Since 1977

NATIONAL UNIVERSITY ELLERY DE LEON

ADVAC 1- PARTNERSHIPS 1st Semester SY 2016-2017

LECTURE NOTES
FORMATION d. Any numerical ratio, e.g. 3:2:5 will apply to the
residual profit or loss after allocations made for (a)
The initial investments of the partners are recognized at (b), and (c) above.
FAIR VALUES and credited to the partners capital accounts
in the agreed interest ratio. Since partnership goodwill is For example:
no longer recognized under IFRS, the total contributions of
In continuation of the same Illustrative Case
the partners (as agreed capital) is allocated to individual
Partner A invested additional capital on May 1, 2016 for
partners. For example:
P30,000 cash; contributed merchandise with a fair value of
A and B formed a partnership on January 2, 2016 by P24,000 on September 1, 2016; and withdrew
contributing the following net assets from their respective permanently cash of P12,000 on December 1, 2016.
proprietorships: Partner B had no additional investments nor permanent
A B withdrawals during 2016.
Cash P 30,000 P 20,000
Non cash assets 620,000 730,000 They agreed to divide profits and losses as follows:
Liabilities (450,000) (530,000) a. Interest of 6% on average capital for each partner
Net assets P200,000 P220,000 b. Salaries of P4,000 each month to both partners
c. Bonus to A of 10% of net income after interests
The non-cash assets of A is overstated by P24,500 while and salaries; and
the liabilities of B is understated by P5,500 They agreed on d. The balance is agreed to be divided equally.
a capital ratio of 48:52 to A and B, respectively. e. Both partners withdrew temporarily 60% of their
respective salaries.
The compound journal entry to record the formation of the
partnership is
The reported profit of P150,000 for 2016 will be divided as
Cash P 50,000
follows:
Non-cash assets 1,325,500
A B TOTAL
Liabilities P 985,500
Interests P 12,852 P 12,168 P 25,020
A, capital 187,200
Salaries 48,000 48,000 96,000
B, capital 202,800
Bonus 2,898 2,898
The above agreement resulted in a bonus of P11,700 from Balance 13,041 13,041 26,082
B to A, which is the excess of B’s contribution of P214,500 Total P 76,791 P 73,209 P150,000
against a smaller capital credit of P202,800, or the excess
of A’s capital credit of P187,200 over the amount The journal entry to transfer the net income for 2016 to
contributed of P175,500. This is referred to as BONUS capital is
METHOD. If no bonus is to be recognized, the partners Income Summary 150,000
should have used their contributions ratio, 45:55 as A, capital 76,791
capital ratio to A and B, respectively. This is referred to as B, capital 73,209
NET INVETMENT method.
Average capital for Partner A is computed as follows:

OPERATIONS 1/01/16 187,200 x 12/12 P187,200

5/01/16 30,000 x 8/12 20,000
During the operations of the partnership, loan by a partner 9/01/16 24,000 x 4/12 8,000
to the partnership (Loans Payable) or by the partnership to 12/01/16 (12,000) x 1/12 (1,000)
a partner (Loans Receivable) may be recognized; Average capital P214,200
temporary drawings in anticipation of profits may occur; Multiply by 6%
additional investments may also be made by the partners; Interest P 12,852
and the result of operations during the period is reported.
Ave. capital of B : P202,800 x 6% P 12,168
Partnership income or loss is allocated to partners in many
ways. Generally, agreement items for income or loss
allocation conform with the following remunerations: The financial statements prepared for partnerships are
a. income allocations on the basis of capital balances similar to those prepared for corporations, except for the
to reward partners in proportion to their respective following basic differences:
investments through interests; a. In the balance sheet, ownership equity for a
b. income allocations on the basis of service partnership will be partners’ capital balances; in a
contributions to reward partners for their corporation, capital stock, additional paid-in
respective service to the partnership through capital, and retained earnings. In lieu of a
salaries; statement of retained earnings done for
c. income allocations on the basis of effective corporations, partnerships present a statement of
management of the partnership through bonuses; partners’ capital in support of its ownership equity
and on the balance sheet.
b. A statement of partners’ capital balances will show
initial or beginning balances, additional
investments, withdrawal of capital, temporary

Page 1 of 10
www.prtc.com.p ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.

drawings, share of net income or net loss, and Continuing with the problem, assume C was admitted
partners’ compensation treated as operating as a partner in the AB Partnership by investing
expenses. P200,000 for a 40% interest in capital and in profits.

