PARTNERSHIP FORMATION

1. On March 1, 20X8, JM and KK formed a partnership with each contributing the following assets:
JM KK
Cash P300,000 P700,000
Machinery and Equipment 250,000 750,000
Building - 2,250,000
Furniture and Fixtures 100,000 -
The building is subject to mortgage loan of P800,000, which is to be assumed by the partnership
agreement provides that JM and KK share profits and losses 30% and 70%, respectively.
On March 1, 20X8 the balance in KK's capital account should be:

2. The same information in number 1, except the mortgage loan is not assumed by the partnership
and the partners agree to withdraw or contribute additional cash to make their capital balances agree with
their profit and loss ratio.
On March 1, how much cash should be invested or withdrawn by KK?

3. On January 1, 20X7, X, Y and Z formed a general partnership for the exercise of their comon
profession. X contributed a building with a cost of P6,000,000 with an accumulated depreciation of
P2,000,000. The building has an assessed value of P2,000,000 and has an annotated mortgage payable
amounting to P800,000 which is to be assumed by the partnership.
Y is to contribute 10,000 shares of stocks with a par vaue of P100/share and has a prevailing qouted prive
of P300/share. On January 2, 20X7, the building contributed by X was sold for P5,800,000.
If Z wants to have a 20% in the newly formed partnership, how much cash should Z contribute?

4. As of July 1, 20X8, MM and AA decided to form a partnership. Their balance sheets on this date are:
MM AA
Cash P 15,000 P 38,000
Accounts Receivable 680,000 255,000
Allowance for doubtful accounts (140,000 (30,000)
)
Merchandise Inventory - 202,000
Machinery and Equipment 150,000 270,000
Total P705,000 P735,000

Accounts Payable 135,000 240,000

MM, capital 570,000
AA, capital - 495,000
Total P705,000 P735,000
The partners agreed that the machinery and equipment of MM is under depreciated by P15,000 and that
of AA by P45,000. Allowances for doubtful accounts is to be set up amounting to P120,000 for MM and
P40,000 for AA. The partnership agreement provides for the profit and loss ratio and capital interest of
60% to MM and 40% to AA with AA’s capital as base. How much cash must MM invest to bring the
partner's capital balances proportionate to their profit and loss ratio?

5. Z admits A as a partner in business. Accounts in the ledger for Z on November 20, 20X8, just
before the admission of A, show the following balances:
Cash P 6,800
Accounts Receivable 14,200
Merchandise Inventory 20,000
 Prepaid expense 1,000
Accounts Payable 9,000
Z, Capital 33,000
It is agreed that the purposes of establishing Z's interest the following adjustments shall be made:
a) An allowance for doubtful accounts of 3% of accounts receivable is to be established
b) The merchandise inventory is to be valued at P23,000.
c) Prepaid salary expenses of P600 and accrued rent expense of P800 are to be recognized.
A is to invest sufficient cash to obtain a 1/3 interest in the partnership.
(1) Z's adjusted capital before the admission of A; and (2) the amount cash investment by A:

6. A, B and C are forming a new partnership. A is to invest cash of P100,000 and stapling
equipment originally costing P120,000 but has a second-hand value in the market at P50,000. B is to
invest cash of P160,000, while C, whose family is engaged in selling stapling equipment, is to contribute
cash of P50,000 and a brand new stapling equipment to be used by the partnership with a regular price of
P120,000 but which cost their family's business P100,000. Partners agree to share profits equally.
The capital balances of the partners upon formation are:

7. On April 30, 20X8 JJ, KK and LL formed a partnership by combining their separate business
proprietorship. JJ contributed cash of P75,000. KK contributed property with a P54,000 carrying amount,
a P60,000 original cost, and P120,000 fair value. The partnership accepted responsibility for the P52,500
mortgage attached to the property. LL contributed equipment with a P45,000 carrying amount, a
P112,500 original cost, and P82,500 fair value. The equipment has a P20,000 loan attached to it which is
to be personally paid by LL. The partnership agreement specifies that profits and losses are to be shared
equally but is silent regarding capital contributions.
Who among partner(s) have the largest April 30, 20X8 capital balance?

8. On March 1, 20X8, X and Y formed a partnership. The partners contributed the following:
X Y
Cash P500,000 P400,000
Accounts Receivable 300,000 200,000
Allowance for doubtful accounts 50,000 20,000
Inventory 150,000 100,000
Equipment 500,000 200,000
Accumulated depreciation 100,000 25,000
Accounts Payable 50,000 400,000
Note Payable 200,000
The partners agree on the following:
a. P10,000 of the accounts receivable of X is to be written-off.
b. An allowance for doubtful accounts of 15% is to be established on the remaining receivables of X
and Y.
c. The inventory of Y is to be valued at P140,000.
d. The equipment of X is under depreciated by P20,000 and the equipment of Y has a fair value of
P190,000.
e. The note of X is dated December 1, 2017 and is subject to a 12% interest . Interest for the year
had not yet been accrued.
f. The partners agree on a 2:1 profit and loss ratio.
g. The partners agree to bring their capital balance proportionate to their profit and loss ratio.

If Y's Capital is to be used as basis, how much is the adjusted capital of X after the formation?
What is the total assets of the partnership immediately after the formation?
If the goodwill method is to be used in determining the capital of each partner, how much is the
adjusted capital of Y after the formation?

9. April, May and June decided to form a partnership on January 1, 20X8 to operate a retail store.
April and May both owned a retail store with the following account balances:
APRIL MAY
Cash 5,000,000 10,000,000
Receivables 10,000,000 15,000,000
Inventories 35,000,000 20,000,000
PPE 25,000,000 5,000,000
Accounts Payable 20,000,000 10,000,000
Notes Payable 15,000,000 25,000,000
(10%) (5%)
Capital 40,000,000 15,000,000

The following are to be taken up by the partnership:

a. April and May will contibute all their assets and liabilities in the newly formed partnership.
b. The parties agree to provide a 10% and 20% allowance for bad debts on the receivables of April
and May.
c. The inventories of April and May have fair values of P30,000,000 and P22,500,000, respectively.
d. The PPE of April and May have never been depreciated and should be depreciated by 40% and
30%, respectively.
e. The interest payable on both notes payable were unrecorded and unpaid since the date of contract.
April’s note payable is dated April 1, 2017 while May’s note payable is dated June 30, 2017.
f. June shall have a 20% interest in the partnership upon contribution of sufficient cash.
What is the amount of cash to be contributed by June on January 1, 20X8?

10. On January 1, 20x7, A, B and C formed ABC & Co., a general professional partnership for the
exercise of their common profession. A contributed a building with cost of P5M and accumulated
depreciation of P4M. Based on the city assessor's records, the building has an assessed value of P2M. The
building has an annotated mortgage payable amount to P500,000 to be assumed by the partnership.
On the other hand, B contributed 10,000 shares of stocks with par value of P200/share and prevailing
quoted) sold for price of P300/share. On January 2, 20x7, the building contributed by Angel was P5.5M.
If Colleen wants to have 20% capital interest in the newly formed partnership, how much cash shall be
contributed by her?
a. P875,000
b. P1,125,000
c. P2,125,000
d. P2,000,000

11. On July 1, 20x6, A, B and C formed a business partnership to be operated as an advertising

agency. A contributed P10M cash while B shall have capital credit of P6M upon receipt of bonus of PIM
from A based on the provision in Articles of Co-Partnership. The terms of the agreement provides that A
and B shall have a combined 40% capital interest in the newly formed partnership. What is the capital
contribution made by C to the partnership?
a. P24,000,000
b. P22,500,000
c. P25,000,000
d. P32,000,000
12. On January 1, 20x6, Regina, Jessica and Nataly formed a partnership with profit or loss sharing
agreement of 2:3:5. Regina contributed a land with assessed value from city assessor in the amount of
P1,000,000. The land is subject to a real estate mortgage which is annotated to the title of the land in the
amount of P800,000 and will be assumed by the partnership. The appraised value of the land is
P2,400,000. Jessica contributed a building with a cost of P2,000,000 and accumulated depreciation of
P1,500,000. The fair value of the building is P800,000. Nataly contributed investment in trading securities
with historical cost of P6,000,000. The trading securities have quoted price in active market of
P3,000,000.

The partners decided to bring their capital balances in accordance with their profit or loss sharing
agreement. The total agreed capitalization of the new partnership is P10,000,000.
Which of the following statements is correct?
a. The agreed capital of Nataly is P500,000. Y
b. Regina should contribute additional capital in the amount of P1,800,000.
c. Jessica should contribute additional capital in the amount of P2,200,000.
d. Nataly is entitled to withdraw in the amount of P1,000,000.

13. On January 1, 20x7, Len, May and Nancy decided to form a business partnership to operate
supermarket. Len and May both owned a grocery business with the Statements of Financial Position as of
December 31, 20x6:
LEN MAY
Cash 10M 20M
Accounts receivable 20M 30M
Inventories 70M 40M
Property, Plant and Equipment 50M 10M
Accounts payable 40M 50M
Notes Payable 30M(10%) 50M(5%)
Capital 80M 30M

The following additional notes are provided:

a. Len and May will contribute all its assets and liabilities to the newly formed partnership.
b. The parties agree to provide 10% and 20% allowance for bad debts to the accounts receivable of
Len and May, respectively.
c. The inventories of LEN and MAY are report at historical cost and have net realizable value of
P60M and P45M, respectively.
d. The PPE of LEN and MAY have not been depreciated and should be depreciated by 40% and
30%, respectively.
e. The interest payable on both notes payable were unrecorded and unpaid since the date of
contract. LEN's note payable is dated April 1, 20x6 while MAY's note payable is dated June 30, 20x6.
f. Nancy shall have 20% interest in the partnership upon contribution of sufficient cash.
What is the amount of cash to be contributed by Nancy on January 1, 20x7?
a. P16,375,000
b. P17,625,000
c. P15,825,000
d. P18,475,000