PARTNERSHIP FORMATION

1. A and B are combining their separate business to form a partnership. Cash and non-cash assets are
to be contributed for a total capital of P600,000. The contributed liabilities to be assumed by the
partnership. They further agreed that their capital balances after formation must be equal.

The following are the assets and liabilities to be contributed by each entity:
A B
Book Value Fair Value Book Value Fair Value
Accounts Receivable 40,000 40,000 - -
Inventories 60,000 80,000 40,000 50,000
Equipment 120,000 90,000 80,000 100,000
Accounts Payable 30,000 30,000 20,000 20,000

Requirement:
a. What is the amount of the additional cash to be contributed by A in accordance with their
agreement?
b. What is the amount of the capital credited to B after formation?

2. G and H decided to form a partnership during 2020. The following are their statement of financial
position on the date of formation:

G H

Cash 131,250 328,125

Accounts Receivable 2,975,000 1,793,750

Inventories 1,750,000 1,771,875

Equipment 1,312,500 2,537,500

TOTAL 6,168,750 6,431,250

Accounts Payable 918,750 2,318,750

G, Capital 5,250,000

H, Capital 4,112,500

TOTAL 6,168,750 6,431,250

The following are based on their agreement:

 Equipment of G is under depreciated by P175,000 and the equipment of H is over

depreciated by P262,500
  Allowance for doubtful accounts is to be setup amounting to P595,000 for G and P393,750
for H
 Inventories in the amount of P43,750 and P30,625 are worthless in the books of G and H
respectively
 The partnership agreement also provides a profit and loss ratio and capital interest ratio of
70% and 30% for G and H respectively
 G will invest or withdraw sufficient amount of cash to be in accordance to their capital
interest ratio

Requirement:

a. What is the amount of cash to be invested or withdrawn by G in accordance with their

agreement?
b. What is the capital of G?
c. What is the capital of H?

3. (CQ) Jan and John drafted a partnership agreement that lists the following assets contributed at
the partnership’s formation:

Contributed by Jan John

Cash P20,000 P30,000
Inventory -- 15,000
Building -- 40,000
Furniture & equipment 15,000 --

The building is subject to a mortgage of P10,000, which the partnership has assumed. The
partnership agreement also specifies that profits and losses are to be distributed evenly.

What amounts should be recorded as capital for Jan at the formation of the partnership?

4. (CQ) Loka and Moko formed a partnership on July 1, 2019 and contributed the following assets:
Loka Moko
Cash P65,000 P100,000
Building 300,000

The building was subject to a mortgage of P25,000, which was assumed by the partnership. The
partnership agreement provides that Loka and Moko will share profits and losses in the ratio of
one-third and two-thirds respectively.

Moko’s capital account at July 1, 2019 should be?

 5. (CQ) John and Eddie form a partnership on March 1, 2002 with the following investments:
John Eddie
Cash P10,000 P 35,000
Land 105,000
Furniture and fixtures 35,000

John and Eddie agree to divide profits and losses in the ratio of 70:30, respectively, and to assume
the P20,000 mortgage on the land of Eddie. If John is required to make his share in equity equal to
40%, he must make an additional investment of:

PARTNERSHIP OPERATION 003

1. Sam and Sung are partners. Their capital accounts during 2019 were as follows:

Sam, Capital Sung, Capital

7/24 P12,000 1/1 P50,000 1/1 P80,000
5/3 P30,000 3/6 P15,000 6/6 P75,000
10/31 P60,000 9/7 P24,000

Partnership capital net income was P120,000 for the year. The partnership agreement provides for
the division of net income as follows:

a. Each partner is credited 10% interest on his/her average capital.

b. Because of prior work experience, Sam is entitled to an annual salary of P30,000 and Sung is
credited with P20,000
c. Any remainder income or loss is to be allocated based on beginning capital

Requirements:

1. How much of the partnership net income for 2019 should be assigned to Sam and Sung?
2. Assuming the remainder of the profits or loss is to be divided according to their original profit or
loss of 4:6, how much of the partnership income in 2019 should be assigned to Sam and Sung?
3. Disregarding their partnership agreement as to the allocation of the partnership income,
assuming the net profits of the partnership is to be divided according to their simple average
beginning balance capital, how much shall be allocated to Sam and Sung?