The total contributions by the partners will be

For example: P724,400 (P277,191 + P247,209 + P200,000). The
Continuing with the same Illustrative Case, the acquired interest is P289,760 at 40%, which is
statement of Partners’ capital balances during 2016 P89,760 excess credit over the amount contributed.
follows:
The journal entry to be recorded upon C’s admission is
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

Page 2 of 10
www.prtc.com.ph ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.

at P724,400. AB divide profits and losses on a 3:4 ratio to A and

B, respectively.
b. Payment to the withdrawing partner will come from
partnership assets – The following are liquidation transactions:
Under this arrangement, one of three situations In October, 2016.
can occur:
i. Payment is equal to the interest withdrawn, 10/1-31/16 Realized cash of P285,000 from a sale
which is easily recorded by a debit to the of non-cash assets of P300,000
capital account of the withdrawing partner and 10/10/16 Paid liquidation expenses of P4,000
a credit for the payment made, since both 10/15/16 Paid third-party creditors P50,000
amounts are equal. 10/31/16 Paid partners cash of P370,000
ii. Payment is less than the interest withdrawn,
which is recorded with bonus to the remaining In November, 2016
partners divided in the remaining profit and 11/2-30/16 Realized P312,000 from the sale of
loss ratio. the remaining non-cash assets
iii. Payment is more than the interest withdrawn, 11/15/16 Paid liquidation expenses of P6,000
the excess is recorded as bonus to the retiring 11/25/16 Paid third-party creditors in full.
partner and charged to the remaining partners 11/30/16 Paid partners cash of P306,000 in
in the remaining profit and loss ratio. final settlement.
Lump-Sum Liquidation:
For example: Cash NCA A/P A B
Continuing with the same Illustrative Case but BBL 185,000 645,000 96,000 366,000 368,000
this time payment to A’s heirs will be P240,109 Sale 597,000 (645,000) ( 20,571) (27,429)
from partnership assets, the journal entry to LQ Exp (10,000) ( 4,286) ( 5,714)
record A’s withdrawal by death is AP Pd. (96,000) (96,000)
Pd to P(676,000) (341,143)(334,857)
A, capital P232,311 Balances - - - - -
B, capital 3,342
C, capital 4,456 b. Liquidations in which there are several distributions
Cash P240,109 during the course of liquidation, oftentimes at
points when there are unrealized non-cash assets
The total capital after the withdrawal of Partner A will be and unpaid third-party creditors. This is called
P484,291, i.e. Partner B, P198,987 and Partner C, installment liquidation
P285,304. The bonus to Partner A of P7,798 is divided
between B and C in the remaining profit ratio of 3:4. By-Installment Liquidation:
October Liquidation
Cash NCA A/P A B
LIQUIDATION OF A PARTNERSHIP BBL 185,000 645,000 96,000 366,000 368,000
NCA sale 285,000(300,000) (6,429) (8,571)
A liquidation winds up all operations of the partnerships, Exp pd (4,000) ( 1,714) (2,286)
converts all partnerships assets into cash and distributes A/P pd (50,000) (50,000)
to creditors of the partnerships, then to accounts with Pd to P (370,000) (210,000)(160,000)
partners. Bals. 46,000 345,000 46,000 147,857 197,143

Statement of Liquidation Computation for safe payments to partners

A statement of liquidation summarizes all liquidation A B TOTAL
activities, including payments to partners. There are two Balances, 10/31 357,857 357,143 P 715,000
types of distribution in partnerships liquidation, as follows: TPL(345,000) (147,857) (197,143) (345,000)
a. Liquidations in which all distributions are made in a Free interests 210,000 160,000 P370,000
single time following the sale of all non-cash
assets. This is called lump-sum, or total, November Liquidation
liquidation. It is a summary of the entire Cash NCA A/P A B
liquidation process upon its completion. It is one in Bals,11/1 46,000 345,000 46,000 147,857 197,143
which at the time cash is distributed to partners, NCA sale 312,000(345,000) (14,143) (18,857)
noncash assets had been already disposed and the Expenses (6,000) ( 2,571) ( 3,429)
full loss or gain on realization reflected in partners’ A/P paid (46,000) (46,000)
capital balances. Cash to P (306,000) (131,143) (174,857)
Balances - - - - -
For example: No need for safe payment computations because the
AB Partnership is to be liquidated on September partners’ capital and profit ratios have become identical
30, 2016. On this date, its balance sheet is as by the end of October.
follows:
Distribution of partnership cash in liquidation must be
Cash P 185,000 made to creditors first, and then to partners’ accounts
Non-cash assets 645,000 which are always based on free-interest computations.
A, loan 20,000 Loan accounts are prioritized over capital balances only if
Accounts payable (96,000) they belong to the same partner and only after the
B, loan (12,000) amount payable to that partner has been established by
A, capital (386,000) free interest calculations.
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
Page 3 of 10
www.prtc.com.ph ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.

ratio at that point are not identical). The purpose of this

calculation is to determine who among the partners have To A: P306,000 x 3/7 P 131,143
the free-interests to deserve the payment from the B: P306,000 x 4/7 174,857
partnerships.
Please note that payment to partners AFTER the first
Cash Distribution Program – Alternate Method P90,000 payment to A will henceforth be in the original
To avoid preparing the calculation for safe-payment P&L ratio because the capital and profit ratios of the
every time there is an installment distribution, a cash partners have become identical after the said priority
distribution program to partners is prepared. This payment.
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.

