No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

AFAR02-01 rferrer/rlaco/atang/pdejesus

PARTNERSHIP FORMATION

1. AAA and BBB combined their sole proprietorships to form a partnership. AAA contributed
cash of P6,615,000 and office equipment that cost P2,835,000. The equipment had been used
and had been 70% depreciated, the fair value of the equipment is P1,890,000. AAA also
contributed a note payable of P630,000 to be assumed by the partnership. AAA is to have a
60% interest in the partnership. BBB contributed only P4,725,000 merchandise inventory at
fair value. The partners’ capital should be in conformity with their interest in the partnership.
After the formation, the partners agreed to share profits and losses equally. Assuming the use
of the bonus method, how much is the increase (decrease) in the capital of BBB as a result of
the transfer of capital?

A. 945,000 B. (100,800) C. 315,000 D. 525,000

2. Psalm and Selah decided to form a partnership on June 30, 2030, Assets contributed by the
partners are:

Psalm Selah
Book Value Fair Value Book Value Fair value

Cash P375,000 P375,000 P875,000 P875,000

Merchandise inventory 95,000 125,000
Furniture and fixtures 350,000 312,500 872,500 937,500
Transportation equipment 3,262,500 2,812,500

The transportation equipment is subject to a mortgage loan of P1,125,000, which is to be assumed

by the partnership. The partnership agreement provides that Psalm and Selah share profits and
losses of 30% and 70% respectively.
Assuming that the partners agreed to bring their respective capital in proportion to their profit and
loss ratio, using Selah capital as base. How much additional cash is to be invested (withdrawn) by
Psalm?
A. P(687,500) B. P(987,500) C. P 875,000 D. P 687,500

Use the following information for the next four questions

A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment
with assessed value of P200,000 with historical cost of P1,600,000 and accumulated depreciation
of P1,200,000.

B will contribute a land and building with book value of P2,400,000 and fair market value of
P3,000,000. The land and building is subject to a mortgage payable amounting to P600,000
to be assumed by the partnership.

The partners agreed that B will have 60% capital interest in the partnership. They agreed that C
will contribute sufficient cash to the partnership. A day after the partnership formation, the
equipment was sold for P 600,000.

3. What is the total agreed capitalization of the ABC Partnership?

a. P3,000,000
b. P4,000,000
c. P5,000,000
d. P6,000,000
 4. What is the capital credit of A in the ABC Partnership after the formation?
a. P200,000
b. P400,000
c. P600,000
d. P800,000

5. What is the capital credit of B in the ABC Partnership after the formation?
a. P1,800,000
b. P3,000,000
c. P2,800,000
d. P2,400,000

6. What is the cash to be contributed by C in the ABC Partnership?

a. P1,000,000
b. P1,200,000
c. P1,400,000
d. P1,6 00,000

PARTNERSHIP OPERATION

Use the following information for the next three questions

On January 1, 2031, A, B and C formed ABC Partnership with total agreed capitalization of
P2,000,000. The capital interest ratio of the ABC Partnership is 5:1:4 while the profit or loss ratio
is 3:2:5, respectively for A, B and C. During 2031, A and B made additional investments of
P400,000 and P1,000,000, respectively. At the end of 2031, B and C made drawings of P600,000
and P200,000, respectively. On December 31, 2031, the capital balance of B is reported at
P400,000.

7. What is the net income or net loss of ABC Partnership for the year ended December 31,
2031?
a. (P1,000,000)
b. (P2,000,000)
c. P1,600,000
d. P2,400,000

8. What is the capital balance of A on December 31, 2031?

a. P900,000
b. P700,000
c. P1,100,000
d. P800,000

9. What is the capital balance of C on December 31, 2031?

a. P300,000
b. P100,000
c. P400,000
d. P500,000

Use the following information for the next five questions

On January 1, 2030, A, B and C formed ABC Partnership with original capital contribution of
P600,000, P1,100,000 and P400,000. A is appointed as managing partner.

During 2030, A, B and C made additional investments of P1,000,000, P400,000 and P600,000,
respectively. At the end of 2030, A, B and C made drawings of P400,000, P200,000 and P800,000,
respectively.

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At the end of 2030, the capital balance of C is reported at P640,000.

The profit or loss agreement of the partners is provided below:

• 10% interest on original capital contribution of the partners.
• Quarterly salary of P80,000 and P20,000 for A and B, respectively.
• Bonus to A equivalent to 20% of Net Income after interest and salary to all partners
• Remainder is to be distributed equally among the partners.