2. The A, B, and C partnership was formed on January 2, 2018. The original cash investments were
as follows:
Partner A P 120,000
Partner B P 130, 000
Partner C P 150,000

According to the general partnership contract, the partners were to be remunerated as follows:
 a. Salaries of P15,000 for Partner A, P10,000 for Partner B, and P20,000 for Partner C
b. Interest at 15% on the average capital balances during the year.
c. Remainder is divided 30% to Partner A, 30% to Partner B, and 40% for Partner C.

Income before partners’ salaries for the year ended December 31, 2018 was P 107, 650. Partner
A invested an additional P 60, 000 in the partnership on May 5, 2018; Partner C withdrew P 30,
000 from partnership on September 4, 2018; and as authorized by the partnership contract,
Partner A, Partner B and Partner C each withdrew P 1, 000 monthly against their shares of net
income for the year.

Requirement:

1. The share of Partner A in the net income.

2. The capital balance of Partner C on December 31, 2018.
3. If the salaries to partners are to be recognized as operating expenses by the partnership, the
share of partner B in the net income:
4. Using the same information in No. 3, the capital balance of Partner C on December 31,2018?

3. The partnership agreement of XX, YY & ZZ provides for the year-end allocation of net income in
the following order:
 First XX is to receive 10% net income up to P200,000 and 20% over P200,000
 Second YY and ZZ each are to receive 5% of the remaining income over P300,000
 The balance of income is to be allocated equally among the three partners.

The partnership 2019 net income was P500,000 before any allocation to partners. What amount
should be allocated to XX?

4. On January 1, 2019, DD and EE decided to form a partnership. At the end of the year, the
partnership made a net income of P120,000. The capital accounts of the partnership show the
following transactions.

DD, Capital EE, Capital

Dr Cr Dr Cr

January 1 - 40,000 - 25,000

April 1 5,000 - - -

June 1 - - - 10,000

August 1 - 10,000 - -

September 1 - - 3,000 -

October 1 - 5,000 1,000 -

 December 1 - 4,000 - 5,000

Assuming the an interest of 20% per annum is given an average capital and the balance of the
profits is allocated equally, the allocation of profits should be:

PARTNERSHIP OPERATION 004

1. (CQ) Partners JJ and KK share in p/l in the ratio of 60:40 respectively. JJ’s salary is 60,000
and 30,000 for KK. The partners are also paid interest on their average capital balances. In
2020, JJ received 30,000 of interest and KK, 12,000. The p/l allocation is determined after
deductions of salary and interest payments. If KK’s share in the residual was 60,000 in
2020, what is the total partnership income?

2. (CQ)Ryan, Ge, and Kim are partners with average capital balances during 2020 of
P120,000, P60,000, and P40,000, respectively. Partners receive 10% interest on their
average capital balances. After deducting salaries of P30,000 to Ryan and P20,000 to Kim,
the residual profit or loss is divided equally. In 2020, the partnership sustained a P33,000
loss before interest and salaries to partners. By what amount should Ryan’s capital account
change?

3. A, B and C are partners in an accounting firm. Their capital account balances at year-end
were A P90,000; B P110,000 and C P50,000. They share profit and losses on a 4:4:2 ratio,
after the following special terms:
1. Partner C is to receive a bonus of 10% of net income after the bonus.
2. Interests of 10% shall be paid on that portion of a partner’s capital in excess of
P100,000
3. Salaries of P10,000 and P12,000 shall be paid for partner A&C respectively.

Assuming a net income of P44,000 for the year, the total profit share of Partner C was:

4. The partnership agreement of AA, BB & CC provides for the year-end allocation of net
income in the following order:
 First AA is to receive 10% net income up to P200,000 and 20% of the remaining
income over P200,000
 Second BB and CC each are to receive 5% of the income over P300,000
 The balance of income is to be allocated equally among the three partners.
 The partnership 2020 net income was P500,000 before any allocation to partners. What
amount should be allocated to AA?