For example:
Continuing with the current illustrative case

INTERESTS PAYMENTS
A B A B TOTAL
BBL 366,000 368,000
/PLR 3/7 4/7
LAA 854,000 644,000
P#1 (210,000) 90,000 - 90,000
LAA 644,000 644,000 90,000 - 90,000

October payment
10/31/16 Payment, P370,000
A B TOTAL
Priority 1 90,000 - 90,000
Priority 2 120,000 160,000 280,000
Totals 210,000 160,000 370,000

November payment of P306,000 will be paid in the original

profit and loss ratio of 3:4 to A and B, respectively:

- done –

PARTNERSHIP FORMATION 3. Explain why Partner Claire was unaffected by the

Claire, Dolly, and Ellery formed the CDE Partnership on bonus feature in the ownership agreement among the
September 1, 2016, with the following assets, measured at partners.
book values in their respective records , contributed by
MULTIPLE CHOICE.
each partner: Abner and Bimbo have just formed a partnership. Abner
CLAIRE DOLLY ELLERY
contributed cash of P2,346,000 and office equipment that
Cash P 486,000 P460,107 P231,903
cost P1,170,000. The equipment had been used in the sole
Accounts
proprietorship and had been 80% depreciated. The current
receivable 109,620 - 141,000
fair value of the equipment is P756,000. An unpaid
Plant, Property, &
mortgage loan on the equipment of P252,000 will be
Equipment (PPE) 2,094,390 450,000 -
assumed by the partnership. Abner is to have a 60%
interest in the partnership net assets.
A part of Claire’s cash contribution, P324,000, comes from
personal borrowings. Also, the PPE of Claire and Dolly are
Bimbo is to contribute, only, merchandise with a fair value
mortgaged with the bank for P1,458,000 and P108,000,
of P1,890,000. Both partners agreed on a profit and loss
respectively. The partnership is to assume responsibility
ratio of 55% to Abner and the balance to Bimbo.
for these PPE mortgages. The fair value of the accounts
1. To finalize the partnership agreement, Abner should
receivable contributed by Ellery is P137,700 while the PPE
make additional investment (withdrawal) of cash in the
contributed by Dolly at this date is P510,300 The
amount of.
partners have agreed to share profits and losses on a
a. P( 36,000) c. P264,000
5:3:2 ratio, to Claire, Dolly, and Ellery, respectively.
b. P(540,000) d. P(15,000)
1. What is the capital balance for each partner at the
opening of business on September 1, 2016? Claire,
In 2016, Nikki and Candy agreed to form a new
P________; Dolly, P________; and Ellery,
partnership under the following general agreements:
P________.
(1) Partners’ CONTRIBUTIONS will be on a 5:4 ratio; (2)
PROFIT & LOSS, equally, and (3) CAPITAL CREDITS,
2. What is the capital balance for each partner at
57:43 ratio, respectively to Nikki and Candy. Their
September 1, 2016, instead, if the interest ratio is
respective contributions will come from old
agreed at 5:3:2 to Claire, Dolly, and Ellery,
proprietorships they owned.
respectively? Claire, P________; Dolly, P________;
and Ellery, P________.
Nikki contributed the following items and amounts:

Page 4 of 10
www.prtc.com.ph ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.

Cash P748,800 withdrawals of P16,000, and P12,800, respectively. ROY

Equipment (at book value per her had a temporary drawing of P4,500. No other investments
proprietorship records) 512,000 or withdrawals were made during 2016. On January 1,
2016, the capital balances were ROBERT, P208,000; ROY,
Candy contributed the following items at their carrying P240,000; and BOBBY, P224,000.Total capital at year-end
amounts in the proprietorship records: was P806,400.
Accounts receivable P 96,000
Inventory 268,800 1. Compute the capital balance of each partner at year-
Furniture and fixtures 514,560 end:
Intangibles 220,800 ROBERT ROY BOBBY
a. P257,500 P297,800 P251,100
All the non-cash contributions are not properly valued. The b. 258,300 297,000 251,100
two partners have agreed that (a) P7,680 of the accounts c. 250,665.6 292,800 244,266.4
receivable are uncollectible; (b) the inventories are d. 258,300 297,000 251,100
overstated by P19,200; (c) the furniture and fixtures are
understated by P11,520; and the intangibles include a The YES Partnership started operations on January 2, 2016
patent with a carrying value of P13,440, which must now with the following capital balances:
be derecognized upon a court order. The rest of the YVES P 88,000
intangible items are fairly valued. ERNEST 64,000
2. How much is the total depreciable fixed asset recorded SERGE 90,000
by the partnership?
a. P1,060,800 c. P 944,000 Their profit and loss agreement has the following
b. P 403,200 d. P 1,116,480 provisions:
 YVES will be given an annual salary of P16,000 and
3. What is the capital balance of Candy after the SERGE P8,000.
formation of the partnership?  All partners will be given 10% interest on beginning
a. P1,036,541 c. P1,325,808 capital balances every year.
b. P1,339,200 d. P1,071,360  The balance of the profit, or the loss, will be divided
on a 5:2:3 to YVES, ERNEST, and SERGE,
PARTNERSHIP OPERATIONS respectively.
On January 1, 2016, FRED and GEMMO formed a  Each partner is allowed to withdraw up to P8,000
partnership by contributing cash of P405,000 and every year
P270,000, respectively. On February 1, 2016, Partner
FRED contributed an additional P135,000 cash to the In 2016, partnership operations resulted in a net loss of
partnership and on August 1, 2016 Partner FRED made a P16,000, while in 2017, it was a net profit of P32,000. All
permanent withdrawal of P67,500. On May 1, 2016, partners withdrew the maximum amount of P8,000 each
Partner GEMMO contributed machinery with a fair market year.
value of P90,000 and a net book value of P75,000 when 2. Calculate the balance of YVES’ capital at the end of
contributed. On November 1, 2016 Partner GEMMO 2015
contributed an additional P45,000 cash to the partnership. a. P 72,700 c. P49,600
Both partners withdrew one-fourth of their salary b. P 77,600 d. P64,900
allowances in 2016.
3. Calculate the balance of Ernest’s capital at the end of
The partnership reported a net income of P257,400 in 2016.
2016 and the profit and loss agreement are as follows: a. P 82,080 c. P81,760
a. Interest at 6% is allowed on average capital b. P 44,076 d. P77,600
balances;
b. Salaries of P2,700 per month to each partner; PARTNERSHIP DISSOLUTION
c. Bonus to FRED of 10% of net income after interest, A. ADMISSION OF A NEW PARTNER
salaries, and bonus; and HERBERT and IRENEO are partners sharing profits and
d. Balance to be divided in the ratio of 6:4 to FRED and losses in the ratio of 60% and 40%, respectively. The
GEMMO, respectively. partnership balance sheet at August 30, 2016 follows:

Required: Cash P Accounts payable P 13,500

1. Prepare a schedule for the division of net profit for 12,150
2016 with supporting computations when appropriate. Other assets 119,700 Herbert, Loan 5,850
2. Prepare a statement of the partners’ capital balances Ireneo, Loan 9,000 Herbert, capital 81,000
for 2016 under the following assumptions: Ireneo, capital 40,500
a. Partners’ interests and salaries are treated as Total P 140,850 Total P140,850
factors to fairly distribute the net income; and
b. Partners’ interests and salaries are to be treated as At this date, JOSHUA was admitted as a partner for a
operating expenses. consideration of P43,875 cash for a 40% interest in capital
and in profits.
MULTIPLE CHOICE 1. Assume JOSHUA is admitted by purchase of 40% each
The partnership agreement of ROBERT, ROY and BOBBY of the original partners’ interest:
provides for the division of net income as follows: A. Prepare the journal entry to record the admission
 ROY, who manages the partnership is to receive a of JOSHUA.
salary of P35,200 per year. B. Calculate the amounts received by HERBERT,
 Each partner is to be allowed interest at 20% on P_________ and IRENEO, P________ for their
beginning capital. respective partnership interest transferred to
 Remaining profits are to be divided equally. JOSHUA.
During 2016, ROBERT invested an additional P12,800 in
the partnership. ROY and BOBBY had permanent capital

Page 5 of 10
www.prtc.com.ph ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.

