to/from partners, and partnership liabilities to
partners constitute the total interest of the partner at
any given time.
4. Partnership income or loss is allocated to partners in
many ways and are taken up in the partnership
agreement to reflect compensation for each partner’s
contribution into the partnership. Generally, agreement
items for income or loss allocation conform with the
following remunerations:
a. income allocations on the basis of capital balances
to reward partners in proportion to their respective
investments;
b. income allocations on the basis of service
contributions to reward partners for their respective
service to the partnership; and
c. Any numerical ratio, e.g. 3:2:5 will apply to the
residual profit or loss after allocations made for (a)
and (b) above.
5. The financial statements prepared for partnerships are
similar to those prepared for corporations, except for
the following basic differences:
a. In the balance sheet, ownership equity for a
partnership will be partners’ capital balances; in a
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corporation, capital stock, additional paid-in capital,
and retained earnings. In lieu of a statement of
retained earnings done for corporations,
partnerships present a statement of partners’
capital in support of its ownership equity on the
balance sheet.
b. A statement of partners’ capital balances will show
initial or beginning balances, additional
investments, withdrawal of capital, temporary
drawings, share of net income or net loss, and
partners’ compensation treated as operating
expenses.
c. In the income statement, generally, salaries,
interests, and bonuses paid to partners are excluded
from the operating expenses of partnerships
although in few situations we find some
partnerships treating partners’ remunerations as
operating expenses rather than as distribution of
net profits.
PARTNERSHIP DISSOLUTION AND LIQUIDATION
1. Any major change in partnership ownership such as
admission of a new partner into an existing
partnerships, or withdrawal of a partner from an
existing partnerships dissolves the partnerships.
Dissolution of a partnership entity does not however
imply liquidation, for oftentimes the business entity
continues its operations undisturbed.
2. There are two ways a new partner can get admitted into
the partnerships:
a. admission by investment is one in which the new
partner transfers net assets into the partnerships.
Thus, the net assets of the partnerships increase by
the amount contributed which said contribution
becomes a new source of capital. Capital credits to
all partners upon admission of a new partner will
depend upon the agreement, which can either be
net investment method or the bonus method.
b. Admission by purchased interest is one in which the
new partner transfers assets directly to one or more
partners (NOT TO THE PARTNERSHIP) in
consideration for the purchased interest. Thus the
net assets of the partnerships remain the same even
after the admission of the new partner.
3. If a partner withdraws from the partnership, the
partnership must liquidate the withdrawing partner’s
ownership equity, as follows:
a. Payment to withdrawing partner will not come from
partnership assets-
The withdrawing partner may just sell his interest to
the remaining partners or to an outsider with the
permission of the remaining partners. In this case
the entry required to be recorded in the books of the
partnership is the transfer of interest from the
withdrawing partner to the buying partner(s)
account(s).
b. Payment to the withdrawing partner will come from
partnership assets –
Under this arrangement, one of three situations can
occur:
AdFAR.701
 (1) Payment is equal to the interest withdrawn,
which is easily recorded by a debit to the capital
account of the withdrawing partner and a credit
for the payment made, since both amounts are
equal.
(2) Payment is less than the interest withdrawn,
which is recorded with bonus to the remaining
partners divided in the remaining profit and loss
ratio.
(3) Payment is more than the interest withdrawn,
the excess is recorded as bonus to the retiring
partner and charged to the remaining partners
in the remaining profit and loss ratio.
4. A liquidation winds up all operations of the partnerships,
converts all partnerships assets into cash and
distributes to creditors of the partnerships then to
accounts with partners.
5. A statement of liquidation summarizes all liquidation
activities, including payments to partners. There are two
types of distribution in partnerships liquidation, as
follows:
a. Liquidations in which all distributions are made at a
single time following the sale of all non-cash assets.
This is called lump-sum, or total, liquidation.
b. Liquidations in which there are several distributions,
oftentimes at points when non-cash assets still
remain in the records. This is called installment
liquidation.
6. Distribution of partnership cash in liquidation must be
made to creditors first, and then to partners’ accounts
which are always based on free-interest computations.
Loan accounts are prioritized over capital balances only
if they belong to the same partner.