5. Jes and Tine are partners. Their capital account balances at year-end were Jes P50,000 and
Tine P 30,000. They share profit and losses 60% and 40% respectively, after the following
special terms:
1. Interests of 10% shall be paid on that partner’s capital
2. Salaries of P10,000 and P12,000 shall be paid respectively.
3. Jes is to receive a 10% bonus of net income.
Assuming a net loss of P50,000 for the year, the total share of Jes in the loss was:

6. The net income of A and B Partnership for 2020 amounted to P504,000. A, is the managing
partner. Assume that the partners agreed on the allocation of net income as follows:
 Bonus of 20% to A:
 Salaries to A, P48,000 and B, P72,000;
 Interest on average capital balances A, P14,400 and B, P9.600.
 Residual balance in net income be allocated to A and B in the ratio of 2:1 ratio.

Required: Compute the income allocation of A & B based on the different assumptions of the
bonus
1.Bonus is based on net income before bonus, salaries and interest.
2.Bonus is based on net income after bonus but before salaries and interest.
3.Bonus is based on net income after bonus and salaries but before interest.
4.Bonus is based on net income after bonus, salaries and interest.
5.Bonus is based on net income after salaries but before bonus and interest.
6.Bonus is based on net income after interest but before bonus and salaries.
7.Bonus is based on net income before bonus but after income tax (tax rate is 35%).
8.Bonus is based on net income, that is, after bonus and income tax of 35%.

PARTNERSHIP DISSOLUTION 006

Kian and Kyle Partnership had the following condensed balance sheet:
Assets Liabilities and Equity
Cash 10,000 Liabilities 10,000
Non-cash Assets 75,000 Kian, Capital (70%) 60,000
Kian, Loan 15,000 Kyle, Capital 30,000
Total 100,000 Total 100,000
 The partners agree to admit Chan-Chan as a member of the partnership.

Case 1
Chan-Chan purchases 1/3 interest in the firm. One-third of each partner’s capital is to be
transferred to the new partner. Chan-Chan pays the partners 40,000 which is divided between them
in proportion to the equities given up.
Required: The capital balance of Kian, Kyle and Chan-Chan after the admission should
be?

Case 2
Chan-Chan invests 35,000 in cash for a 1/3 ownership interest. The money goes to the
original partners
Required:
1. The capital balance of Kian Kyle and Chan-Chan after the admission assuming if book
value method is used:
2. The partnership gain (gain to be recognized in the partnership books).
3. The gain to be recognized by Kian and Kyle:
4. If revaluation/adjustments in assets are recognized, the capital balances of Kian, Kyle
and Chan-Chan:

Case 3
Chan-Chan purchases 1/3 interest in the firm. One-third of each partner’s capital is to be
transferred to the new partner. Chan-Chan pays the partners 25,000, which is divided between
them in proportionate to the equities given up.
Required:
1. The capital balances of Kian, Kyle and Chan-Chan after the admission if book value
method (no adjustments/no revaluation) method is used:
2. The partnership loss (loss to be recognized in the partnership books).
 3. The gain/loss to be recognized by Kian and Kyle.
4. If revaluation/adjustments in assets are recognized, the capital balances of Kian, Kyle
and Chan-Chan:

Case 4
Chan-Chan invests 30,000 for a 1/3 interest in the firm. The total agreed capital is 120,000
Required:
1. The capital balances of Kian, Kyle and Chan-Chan after the admission should be:

Case 5
Chan-Chan invests 20,000 for a 1/3 interest in the partnership. The total agreed capital is
110,000.
Required:
1. The capital balances of Kian, Kyle and Chan-Chan after the admission should be:
2. The profit and loss of all partners after Chan-Chan’s admission should be:

Case 6
Chan-Chan, the new partner, conveyed a tangible asset with a fair value of 55,000 with an
assumed mortgage of 5,000 in exchange for a 20% interest in capital, keeping in mind that Chan-
Chan should be acquiring a 1/3 interest in profits.
Required:
1. The capital balances of Kian, Kyle and Chan-Chan after the admission if bonus method
is used should be:
Case 7
Chan-Chan, the new partner, conveyed a non cash asset with a fair value of 25,000 in
exchange for a 25% interest in capital and 1/5 interest in profits. The total agreed capital after
admission is 125,000
Required:
1. The capital balances of Kian, Kyle and Chan-Chan after the admission if bonus method
is used should be:
2. The new profit and loss of all partners after Chan-Chan’s admission should be:

Case 8
Chan-Chan invests 25,000 for a 25% interest in the firm.
Required:
1. If a bonus method is recognized, the capital balances of Kian, Kyle and Chan-Chan
after the admission should be:
2. If goodwill method is recognized, the capital balances of Kian, Kyle and Chan-Chan
after the admission should be:
3. If goodwill/adjustment in assets method is recognized and the goodwill allotted to Kyle
amounted to 3,000, the capital balances of Kian, Kyle and Chan-Chan after the
admission should be:

Case 9
Chan-Chan invests 40,000 in the firm, 10,000 is considered a bonus to Partners Kian and
Kyle.
Required:
1. How much is their respective capital balances after the admission?

Case 10
 Chan-Chan invests 40,000 in the firm and is allowed a credit of 10,000 for goodwill upon
admission.
Required: How much is their respective capital balances after admission?

Case 11
Chan-Chan invests 40,000 for a 33.333333% interest in the firm. The total firm capital is
to be 120,000 and partners agreed that their capital is to be 120,000 and partners agreed that their
capital balances should made to equal their new profit and loss ratio.
Required:
1. The capital balances of Kian, Kyle and Chan-Chan after the admission should be:
2. The new profit and loss of all partners after Chan-Chan’s admission should be:

Tokyo, Berlin and Denver are partners sharing profits and losses of 50%, 25% and 25%
respectively. The December 31,2019 balance sheet of the partnership before any profit allocation
was summarized as follows:
Assets Liabilities and Capital
Cash 130,000 Accounts Payable 12,000
Inventories 120,000 Berlin, Loan 18,000
Furn & Fix (net) 150,000 Tokyo, Capital 200,000
Patent 50,000 Berlin, Capital 90,000
Denver, Capital 150,000
Berlin, Capital (20,000)
TOTAL ASSETS 450,000 TOTAL LIAB & CAPITAL 450,000

The partnership net income for the year amounted to 80,000

On January 1, 2020 Berlin had decided to retire from the partnership and by mutual agreement
among partners: the following have been arrived at:
a. Inventories amounting to 20,000 are considered obsolete and must be written off.
b. Furniture and Fixtures should be adjusted to their current market value of 180,000
c. Patents are considered worthless and must be written off immediately before retirement of
Berlin.
It was agreed that the partnership will pay Berlin for his interest in the partnership inclusive of the
loan balance.

Determine:
1. The interest of Berlin immediately before his retirement amounted to:

2. Berlin retires by receiving 98,000 cash (payment at book value, the capital balances of
Tokyo and Denver after the retirement of Berlin):

3. Berlin retires by receiving 101,000 cash (payment at more than book value). Using the
Bonus Method, the capital balances of Tokyo and Denver after the retirement of Berlin:

4. Berlin retires by receiving 101,000 cash (payment at more than book value). Using the
Partial Goodwill Method, the capital balances of Tokyo and Denver after the retirement
of Berlin:

5. Berlin retires by receiving 101,000 cash (payment at more than book value). Using the
Total (implied) Goodwill Method, the capital balances of Tokyo and Denver after the
retirement of Berlin:
6. Berlin retires by receiving 92,000 cash (payment at less than book value). Using the Bonus
Method, the capital balances of Tokyo and Denver after the retirement of Berlin:

7. Berlin retires by receiving 92,000 cash (payment at less than book value). Using the
Specific Adjustment in Assets, the capital balances of Tokyo and Denver after the
retirement of Berlin:

8. Berlin retires by receiving 92,000 cash (payment at less than book value). Using the asset
write-down traceable to the entire entity, the capital balances of Tokyo and Denver after
the retirement of Berlin: