Partnership Formation

On January 1, 2020, Len, May and Nancy decided to form a business

partnership to operate supermarket. Len and May both owned a
grocery business with the Statement of Financial Position as of
December 31, 2019:

Len May
Cash 10,000,000 20,000,000
Accounts Receivable 20,000,000 30,000,000
Inventories 70,000,000 40,000,000
Property, plant and
50,000,000 10,000,000
equipment
Accounts payable 40,000,000 20,000,000
Notes payable(Len 10%,May
30,000,000 50,000,000
5%)
Capital 80,000,000 30,000,000

The following additional notes are provided:

1. Len and May will contribute all its assets and liabilities to
the newly formed partnership.
2. The parties agree to provide 10% and 20% allowance for
doubtful accounts to the accounts receivable of Len and May,
respectively.
3. The inventories of Len and May are reported at historical
cost and have net realizable value of Php60M and Php45M,
respectively.
4. The PPE of Len and May have not been depreciated and should
be depreciated by 40% and 30%, respectively.
5. The interest payable on both payable were unrecorded and
unpaid since the date of contract. Len’s note payable is dated
April 1, 2019 while May’s note payable is dated June 30, 2019.
6. Nancy shall have 20% interest in the partnership upon
contribution of sufficient cash.

How much will be the capital of each partner?

Partnership Operation

Problem 1

On January 1, 2020, Alabo and Hok formed Notpa Partnership and the
articles of co-partnership provides that profit or loss shall be
distributed accordingly:

 10% interest on average capital balance

 P50,000 and P100,000 quarterly salaries for Alabo and Hok,
Respectively.
 The remainder shall be distributed in the ratio of 3:2 for
Alabo and Hok, respectively.
Alabo Hok
January 1, 2020 investment 1,000,000 500,000
March 31, 2020 investment 100,000
July 1, 2020 withdrawal (200,000)
September 30, 2020 withdrawal (200,000)
October 1, 2020 investment 700,000

The chief accountant of the partnership reported net income of

P1,000,000 for year 2020.
What are the capital balances of the partners on December 31, 2020?

Problem 2

On July 1, 2020, Ngot and Bii formed NgalBu Partnership with

initial investment of P1M and P2M, respectively. D is appointed as
the managing partner.

The articles of co-partnership provide that profit or loss shall

be distributed accordingly:
1. 30% interest on original capital contribution ratio
2. Monthly salary of P20,000 and P10,000 respectively for Ngot
and Bii.
3. Ngot shall be entitled to bonus equivalent to 20% of net
income after interest, salary and bonus.
 4. The remainder shall be distributed in ration 3:2 for Ngot and
Bii respectively.
For the year ended December 31, 2020, the partnership reported net
income of P750,000.

Compute for the share of net income of Ngot and Bii.

Problem 3

Partners A and B have profit and loss agreement with the following:
salaries P90,000 and P135,000 for A and B, respectively; a bonus
to A of 10% of net income after salaries; an interest of 10% on
average capital balances of P60,000 and P105,000 for A and B,
respectively. One-third of any remaining profits will be allocated
to A and the balance to B.

If the partnership had net income P66,000, how much should be

allocated to each partner assuming that the provisions of the
profit and loss agreement are ranked by order of priority starting
with (1) salaries, (2) interest, (3) bonus and up to the extent of
the ranking only?

END