10. What is C’s share in the partnership profit for the year ended December 31, 2030?
a. P240,000
b. P640,000
c. P360,000
d. P440,000

11. What is the partnership profit for the year ended December 31, 2030?
a. P1,800,000
b. P2,040,000
c. P2,100,000
d. P1,920,000

12. What is the bonus given to A as managing partner for the year ended December 31, 2030?
a. P240,000
b. P300,000
c. P120,000
d. P200,000

13. What is the capital balance of A on December 31, 2030?

a. P2,280,000
b. P2,220,000
c. P2,100,000
d. P2,400,000

14. What is the capital balance of B on December 31, 2030?

a. P1,70,000
b. P1,680,000
c. P1,780,000
d. P1,880,000

Use the following information for the next question

On January 1, 2030, AAA, BBB, CCC and DDD formed ABCD Trading Co., a partnership with
capital contributions as follows: AAA – P50,000; BBB – P25,000, CCC – P25,000 and DDD –
P20,000. The partnership agreement stipulates that each partner shall receive a 5% interest on
capital contributed and that AAA and BBB shall receive salaries of P5,000 and P3,000,
respectively. The agreement further provides that CCC shall receive a minimum of P2,500 per
annum and DDD, a minimum of P6,000 which is inclusive of amounts representing interest and
their respective shares in partnership profits. The balance of the profits shall be distributed among
AAA, BBB, CCC and DDD in the ratio of 3:3:2:2.

15. What amount must be earned by the partnership in 2030, before any charge for interest
and partners’ salaries, in order that AAA may receive an aggregate of P12,500 including
interest, salary and share of profits?

A. P30,667 B. P32,333 C. P16,667 D. P30,000

Use the following information for the next question

16. RRR is trying to decide whether to accept a bonus of 25% of net income after salaries and
bonus or a salary of P97,500 plus a bonus of 10% of net income after salaries and bonus as
a means of allocating profit among the partners. Salaries traceable to the other partners are
estimated to be P450,000. What amount of income would be necessary so that RRR would
consider the choices to be equal?

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 A. P1,100,000 C. P650,000
B. P1,197,500 D. P1,262,500

Use the following information for the next question

17. The following information relates to XXX and YYY’s partners capital accounts for fiscal
year ending June 30:

XXXX YYY
Balance, July 1 P86,400 P115,200
Add: Additional investment, January 1 38,400 19,200
Net Income for the year:
Salaries 20,500 14,500

Interest 7,920 9,360

Bonus 3,720 -

Remainder 14,880 9,920

Total 171,820 168,180
Deduct: Drawings
Monthly amounts 15,070 15,060
Additional drawings, June 30 2,400 403
Balance, June 30 154,350 152,717

Bonus is based on net income after salaries, interest and bonus. If the net income remains the same
the following fiscal year, and there is no change in the partnership agreement nor any additional
investment, how much will be YYY’s total share of the net income in the following year?
A. P33,577 B. P33,780 C. P33,874 D. P33,696

PARTNERSHIP DISSOLUTION

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18. OOO and UUU are partners who share profits and losses equally. The capital accounts of
the partners have the following balances:

OOO 180,000
UUU 70,000

EEE desires to join the firm and offered to invest 96,000 for a 1/3 interest. OOO and UUU
declined his offer, but they extended a counter-offer to EEE of 88,000 for a 25% interest
in the capital and profits and losses of the firm. If EEE accepted the offer, what would be
the balance of OOO’s capital account after EEE’s admission?

A. 199,000 C. 178,250
B. 187,000 D. 181,750

Use the following information for the next question

19. MMM and WWW are partners with capital balances of P30,000 and P70,000
,respectively. MMM has a 30% interest in profits and losses. At this time, the partnership
has decided to admit RRR and LLL as new partners. RRR contributes cash of P55,000
for a 20% interest in capital and a 30% interest in profits and losses. LLL contributes
cash of P10,000 and an equipment for a 25% interest in capital and 35% interest in profits
and losses. If bonus amounting to P18,250 is given to the old partners, what is the value
of the equipment contributed by LLL?

a. 31,750 b. 43,750 c. 50,000 d. 50,138

Use the following information for the next question

20. The following information pertains to ABC Partnership of AAA, BBBB and CCC:

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AAA (20%) P200,000
BBB (30%) 200,000
CCC (50%) 300,000

On this date, the partners agreed to admit DDD into the partnership. Assuming DDD
purchased fifty percent of the partners capital and pays P500,000 to the old partners, how
much of this amount will go to AAA?

a. 100,000 b. 130,000 c. 166,667 d. 150,000

Use the following information for the next question

21. The capital balances in BNM Partnership are: BBB, capital P600,000; NNN, capital
500,000and MMM, capital 400,000 and income ratio is 5:3:2, respectively. The BNM
Partnership is formed by admitting FFF to the company with cash investment of
P600,000 for a 25% interest in capital. What is the amount of bonus to be credited to
MMM capital in admitting FFF?