7. Safe-payment computations is required for every
distribution to partners when non- cash assets remain
unsold ( and the profit and loss ratio and the interest
ratio at that point are not identical). The purpose of this
calculation is to determine who among the partners
have the free-interests to deserve the payment from the
partnerships. The computations start with the total
interest of each of the partners at the point of cash
distribution and must assume that all the remaining
non-cash assets are worthless and therefore is a total
loss, and that all the partners are insolvent. Thus in the
event of a capital deficit for a partner, it is charged as
an additional loss to the other partners in the remaining
profit and loss ratio to arrive at the free interests
amounts of the partners.
8. To avoid preparing the calculation for safe-payment
every time there is an installment distribution, a cash
distribution program to partners is prepared. This
statement is prepared just before the start of
liquidation, i.e. before any realization of assets and
replaces the safe-payment calculations by the use of
just one schedule for the numerous distributions to
partners normally occurring in liquidation. As the timing
for its preparation indicates, the schedule is not based
on realization of assets in liquidation but rather on the
partners’ relative loss-absorption-capabilities
established just before liquidation. In essence it also
uses free-interest principles.
- done –

A. PARTNERSHIP FORMATION g. Accrued rent receivable of P800 is to be recognized in

I the books of BRUNO.
On January 2, 2018, ANDRO and BRUNO decided to pool h. The prepaid expenses are short-term items.
their assets and form a partnership. After the formation the
Required:
partners will participate in the profits and loss ratio of 40%
A. Calculate (1) the contributions of ANDRO & BRUNO; and
and 60% for ANDRO and BRUNO, respectively. Their
(2) the capital credits of each individual partner upon
balance sheets on December 31, 2017, before the required
formation and
fair value adjustments, were as follows:
B. Prepare journal entries in a new set of books to record
ANDRO BRUNO
the formation of the partnership under each of the
Cash P 14,720 P 21,120
following methods
Accounts receivable, net 82,080 96,000
1. Net investment method
Notes receivable 24,000 4,800
2. Bonus method (use interest ratio of 55% & 45% to
Inventories 7,680 7,200
ANDRO & BRUNO respectively).
Prepaid insurance 2,400
Prepaid expenses 160 MULTIPLE CHOICE
Machinery, net 43,200 CLOUIE, DORRIE, and ELLVIE formed a partnership on May
Furniture and fixtures, net 37,920 31, 2018, with the following assets, measured at their fair
________ ____ market values, contributed by each partner.
Total assets P 171,840 P 169,440 CLOUIE DORRIE ELLVIE
Cash P72,000 P60,000 P180,000
Accounts payable P 2,400 P 12,480 Furniture 51,000
Note payable 24,000 Equipment 168,000
Capital 169,440 132,960 Machinery 30,600
Total liabilities and capital P 171,840 P 169,440 Fixtures 21,000 10.000
The firm is to take over business assets and assume Land and
business liabilities. Capitals are to be based on net assets building 900,000
transferred after the following adjustments: Although ELLVIE has contributed the most cash to the
a. The accounts receivables of ANDRO and BRUNO are partnership, she did not have the full amount of P180,000
both fairly valued. available and was forced to borrow personally P120,000.
b. Interests of P360 and P70 are accrued on the notes The land and building has a mortgage of P540,000 and the
receivable of ANDRO and BRUNO, respectively, while partnership is to assume the responsibility for the loan. If
P450 are accrued on the notes payable. the profit and loss sharing agreement is 2:2:1, respectively
c. The inventory of ANDRO should be valued at P6,400. for CLOUIE, DORRIE, and ELLVIE.
d. The prepaid insurance still amounted to P1,000.
e. The machinery is under-depreciated by P960. 1. What is the capital balance for each partner at the
f. The furniture and fixtures is overstated by P1,560.. opening of business on May 31, 2018?

Page 2 of 6 AdFAR.701
 CLOUIE DORRIE ELLVIE Helen Irma
a. P381,040 P381,040 P 190,520 Investments Withdrawal Investments Withdrawals
b. 588,750 364,500 243,750 1/1 P36,000 P24,000
c. 993,750 94,500 108,750 6/1 P14,400 P14,400
d. 123,000 249,000 580,600 8/1 24,000 2,400
12/1 6,000
In 2017, Jerely and Ryan agreed to contribute equal
The partnership’s profits and loss agreement provides for
amounts into a new partnership for a 52 : 48 interest in
annual salary of P36,000 for each partner. Helen is to
profit (loss) and in capital, respectively. Their respective
receive an annual bonus of 10% on net income after salaries
contributions will come from old proprietorships they
and bonus. The partners are also to receive interest of 8%
owned and will both be dissolved.