2. Assume JOSHUA is admitted by investing the P43,875 The following are the condensed balance sheets of G&N
to the partnership: Partnership at August 30, 2016, at which date Ellery is to
a. Prepare the entry for the admission of JOSHUA. be admitted with a 30% interest in capital for an
investment of P55,000.
MULTIPLE CHOICE Book Value Fair Value
MYRNA and NORMA are partners sharing profits and losses Cash P 20,000 P 20,000
in the ratio of 60% and 40%, respectively. The partnership Other assets 503,000 417,000
balance sheet at August 30, 2016 follows: Total assets P523,000 437,000
Current liabilities P 54,000 P 54,000
Cash P 27,000 Accounts payable P 30,000 Non current liabilities 269,000 275,000
Other assets 266,000 MYRNA, Loan 13,000 Gemmo, capital 120,000
NORMA, 20,000 MYRNA, capital 180,000 Norma, capital 80,000
Loan Total equities P523,000
NORMA, capital 90,000
Total P 313,000 Total P313,000 Gemmo and Norma share profits at 60% and 40%,
respectively.
At this date, OLGA was admitted as a partner for a 5. What will be the respective capital balances of Gemmo,
consideration of P97,500 cash for a 40% interest in capital Norma, and Ellery after the new partner’s admission.
and in profits. a. P68,460, P45,640, and P48,900
1. Assume OLGA is admitted by purchase of 40% each of b. P48,900, P45,640, and P68,460
the original partners’ interest, determine how the c. P45,640, P68,460, and P48,900
P97,500 will be apportioned to MYRNA and NORMA d. P64,860, P49,240, and P48,900
a. MYRNA, P65,700 and NORMA, P31,800
b. MYRNA, P64,800 and NORMA, P32,700 B. RETIREMENT OF A PARTNER
c. MYRNA, P65,500 and NORMA, P32,000 IV
d. MYRNA, P65,900 and NORMA, P31,600 The following balances as at October 31, 2016 for the
Partnership of KATHY, LILIA, and MINDA were as follows:
2. Assume OLGA is admitted by investing the P97,500 Cash P 50,000 Liabilities P
into the partnership, determine the effects of any 15,000
bonus over the capital balances of the original Lilia, Loan 15,000 Kathy, loan 22,500
partners: Non-cash 400,000 Kathy, 105,000
a. MYRNA, P(19,800) and NORMA, P(29,700) assets capital
b. MYRNA, P 18,000 and NORMA, p 29,700 Lilia, capital 97,500
c. MYRNA, P(29,700) and NORMA, P(19,800) Minda, 225,000
d. MYRNA, P(18,675) and NORMA P(12,450) capital
Totals P465,000 Totals P465,000
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
what is Dennis’ beginning capital balance. interest inclusive of her loan which is to be paid in full. Their
1. P410,000 and P270,000 profit and loss ratio is 3:4:3 to WILMA, XELYN, and YSKA,
2. P140,000 and P270,000 respectively.
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.

Page 6 of 10
www.prtc.com.ph ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.

ii. adjustment of understated inventory by P10,000, and

Partnership of COCO, PIOLO, and DANIEL and their profit and iii. recognition of additional depreciation of P2,000.
loss ratios were as follows: Assets P
1,200,000 The corporation’s ordinary shares is to have a par value of
Coco, loan P 60,000 P200 each and the partners are to be issued corresponding
Coco, capital (30%) 280,000 shares equivalent to 80% of their adjusted capital balances.
Piolo, capital (30%) 260,000 The partnership balance sheet at December 31, 2016
Daniel, capital (40%) 600,000 follows:
Total equities P 1,200,000 Cash P 60,000 Liabilities P 86,000
Accounts Acc.
COCO decided to retire from the partnership and by mutual receivable 50,000 depreciation 4,000
agreement, the assets were adjusted to their current fair Inventory 70,000 Jojo, capital 70,000
value of P1,440,000. The partnership paid P408,000 cash for Equipment 40,000 Mar, capital 60,000
COCO’s equity in the partnership, exclusive of the loan which Total P 220,000 Total P 220,000
was repaid in full. 1. Determine the total credit to APIC upon incorporation of
2. The capital balances of PIOLO and DANIEL, respectively, the partnership
after COCO’s retirement from the partnership was: a. P 13,500 c. P 12,000
a. P360,000; P855,000 c. P300,000; P675,000 b. P 26,400 d. P 132,000
b. P288,000; P684,000 d. P308,000; P664,000
2. The number of ordinary shares issued to Partner Mar is
The MORICATA Partnership has the following capital balances a. 568 c. 244
and P&L ratio at August 4, 2016. b. 600 d. 660
Mora, capital (30%) P129,750
Rico, capital (30%) 108,750 On January 2, 2016, VENUS and WILMA dissolved their
Cara, capital (20%) 80,000 partnership and transferred all assets and liabilities to a
Tano, capital (20%) 71,500 newly formed corporation. At the date of incorporation, the
P390,000 fair value of the net assets was P12,000 more than the
carrying amount on the partnership’s books. Of which
Cara has decided to withdraw from the partnership and by P7,000 was assigned to tangible assets and P5,000 was
agreement of all the partners, will be paid P90,000 from
assigned to patent. VENUS and WILMA were each issued
partnership cash.
5,000 shares of the corporation’s P1 par common stock.
3. Immediately after Cara’s retirement, the capital ratio of
3. Immediately following incorporation, additional paid-in
Mora, Rico, and Tano, respectively will be
a. 33-1/3%, 33-1/3%, and 33-1/3% capital in excess of par should be credited for
b. 40 %, 34 %, and 26 % a. P68,000 c. P77,000
c. 37-1/2%, 37-1/2%, and 25 % b. P70,000 d. P82,000
d. 42 %, 35 %, and 23 %.
PARTNERSHIP LIQUIDATION.
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,

Page 7 of 10
www.prtc.com.ph ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.

The net income from January 1, 2016 to November 30, 2016 MULTIPLE CHOICE
is P704,000. On November 30, 2016, the cash balance is The accounts of the partnership of PBA at December 31, 2016
P640,000, and that of liabilities is P1,440,000. are as follows:
Cash P 132,000 Liabilities P 100,000
GYLIN is to receive P883,200 in the settlement of her interest. Non-cash Loan from B 32,000
1. Calculate: (1) The loss on realization, and (2) the amount assets 1,166,000
to be realized from the sale of non-cash assets? Loan to P 24,000 P, capital 330,000
a. (1) P496,000; (2) P3,088,000 B, capital 586,000
b. (1) 248,000; (2) 5,100,000 A, capital 274,000
c. (1) 620,000; (2) 3,860,000 Total P1,322,000 Total P1,322,000
d. (1) 552,000; (2) 3,860,000
They divide profits and losses 3:5:2 to P, B, and A
The accounts of the Partnership of R, S, and T at the end of its respectively. They have decided to liquidate the partnership at
fiscal year on November 30, 2016 are as follows: this date.
Cash P 166,000 Loan from S P 32,000 1. Determine the amount payable to Partner A if cash is paid
Other non-cash R, capital (30%) 426,000 just before the start of liquidation on December 31, 2016.
assets 1,132,000 a. P 28,286 c. P 35,357
Loan to R 24,000 S, Capital (50%) 218,000 b. P 35,300 d. P 35,120
Liabilities 420,000 T, capital (20%) 226,000
2. If in the first cash distribution, S received P80,000, which 2. Determine the amount Partner P and Partner B would
of the following statements is incorrect? have received by the time Partner A would have received
a. Total amount distributed to partners is P538,000. a cumulative amount of P72,000.
b. Total amount paid to creditors is P420,000. a. R, P3,000 and S, P113,000
c. Total amount realized from the non-cash assets is b. R, P3,516 and S, P140,530
P958,000 c. R, P3,750 and S, P141,250
d. R received an amount equal to P300,000. d. R, P3,516 and S, P145,200

The following condensed balance sheet is prepared for SAMMY

On January 1, 2016, the partners CARLO, DIEGO, and
and JOKER, who share profits and losses in the ratio of 60:40,
respectively: EDGAR, who share profits and losses in the ratio of
Other assets P 720,000 Accounts P192,000 5:3:2, respectively, decided to liquidate their
payable partnership. On this date the partnership condensed
Sammy, loan 32,000 Sammy, capital 312,000
Joker, capital 248,000
balance sheet was as follows:
Total P 752,000 Total P 752,000 Cash P 80,000 Liabilities P 96,000
3. The partners have decided to liquidate the partnership. If Other assets 400,000 Carlo, capital 128,000
the other assets are sold for P770,000, what amount of Diego, capital 144,000
the available cash should be distributed to Sammy? Edgar, capital 112,000
a. P310,000 c. P342,000 Total P 480,000 Total P 480,000
b. P312,000 d. P390,000 On January 15, 2016, the first cash sale of other assets with a
carrying amount of P240,000 realized P192,000. Safe
2. BY INSTALLMENT installment payments were made the same date.
VI
3. How much cash should be distributed to each partner?
, the balance sheet of CDO
On December 31, 2016 CARLO DIEGO EDGAR
Partnership is as follows: a. P 30,000 P102,000 P 88,000
b. P 80,000 P 90,000 P 70,000
Assets Liabilities
c. P 24,000 P 81,600 P 70,400
Cash P 15,360 Account Payable P51,200
d. P120,000 P 72,000 P48,000
SlryPyble, Cherry 10,240
Noncash assets 271,360 Dorie, Loan 20,480
The partnership ABC is currently liquidating and on February
Loan to Oscar 10,240 Cherry, Capital 38,912
15, 2016, their balances in capital and their profit and loss
Dorie, Capital 73,728
(P&L) ratios are shown below:
_______ Oscar, Capital 102,400
P296,960 P 296,960
Ariston, capital (P&L 50%) P19,000
Bernardo, capital (P&L 30%) 18,000
Profit and losses were shared as follows; CHERRY, 30%;
Conrado, capital (P&L 20%) (12,000)
DORIE, 30%; OSCAR, 40%. It was decided to liquidate the
business. The following is a summary of the realization and
Assume non-cash assets have been all disposed and Conrado
liquidation activities.
has promised to pay his deficiency in a week’s time,
Book
Value Cash Paid
4. Calculate the amount to be received by one of the
of Asset Cash Expense Liabiliti to
partners if cash is paid immediately on February 15, 2016.
Realized Collected s es Partners
a. Ariston, P13,000 c. Bernardo, P14,000
Paid Paid
b. Bernardo, P12,000 d. Ariston, P11,500
1st
Period 133,120 81,920 4,100 40,000 41,980
Claudia, Petra, Mona, and Hilda are partners who share profits
2nd
and losses at 40%, 30%, 20%, and 10%, respectively. Since
Period 76,800 51,200 4,800 11,200 40,000
two of them have given intention to withdraw, they have
3rd
decided to liquidate the partnership instead. At this point, the
Period 61,440 35,840 3,600 - 38,640
capital balances of the partners are as follows:
Total 271,360 168,960 12,500 51,200 120,620
Claudia P 48,000
Petra 21,600
Required:
Mona 34,400
1. Prepare a statement of liquidation for each period.
Hilda 16,000
2. Prepare a program to show how cash is to be distributed
5. Which of the following statement is true?
to partners.
a. The first available P1,600 will go to Hilda