A. 100,000 B. 75,000 C. 37,500 D. 15,000

Use the following information for the next question

22. The balance sheet as of September 30, 2030, for the partnership of DDD, EEE and FFF
shows the following information: Assets, P360,000 ; DDD, loan, P20,000 ; DDD,
capital, P83,000 ; EEE, capital , P77,000 ; FFF, capital, P 180,000. It was agreed
among the partners that DDD retires from the partnership, and it was also further agreed
that the assets should be adjusted to their fair value of P345,000 as of September 30,
2030. Net loss prior to the retirement of DDD amount to P70,000. The partnership is to
pay DDD P62,000 cash for DDD's partnership interest, which would include the payment
of his loan. DDD, EEE and FFF share profit 40%, 15% and 45% respectively.

After DDD's retirement, how much would FFF's capital balance be?
A. P66,000 C. P136,500
B. P147,000 D. P185,250

Use the following information for the next question

23. On June 30, 2030 the statement of financial position for the partnership of XYZ, together
with their respective profit and loss ratio, were as follows:

Assets, at carrying value P 360,000

XXX, loan 18,000

XXX, capital (20%) 84,000
YYY, capital (20%) 78,000
ZZZ, capital (60%) 180,000
360,000
XXX had decided to retire from the partnership. By mutual agreement, the assets are to be
adjusted to their fair value of P432,000 at June 30, 2030. It was agreed that the partnership
would pay XXX P122,400 cash for his interest in the partnership, including XXX’ loan which
is to be repaid in full. After XXX’ retirement, what is the balance of YYY capital account?

A. 78,000 B. 90,900 C. 92,400 D. 72,900

Use the following information for the next question

On December 31, 2030, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of 1:6:3:
Current Assets P2,000,000 Total Liabilities P1,200,000
Noncurrent Assets 24,000,000 A, Capital 1,800,000
B, Capital 1,600,000
C, Capital 1,400,000

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On January 1, 2031, D is admitted to the partnership by purchasing 40% of the capital interest of
B at a price of P1,000,000.

24. What is the capital balance of B after the admission of D on January 1, 2031?
a. P1,180,000
b. P960,000
c. P840,000
d. P600,000

Use the following information for the next question

On December 31, 2030, ABC Partnership’s Statement of Financial Positions shows that A, B and
C have capital balances of P1,000,000, P600,000 and P400,000 with profit or loss ratio of 1:3:6.
On January 1, 2030, C retired from the partnership and received P700,000. At the time of C’s
retirement, an asset of the partnership is undervalued.

25. What is the capital balance of A after the retirement of C?

a. P925,000
b. P1,075,000
c. P1,12500
d. P1,050,000

Use the following information for the next question

On December 31, 2030, ABC Partnership’s Statement of Financial Position shows that A, B and
C have capital balances of P800,000, P600,000 and P200,000 with profit or loss ratio of 1:4:5. On
January 1, 2031, C retired from the partnership and received P160,000. At the time of C’s
retirement, the assets and liabilities of the partnership are properly valued.

26. What is the capital balance of B after the retirement of C?

a. P568,000
b. P616,000
c. P632,000
d. P640,000

Use the following information for the next two questions

On December 31, 2030, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of 1:6:3:
Current Assets P2,600,000 Total Liabilities P 600,000
Noncurrent Assets 4,000,000 A, Capital 2,800,000
B, Capital 1,400,000
C, Capital 1,800,000
On January 1, 2031, D is admitted to the partnership by investing P2,000,000 to the partnership
for 20% capital interest.

27. If the all the assets of the existing partnership are properly valued, what is the capital
balance of C after the admission of D?
a. P1,920,000
b. P1,800,000
c. P1,620,000
d. P2,400,000

28. If an existing asset of ABC partnership is not properly valued, what is the capital balance
of B after the admission of D?
a. P1,640,000
b. P2,600,000
c. P1,920,000
d. P1,560,000

Use the following information for the next four questions

On December 31, 2030, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of 5:1:4:
Current Assets P 3,000,000 Total Liabilities P 1,000,000

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Noncurrent Assets 4,000,000 A, Capital 2,200,000
B, Capital 2,400,000
C, Capital 1,400,000

On January 1, 2030, D is admitted to the partnership by investing P1,000,000 to the partnership

for 10% capital interest. The total agreed capitalization of the new partnership is P6,000,000.