on average annual capital balances affected by both
Jerely contributed the following items and amounts: investments and withdrawals. Any remaining profits are to
Cash P585,000 be allocated equally among the partners. Assuming a net
Machineries (at book value per her income of P60,000 before any deductions.
proprietorship records) 400,000 1. Determine how the income would be allocated among
the partners:
Ryan contributed the following items at their carrying a. Helen, P30,820; Irma, P29,180
amounts in the proprietorship records: b. Helen, P40,500; Irma, P31,500
Accounts receivable 75,000 c. Helen, P36,820; Irma, P35,180
Inventory 210,000 d. Helen, P35,179; Irma, P34.500
Furniture and fixtures 402,000
Intangibles 172,500 The following Statement of Financial Position for the
partnership of Clara, Ingrid, and Gemma were taken from
All the non-cash contributions are not properly valued. The
the books on October 1, 2017.
two partners have agreed that (a) P6,000 of the accounts
receivable are uncollectible; (b) the inventories are Cash P80,000 Liabilities P160,000
overstated by P15,000; (c) the furniture and fixtures are Other assets 320,000 Clara, capital 96,000
understated by P9,000; and the intangibles include a patent Ingrid, capital 76,000
with a carrying value of P10,500, which must now be Gemma,
derecognized due to the result of unsuccessful litigation capital 68,000
promulgated by the court just before the partnership Total assets P400,000 total Liabilities
formation. & Capital P400,000
2. What is the fair value of the machineries invested by
Jerely into the partnership? The partners agreed to distribute profits as follows:
a. P336,000 c. P390,000  Annual salaries to Clara and Ingrid of P4,000 each.
b. P252,000 d. P350,000  Annual interest of 5% on beginning capital.
3. What is the capital credit of Jerely upon formation?  Bonus of 15% to Clara based on income after salaries,
a. P870,480 c. P833,480 interest, and bonus.
b. P803,520 d. P837,000  Remaining profits: 25% to Clara, 35% to Ingrid, and
40% to Gemma.
B. PARTNERSHIP OPERATIONS The partnership began operations on October 1, 2017 and
1. DIVISION OF PROFITS AND LOSSES net income for the period ended December 31, 2017 is
II P55.600.
On January 1, 2018 Florie and Girlie formed a partnership 2. Which of the following statements is true?
by contributing cash of P360,000 and P240,000, a. The bonus to Clara is P5,804.
respectively. On February 1, 2018. Partner Florie b. Nett income after salaries, interest, and bonus is
contributed an additional P120,000 cash to the partnership P38,696.
and on August 1, 2018, Partner Florie has permanent c. Ingrid’s total share in net income is P17,350.
withdrawal of P60,000. On May 1, 2018 Partner Girlie d. Gemma’s share in the profit after salaries, interest,
contributed machinery with a fair market value of P80,000 and bonus is P13,543.
and a net book value of P60,000 when contributed. On
2. STATEMENT OF PARTNERS’ CAPITAL BALANCES
November 1, 2018, partner Girlie contributed an additional
III
P40,000 cash to the partnership. Both partners withdrew
On January 1, 2018, Jill and Kiks formed a partnership by
one-third of their salary allowances in 2018.
contributing cash of P45,000 and P30,000, respectively.
The partnership agreement of Florie and Girlie has the Kiks was given a 60% interest recorded under the bonus
following terms for the division of net income (loss) to the method. On February 1, 2018, Partner Jill contributed an
partners: additional P15,000 to the partnership and on August 1, 2018
1. Interest of 12% is allowed on the average capital partner Jill withdrew P7,500 that the partnership agreement
balance. classified as excess drawings. On May 1, 2018 Partner Kiks
2. Salaries of P8,000 per month to each partner contributed equipment with a fair market value of P10,000.
3. Bonus to Florie of 10% of net income after partners’ Partner Kiks had originally purchased the equipment for
salaries. P15,000 and it had a net book value of P7,500 when
4. Balance to be divided in the ratio of 6:4 to Florie and contributed. On November 1, 2018, Partner Kiks contributed
Girlie, respectively an additional P5,000 cash to the partnership. Drawings
made were for the payments of monthly salaries.
Required: Prepare a schedule for the allocation of net
The partnership agreement has the following provisions for
income/net loss assumptions below:
the allocation of net profit or (loss) to the partners:
a. P228,800 b. P(296,000)
(1) Interest of 12% on the beginning capital balances
during the year
MULTIPLE CHOICE
(2) Salaries of P3,000 per month to each partner
Helen and Irma formed a partnership on January 1, 2018
(3) Bonus to Jill of 10% of net income after the salaries &
and made the following investments and withdrawals during
and the bonus
the year:
(4) Residual profits (or loss) is to be divided equally.

Page 3 of 6 AdFAR.701
Required: Prepare a statement of changes in partners’ C. PARTNERSHIP DISSOLUTION
capital accounts for the year ended December 31, 2018, 1. ADMISSION OF A NEW PARTNER
assuming a net income of P69,700 during the year. IV
A. Steph and Tricia are partners sharing profits and losses
MULTIPLE CHOICE
in the ratio of 60% and 40% respectively. Their equity
The partnership agreement of Lerma, Minda and Norma
balances are:
provides for the division of net income as follows:
Steph, capital P90,000
 Minda, who manages the partnership is to receive a
Tricia, capital 45,000
salary of P22,000 per year.
Steph, loan (credit) 6,500
 Each partner is to be allowed interest at 15% on
beginning capital. They agreed to admit Ursula into the partnership. Prepare
 Remaining profits are to be divided equally. journal entries for the admission of Ursula under each of the
During 2018, Lerma invested an additional P8,000 in the following independent cases:
partnership. Minda withdrew P10,000, and Norma 1. Ursula purchases 1/3 interest from the old partners.
withdrew P8,000. No other investments or withdrawals Ursula pays the partners P48,750.
were made during 2018. On January 1, 2018, the capital 2. Ursula invests P45,000 for a 1/ 4 interest in a new
balances were Lerma, P130,000; Minda, P150,000; and capital of P180,000.
Norma, P140,000.Total capital at year-end was 3. Ursula invests P56,250. for a 1/ 4 interest in the
P504,000. partnership.

1. Compute the capital balance of each partner at year- MULTIPLE CHOICE

end: The equity accounts of the partnership of Vera and Wilma at
Lerma Minda Norma October 31, 2018 are as follows:
A. P161,000 P187,000 P156,000 Vera, capital P256,000
B. 130,000 150,000 140,000 Wilma, capital 128,000
C. 156,666 183,000 152,666 Vera, loan (credit) 24,000
D. 160,500 187,500 156,000 Wilma, drawing (debit) 12,000

The Oman and Pido Partnership was organized and began The partners share profits and losses in the ratio of 3:2,
operations on March 1, 2017. On that date, Oman invested respectively. The partnership is in desperate need of cash,
P600,000 and Pido invested land and building with current and the partners agree to admit Xavier as a partner with a
fair value of P320,000 and P400,000, respectively. Pido also 1/3 interest in the capital and profits and losses upon her
invested P240,000 in the partnership on November 2, 2017 investment of P96,000.
because of shortage of working capital. The partnership 1. Immediately after Xavier’s admission, what should be
contract includes the following income-sharing plan. the capital balances of Vera, Wilma, and Xavier,
Oman Pido respectively:
Annual salary P72,000 P96,000 a. P239,200; P 88,800; P164,000
Annual interest on average 10% 10% b. P192,000; P192,000; P192,000
capital c. P213,333; P102,400; P160,000
Remainder 50% 50% d. P217,600; P102,400; P160,000
The annual salary maybe withdrawn by each partner in 12 The following capital accounts pertain to Ellery Partnership:
monthly installments. During the year ended, February 28, Capital P/L Ratio
2018, the Oman and Pido Partnership had net sales of Nikki P200,000 40%
P2,000,000, cost of goods sold of P1,120,000, and Candy 240,000 60%
operating expenses of P400,000 (excluding partners’
salaries and interest to partners average capital balances). Maxinne is admitted by purchase of one-half interest of both
Each partner had monthly cash drawings in accordance with Nikki and Candy, for P240,000.