Page 8 of 10
www.prtc.com.ph ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.

b. Claudia will be the last to receive cash The partnership balance sheet shows cash of P8,000, non-
c. The first available P2,400 will go to Mona. cash assets of P22,400, and no liabilities.
d. Claudia will collect a portion of any available cash
before Hilda receives anything. 6. Assuming no liquidation expenses, what safe payments
could be made?
ASSER, JING, and TONY are in the process of liquidating their a. P8,000 split between JING and TONY by a ratio of
partnership. They have the following capital balances and 5:3, Respectively
profit and loss percentages: b. P8,000 to JING only
Capital Balance Profit and Loss % c. P1,600 to ASSER, P4,000 to JING and P2,400 to TONY
ASSER 8,000 debit 20% d. P28,800 to JING only.
JING 28,800 credit 50%
TONY 9,600 credit 30%

CLASSROOM DRILL

CLAIRE, DAISY, and ELSIE formed the CDE Partnership on partnership and on August 1, 2016 Partner FRIDA made a
August 1, 2016, with the following assets, measured at permanent withdrawal of P67,500. On May 1, 2016,
Partner GLACE contributed machinery with a fair market
fair market values, contributed by each partner: value of P90,000 and a net book value of P75,000 when
CLAIRE DAISY ELSIE
contributed. On November 1, 2016 Partner GLACE
Cash P 324,000 P108,000 P129,600
contributed an additional P45,000 cash to the partnership.
Accounts
Both partners withdrew one-fourth of their salary
receivable 73,080 - 91,800
allowances in 2016.
Plant, Property, &
Equipment (PPE) 1,620,000 340,200 -
The partnership reported a net income of P257,400 in
2016 and the profit and loss agreement are as follows:
A part of CLAIRE’s cash contribution, P216,000, comes
b. Interest at 6% is allowed on average capital
from personal borrowings. Also, the PPE of CLAIRE and
balances;
DAISY are mortgaged with the bank for P972,000 and
b. Salaries of P2,700 per month to each partner;
P72,000, respectively. The partnership is to assume
c. Bonus to FRIDA of 10% of net income after interest,
responsibility for these PPE mortgages. The partners have
salaries, and bonus; and
agreed to share profits and losses on a 5:2:3 ratio, to
d. Balance to be divided in the ratio of 6:4 to FRIDA
CLAIRE, DAISY, and ELSIE, respectively.
and GLACE, respectively.
4. What is the capital balance for each partner at the
6. Determine how the net income will be allocated to the
opening of business on August 1, 2016?
partners:
a. CLAIRE, P1,045,080; DAISY, P376,200; &
a. FRIDA, P160,000 and GLACE, P126,000
ELSIE, P221,400
b. FRIDA, P 180,000 and GLACE, P106,000
b. CLAIRE, P1,161,200; DAISY, P418,000; & ELSIE,
c. FRIDA, P170,000 and GLACE, P116,000
P246,000
d. FRIDA, P153,000 and GLACE, P104,400
c. CLAIRE, P1,987,500; DAISY, P189,000; & ELSIE,
P217,500
7. Determine the capital balances of the partners at
d. CLAIRE, P1,095,120; DAISY, P547,560; & ELSIE,
December 31, 2016:
P182,520
a. FRIDA, P617,400 and GLACE, P501,300
b. FRIDA, P551,000 and GLACE, P686,000
5. What is the capital balance for each partner at August
c. FRIDA, P688,000 and GLACE, P449,000
1, 2016, instead, if the interest ratio is given at 5:3:2
d. FRIDA, P683,000 and GLACE, P554,000
to CLAIRE, DAISY, and ELSIE, respectively?
a. CLAIRE, P730,080; DAISY, P730,080; & ELSIE, P365,040
b. CLAIRE,P985,608; DAISY, P492,804; & ELSIE, P164,268 HAIDEE and ISABEL are partners sharing profits and losses
c. CLAIRE,P1,987,500;DAISY,P189,000;& ELSIE, P217,500 in the ratio of 60% and 40%, respectively. The partnership
d. CLAIRE,P821,340; DAISY,P492,804; & ELSIE, balance sheet at August 30, 2016 follows:
P328,536
Cash P 12,150 Accounts payable P 13,500
On January 1, 2016, FRIDA and GLACE formed a Other assets 119,700 Haidee, Loan 5,850
partnership by contributing cash of P405,000 and Isabel, Loan 9,000 Haidee, capital 81,000
P270,000, respectively. On February 1 2016, Partner Isabel, capital 40,500
FRIDA contributed an additional P135,000 cash to the
Page 9 of 10
www.prtc.com.ph ADVAC1- Partnership
EXCEL PROFESSIONAL SERVICES, INC.