29. What is the share of A in the asset impairment?

a. P240,000
b. P160,000
c. P300,000
d. P500,000

30. What is the amount of bonus given by D to the existing partners?

a. P400,000
b. P600,000
c. P200,000
d. P300,000

31. What is the capital balance of D after his admission to the partnership?
a. P1,000,000
b. P600,000
c. P700,000
d. P800,000

32. What is the capital balance of C after the admission of D to the partnership?
a. P1,160,000
b. P1,6400,000
c. P1,000,000
d. P1,560,000

PARTNERSHIP LIQUIDATION

Use the following information for the next question

33. Partners AAA, BBB and CCC share profits and losses in the ratio of 5:3:2. At the end of
a very unprofitable year, they decided to liquidate the firm. The partner's capital account
balances at this time are as follows: AAA, P616,000 ; BBB, P697,200 ; CCC, P420,000.
The liabilities accumulate to P840,000, including a loan of P280,000 from AAA. The
cash balance is P168,000. All the partners are personally solvent. The partners plan to
sell the assets in installment.

If BBB received P100,800 from the first distribution of cash, how much did CCC receive at
that time?
A. P56,000 C. P33,600
B. P22,400 D. P61,600
Use the following information for the next question
34. Partners AAA, BBB and CCC decided to liquidate their partnership. The partnership’s
statement of financial position reveals the following:

Cash P50,000 Liabilities P60,000

Other assets 500,000 AAA, Capital 180,000
BBB, Capital 240,000
CCC, Capital 70,000
The partners share profits and losses in a 4:4:2 ratio and all partners are personally solvent.
CCC received P98,000 in cash in full settlement of his share of the partnership.
What was the selling price of the other assets?
A. P690,000 B. P640,000 C. P360,000 D. P410,000

Use the following information for the next question

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 35. The statement of financial position for the partnership of BBB, CCC and DDD who share
profits in the ratio of 2:1:1, shows the following balances just before the liquidation:

Cash P12,000
Other assets 59,500
Liabilities 49,000
BBB, capital 22,000
CCC, capital 15,500
DDD, capital (15,000)

On the first installment of the liquidation, a gain of P8,525 was realized from the sale of certain
assets. Liquidation expenses of P1,000 was paid, and additional liquidation expenses are
anticipated. Liabilities paid amounted to P34,400. Remaining book value of other assets is
P1,550. On the first payment to partners, CCC receives P6,250. The amount of cash withheld
for anticipated liquidation expenses and unpaid liabilities is:
a. 11,475 b. 14,600 c. 26,075 d. 29,200

Use the following information for the next question

36. Dr. E, Dr. F and Dr. G are partners with capital balance of P700,000, P500,000 and
P700,000 and sharing profits 30%, 20%and 50% respectively. Partners agree to dissolve
the business and upon liquidation, all of the partnership assets are sold and sufficient cash
is realized to pay all the claims except one for P50,000. Dr. G is personally insolvent, but
the other two partners are able to meet any indebtedness to the firm. On the remaining
claim against the partnership, Dr. E is to absorb.

A. 80,000 B. 30,000 C. 60,000 D. 50,000

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37. AAA, BBB, CCC, and DDD are partners sharing profits in the ratio of 3/21, 4/21, 6/21,
and 8/21. Their capital balances on December 31, 2030 are as follows:

AAA P 500
BBB 12,500
CCC 12,500
DDD 4,500
The partners decide to liquidate their firm and they accordingly convert the noncash assets into
P11,600 cash. After paying liabilities of P1,500, they have P11,100 to divide. How much was the
distribution to partner CCC?
a. P0 b. P3,560 c. P4,160 d.P7,100

Use the following information for the next question

38. ABC partnership engaged in steel manufacturing business had the following condensed
financial position prior to liquidation:

Assets Liabilities and Capital

Cash P 120,000 Liabilities P 350,000
Noncash assets 1,800,000 Loan payable to AAA 150,000
AAA, Capital (50%) 450,000
BBB, Capital (30%) 700,000
_____ _ __ CCC, Capital (20%) 270,000
Total P1,920,000 Total P1,920,000

Assuming assets with a book value of P700,000 were sold for P500,000 and that all available
cash was distributed.

For what amount would the remaining assets have to be sold in order for Partner BBB to receive
a total of P790,000 cash after liquidation.

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A. P1,550,000 C. P1,500,000
B. P1,600,000 D. P1,650,000

-END-

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