the partnership contract. 2. The P240,000 is divided between Nikki and Candy as
2. The capital balances of Oman and Pido, respectively, on follows:
February 28, 2018 are: a. Nikki, P96,000; Candy, P144,000
a. P746,000 and P1,126,000 b. Nikki, P108,000; Candy, P132,000
b. P 20,000 and P1,000,000 c. Nikki, P109,090; Candy, P130,910
c. P818,000 and P1,222,000 d. Nikki, P120,000; Candy, P120,000
d. P802,000 and P1,200,000 Berto and Rubio are partners who share profits and losses
On January 2, 2018, Quiel and Ruffo formed a partnership. in the ratio of 4:6, respectively. On May 1, 2017, their
Quiel contributed capital of P437,500 and Ruffo, P62,500. respective balances were as follows:
They agreed to share profits and losses 80% and 20%, Berto, capital P 60,000
respectively. Ruffo is the general manager and works in the Rubio, capital 50,000
partnership full time and is given a salary of P12,500 a Berto, drawing (debit) 5,000
month; an interest of 5% of the beginning capital is given Loan to Berto 15,000
to both partners and a bonus of 15% of net income before Loan from Rubio 20,000
the salary, interests and bonus is given to Ruffo. The income On that date, Lyndon was admitted as a partner with a one-
statement of the partnership for the year ended December third interest in capital and profits for an investment of
31, 2018 is as follows: P40,000.
Net sales P2,187,500 3. Immediately upon Lyndon’s admission, Berto’s capital
Cost of goods sold 1,750,000 should be:
Gross profits P 437,500 a. P34,667 c. P56,000
Expense (including the salary, b. P54,000 d. P60,000
interest and the bonus) 357,500
2. RETIREMENT OF A PARTNER
Net income P 80,000
V
3. The capital account balance of Ruffo at December 31, RAM, ULIE, and ROCCO have been partners sharing net incomes
2018 is: and losses in a 3:5:2 ratio. On October 31, the date ROCCO
a. P523,375 c. P501,500 retires from the partnership, the equities of the partners are
b. P276,625 d. P 78,500 RAM, P104,000; ULIE P160,000; and ROCCO, P40,000. The
estimated profit to October 31 is P80,000 and the partners have
Page 4 of 6 AdFAR.701
appropriately decided to adjust the understated assets to fair c. The total assets after Sin’s retirement is P160,000.
value by P20,000. Present general journal entries to record d. The share of Con in the excess payment to Sin is
ROCCO’s retirement under each of the following unrelated P3,125.
assumptions.
D. PARTNERSHIP LIQUIDATION
a. Rocco is paid P56,000 in partnership cash for his equity.
1. LUMP-SUM
b. Rocco is paid P60,000 in partnership cash for his equity.
VI
c. Rocco is paid P68,000 in partnership cash for his equity.
PAN, TAS, and TIK plan to liquidate their partnership. They
MULTIPLE CHOICE have always shared losses and gains in a 1:4:5 ratio, and on
The following balances as of the end of 2018 for the partnership the day of the liquidation their balance sheet appeared as
of Jade, Emerald, and Ruby, together with their respective profit follows:
and loss percentages, were as follows: PAN, TAS, and TIK
Assets P360,000 Jade, loan P 18,000 Balance Sheet
Jade, capital (20%) 84,000 June 30, 2018
Emerald, capital (20%) 78,000 Assets Liabilities and Owners’ equity
___ ____ Ruby, capital (60%) 180,000 Cash P27,500 Accounts payable P52,150
P360,000 P360,000 Other assets 180,500 PAN, Capital 30,500
TAS, capital 80,350
Jade decided to retire from the partnership. Parties agreed to _______ TIK, capital 45,000
adjust the assets to their fair market value of P432,000 as of Total assets P208,000 Total liabilities and
December 31, 2018. Jade will be paid P122,400 for Jade's owners’ equity P208,000
partnership interest inclusive of Jade loan which is to repaid in
full. After Jade's retirement. Required: Prepare general journal entries to record the sale of
1. What will be the balance of Emerald's capital account? the other assets and the distribution of the cash to the proper
a. P78,000 c. P92,400 parties under each of the following assumptions:
b. P72,900 d. P90,900 The other assets are sold for P85,000, and assume:
On June 30, 2018, the balance sheet for the partnership of 1. Deficient partner(s) are solvent or
Wowie, Piolo, and Diether and their profit and loss ratios were 2. Deficient partner(s) are insolvent
as follows: MULTIPLE CHOICE
Assets, at cost P 600,000 Genny, Mae, and Carla decided to dissolve their partnership on
Wowie, loan P 30,000 November 30, 2018. Their profit and loss ratio are as follows:
Wowie, capital (20%) 140,000 Capitals P & L Ratio
Piolo, capital (20%) 130,000 Genny P400,000 40%
Diether, capital (60%) 300,000 Mae 480,000 30%
Total equities P 600,000 Carla 160,000 30%
Wowie decided to retire from the partnership and by mutual The net income from January 1, 2018 to November 30, 2018 is
agreement, the assets were adjusted to their current fair value P352,000. On November 30, 2018, the cash balance is
of P720,000. The partnership paid P204,000 cash for Wowie’s P320,000, and that of liabilities is P720,000.
equity in the partnership, exclusive of the loan which was repaid
in full. Genny is to receive P441,600 in the settlement of her interest.