Total P 140,850 Total P140,850

12. Determine the amount Partner N and Partner O would
At this date, JOSIE was admitted as a partner for a have received by the time Partner P would have
consideration of P43,875 cash for a 40% interest in capital received a cumulative amount of P40,500.
and in profits. a. N, P1,785 and O, P72,650
8. Assume JOSIE is admitted by purchase of 40% each b. N, P1,578 and O, P70,265
of the original partners’ interest, determine how the c. N, P1,875 and O, P70,625
P43,875 will be apportioned to HAIDEE and ISABEL d. N, P1,688 and O, P63,562
a. HAIDEE, P32,850 and ISABEL, P15,900
b. HAIDEE, P32,450 and ISABEL, P16,300 The following condensed balance sheet is prepared for
c. HAIDEE, P29,565 and ISABEL, P14,310 QUIEL and ROGER, who share profits and losses in the
d. HAIDEE, P32,950 and ISABEL, P15,800
ratio of 60:40, respectively:
Other assets P 405,000 Accounts P108,000
9. Assume JOSIE is admitted by investing the P43,875
payable
to the partnership, determine the effects of any bonus
Quiel, loan 18,000 Quiel, capital 175,500
over the capital balances of the original partners:
Roger, capital 139,500
a. HAIDEE, P( 9,900) and ISABEL, P(14,850)
Total P 423,000 Total P 423,000
b. HAIDEE, P 9,000 and ISABEL, p 14,850
c. HAIDEE, P (14,850) and ISABEL, P( 9,900)
13. The partners have decided to liquidate the partnership.
d. HAIDEE, P (13,365) and ISABEL P ( 8,910)
If the other assets are sold for P346,500, what amount
of the available cash should be distributed to QUIEL?
The following balances as at October 31, 2016 for the
c. P136,000 c. P122,400
Partnership of KARLO, LORNA, and MYRNA were as d. P156,000 d. P195,000
follows:
Cash P 50,000 Liabilities P 15,000 On January 1, 2016, the partners SELYA, TESSA, and
Lorna, Loan 15,000 Karlo, loan 22,500 URSULA, who share profits and losses in the ratio of 5:3:2,
Non-cash 400,000 Karlo, 105,000 respectively, decided to liquidate their partnership. On this
assets capital date the partnership condensed balance sheet was as
Lorna, 97,500 follows:
capital
Myrna, 225,000 Cash P 45,000 Liabilities P 54,000
capital Other assets 225,000 Selya, capital 72,000
Totals P465,000 Totals P465,000 Tess, capital 81,000
Ursula, capital 63,000
KARLO has decided to retire from the partnership on Total P 270,000 Total P270,000
October 31. Partners agreed to adjust the non-cash assets
to their fair market value of P490,000. The estimated On January 15, 2016, the first cash sale of other assets
profit to October 31 is P100,000. KARLO will be paid with a carrying amount of P135,000 realized P108,000.
P173,000 for his partnership interest inclusive of his loan Safe installment payments were made on the same date.
which is repaid in full. Their profit and loss ratio is 3:3:4 to 14. How much cash should be distributed to each partner?
KARLO, LORNA, and MYRNA, respectively. SELYA TESSA URSULA
10. What will be the balance of LORNA’s capital account a. P15,000 P51,000 P44,000
after the retirement of KARLO. b. P40,000 P45,000 P35,000
c. P 129,444 c. P 124,449 c. P55,000 P33,000 P22,000
d. P 144,429 d. P 149,424 d. P13,500 P45,900 P39,600

The accounts of the partnership of NOP at December 31, VENUS and WILMA partnership’s balance sheet at
2016 are as follows: December 31, 2015, reported the following:
Cash P 74,250 Liabilities P 56,250 Total assets P 100,000
Non-cash Loan from O 18,000 Total liabilities 20,000
assets 655,875 Venus, capital 40,000
Loan to N 13,500 N, capital 185,625 Wilma, capital 40,000
O, capital 329,625
P, capital 154,125 On January 2, 2016, VENUS and WILMA dissolved their
Total P743,625 Total P743,625 partnership and transferred all assets and liabilities to a
newly formed corporation. At the date of incorporation, the
They divide profits and losses 3:5:2 to N, O, and P fair value of the net assets was P12,000 more than the
respectively. They have decided to liquidate the carrying amount on the partnership’s books. Of which
partnership at this date. P7,000 was assigned to tangible assets and P5,000 was
11. Determine the amount payable to Partner P if cash is assigned to patent. VENUS and WILMA were each issued
paid just before the start of liquidation on December 5,000 shares of the corporation’s P1 par common stock.
31, 2016. 15. Immediately following incorporation, additional paid-in
b. P 16,750 c. P 17,679 capital in excess of par should be credited for
c. P 15,911 d. P 17,560 a. P68,000 c. P77,000
b. P70,000 d. P82,000

 - end of P2.1901 -

Page 10 of 10
www.prtc.com.ph ADVAC1- Partnership