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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  are  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 
 
 
 
 
 
 
 
 
1. What is the amount of the additional cash to be contributed by A in accordance with their agreement? 
a. 300,000 
b. 120,000 
c. 420,000 
d. 170,000 
 
2. What is the amount of the capital credit to B after formation? 
a. 130,000 
b. 100,000 
c. 300,000 
d. 150,000 
 
 
2. Charlie  and  Delta  formed  a  partnership.  Charlie  invested  cash  worth  P85,000  and  a  machine.  On  the  other  hand, 
Delta  contributed  cash  worth  P55,000  and  an  equipment  which  has  a  mortgage  of  P35,000  which  Delta  will  pay 
personally.  The  total  capital  after  formation  was  P360,000.  They  also  further  agreed  to  reflect  55:45  ratio  as  to their 
capital  balances respectively. No other investment or withdrawal occurred other than mentioned to reflect their capital 
ratio agreement. 
 
1. How much is the fair value of the machine? 
a. 113,000 
b. 105,000 
c. 107,000 
d. 115,000 
 
2. How much is the fair value of the equipment? 
a. 115,000 
b. 107,000 
c. 150,000 
d. 142,000 
 
 
4. 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 
 
What is the amount of cash to be invested or withdrawn by G in accordance with their agreement?  
 
a. 4,781,875 invest 
b. 3,556,875 invest 
c. 4,781,875 withdraw 
d. 3,556,875 withdraw 
EXERCISES

1. A person may contribute any of the following to the mutual fund in order for him/her to become a partner, ​except: 
a.  Money  c.  Property 
b.  Industry  d.  Prayers 
 
2. A partner who contributes money to the partnership is classified as a/an: 
a.  Investor  c.  Industrial partner 
b.  Capitalist partner  d.  Managing partner 
 
3. Nory  and  Rina  decided  to  form  a  partnership.  Nory  was  to  contribute  P100,000  cash  plus  a  used  equipment.  The 
used  equipment  had  an  original  cost  of  P200,000  when  it  was  purchased  1  year  ago.  The  seller  at  that  time 
mentioned  that the equipment sold had a useful life of 10 years. If the same equipment was to be bought today brand 
new, it will now cost P250,000. The equipment invested by Nory can be sold at the second hand market for P190,000.  
How much is the capital credit of Nory at partnership formation? 
a.  280,000  c.  300,000 
b.  290,000  d.  350,000 

Loo  and Wee decided to combine their separate business and form a partnership. The statements of financial position 
of the businesses immediately before partnership formation were as follows: 
  Loo  Wee 
Cash  40,000  50,000 
Accounts receivable  100,000  75,000 
Inventories  120,000  150,00 
PPE, net  600,000  1,000,000 
Accounts payable  (300,000)  (650,000) 
Capital  (560,000)  (625,000) 
 
Additional information: 
● The partnership is to acquire all the assets and assume all the liabilities of the two businesses 
● Accounts receivable of Loo and Wee were estimated to be 90% and 80% collectible, respectively. 
● P20,000 worth of inventories of Loo were determined to be obsolete and must be written-off 
● PPE of Wee has a fair value of P800,000 
 
4. How much is the capital credit of Loo immediately after partnership formation? 
a.  560,000  c.  830,000 
b.  530,000  d.  450,000 
 
5. How much is the capital credit of Wee immediately after partnership formation? 
a.  410,000  c.  1,060,000 
b.  365,000  d.  625,000 
 
6. How much is the total assets of the partnership immediately after formation? 
a.  2,135,000  c.  1,890,000 
b.  2,090,000  d.  1,185,000 

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