2. The capital balances of Piolo and Diether, respectively, after 1. (1) The loss on realization, and (2) the amount to be
Wowie’s retirement from the partnership was: realized from the sale of non-cash assets?
a. P144,000; P342,000 c. P120,000; P270,000 a. (1) P248,000; (2) P1,496,000
b. P154,000; P372,000 d. P164,000; P402,000 b. (1) 99,200; (2) 2,040,000
c. (1) 248,000; (2) 1,544,000
Gemmo, Rey, and Rommel are partners dividing profits and d. (1) 220,800; (2) 1,544,000
losses in the ratio of 2:3:3, respectively. Their capital balances
on December 31, 2016 were: Jun, Ben, and Dindo are partners sharing profits equally. On
Gemmo P 90,000 January 1, 2018 the capital and drawings of the partners are:
Rey 70,000 Capitals Drawings
Rommel 110,000 Jun P 60,000 P 36,000
Ben 48,000 24,000
Rommel is retiring from the partnership as of April 30, 2017. Dindo 180,000 12,000
After the retirement of Rommel, Gemmo and Rey will divide
Due to the failure of the firm’s debtors to settle their accounts.
profit or loss in the remaining original ratio. The partnership
The partners lose heavily and are therefore compelled to
reported net income of P789,000 for the year 2017. Rommel is
liquidate. After exhausting all the partnership assets, including
to be paid an amount equal to 80% of his adjusted equity as of
those arising from the operating profit of P41,400 in 2018,
the date of his retirement.
there still remain P50,400 liabilities on December 31, 2018, Jun
1. Assuming that the net income is considered as having been
has no personal assets but the others are well off.
realized evenly throughout the year, how much is the
2. (1) The loss on realization, and (2) in the settlement to
capital balance of Rey as of December 31, 2017?
partners, how much would Dindo receive?
a. P509,260 c. P382,840
a. (1) P307,800; (2) P 46,800
b. P456,660 d. P484,225
b. (1) 307,800; (2) 79,200
The partnership of WisConSin provides for 3:3:4 sharing in c. (1) 358,200; (2) 181,800
profits and losses to Wis, Con, and Sin, respectively. Sin is d. (1) 338,400; (2) 46,800
retiring from the partnership and by mutual agreement the The accounts of the Partnership of R, S, and T at the end of its
assets are to be adjusted to their fair values which is P37,500 fiscal year on November 30, 2017 are as follows:
higher than their carrying amounts. Wis and Con agree that the Cash P 103,750 Loan from S P 20,000
partnership will pay P108,750 to Sin for his partnership interest, Other non-cash R, capital (30%) 266,250
exclusive of his loan which is to be paid in full separately. Before assets 707,500
the retirement of Sin, total assets, Sin, loan, Wis, capital, Con, Loan to R 15,000 S, Capital (50%) 136,250
capital, and Sin, capital has the following balances, Liabilities 262,500 T, capital (20%) 141,250
respectively: P250,000, P25,000, P62,500, P75,000, and 3. If in the first cash distribution, S received P50,000, which
P87,500. of the following statements is incorrect?
2. Which of the following is not correct? a. Total amount distributed to partners is P336,250.
a. The total amount paid to Sin including his loan is b. Total amount paid to creditors is P262,500.
P133,750. c. Total amount realized from the non-cash assets is
b. The balance of Wis, capital after Sin’s retirement is P598,750.
P70,625. d. R received an amount equal to P187,500.
Page 5 of 6 AdFAR.701
 2. BY INSTALLMENT a. P72,000 c. P63,200
VII b. P64,800 d. P0
On December 31, 2018, the balance sheet of CDO Partnership
is as follows: Following is the balance sheet of the ABCD Partnership at March
Assets Liabilities 31, 2018, when the partnership is to be liquidated:
Cash P 9,600 Account Payable P32,000 Assets Liabilities and Capital
Salary Payable, Cash P 6,000 Liabilities P 12,400
Cherry 6,400 Other A, Loan 12,000
Noncash assets 169,600 Dorie, Loan 12,800 assets 126,000
Loan to Oscar 6,400 Cherry, Capital 24,320 B, Loan 14,400
Dorie, Capital 46,080 D, Loan 9,600
_______ Oscar, Capital 64,000 A, Capital (25%) 16,200
P185,600 P 185,600 B, Capital (25%) 12,000
C, Capital (25%) 37,700
Profit and losses were shared as follows; CHERRY, 30%; DORIE,
________ D, Capital (25%) 17,700
30%; OSCAR, 40%. It was decided to liquid date the business.
P 132,000 P132,000
The following is a summary of the realization and liquidation
activities. During the month of April 2018, assets having a book value of
Book P18,000 are sold at a loss of P2,400. Liquidation expenses of
Value Cash Paid P600 are paid as well as P7,200 of the liabilities. Of the liabilities
of Asset Cash Expenses Liabilities to shown in the balance sheet, P240 represents salary payable to
Realized Collected Paid Paid Partners D and P160 represents salary payable to C.
1st 3. On April 30, 2018, cash is to be distributed to A, B, C and
Period 83,200 51,200 2,560 32,000 26,240 D as follows:
2nd A B C D
Period 48,000 32,000 2,560 - 25,600 a. P - P - P - P 9,000
3rd b. 1,950 1,950 1,950 1,950
Period 32,000 19,200 1,120 - 21,760 c. - - - 1,950
4th d. - - 9,000 -
Period 6,400 3,200 160 3,200
Partners Jojo and Mar, who share profits and losses equally,
Required: have decided to incorporate the partnership at December 31,
1. Prepare a statement of Partnership Liquidation for each 2018. The partnership net assets after the following
period. adjustments will be contributed in exchange for shares of stocks
2) Prepare a program to show how cash is to be distributed to from the corporation.
partners. a. provision of allowance for doubtful accounts, P2,500,
b. adjustment of understated inventory by P5,000, and
MULTIPLE CHOICE c. recognition of additional depreciation of P750.
Kim, Beah and KayC are partners. On January 3, 2018, their
capital balances and profit and loss ratio are as follows: The corporation’s ordinary shares is to have a par value of P100
Capital Profit and Loss Ratio each and the partners are to be issued corresponding total
Kim P25,000 60% shares equivalent to their adjusted capital balances.
Beah 50,000 25% The partnership balance sheet at December 31, 2018
KayC 60,000 15% follows:
Cash P 30,000 Liabilities P 43,000
KayC withdraw P10,000 during the year. Net loss on December Accounts Acc.
31, 2018 totaled P20,000. Hence, the partners decided to receivable 25,000 depreciation 2,000
liquidate the partnership. It is uncertain how much of the assets Inventory 35,000 Jojo, capital 35,000
will ultimately yield but favorable realization is expected. It is Equipment 20,000 Mar, capital 30,000
therefore, agreed to distribute cash as it becomes available. Total P 110,000 Total P 110,000
There are unpaid liabilities of P5,000 and cash on hand of P700.
1. If KayC received a total of P33,000, the amount that Kim 4. Determine the total par value of the ordinary shares issued.
and Beah would have received at this point (or that time) a. P65,000 c. P68,250
would be: b. P66,750 d. P70,000
Kim Beah
a. P - P -  - end of AdFAR.701 - 
b. 2,000 21,667
c. - 21,667
d. - 45,000
The partnership of Marl, Boro, and Reds was dissolved on
October 30, 2018, and the account balances after all noncash
assets are converted to cash on Nov. 1, 2018, along with
residual P/L sharing ratio, are:
Accounts
Cash P 40,000 payable P120,000
Boro, capital Marl, capital
(30%) 48,000 (30%) 72,000
Reds, capital
(40%) 80,000
168,000 168,000
Personal assets and liabilities of the partners at November 1,
2018 are:
Personal assets Personal liabilities
Marl P 64,000 P 72,000
Boro 80,000 48,800
Reds 152,000 64,000

2. If Reds contributed P56,000 to the partnership to provide

cash to pay the creditors, what amount of Marl's P72,000
partnership equity would appear to be recoverable:

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