Week 6 Fundamentals of Partnership Accounting

FUNDAMENTALS OF PARTNERSHIP
According to Article 1767 of the Civil Code of the Philippines, Partnership is a contract whereby two or
more persons bind themselves to contribute money, property, or industry into a common fund with the
intention of dividing profit among themselves.
Characteristics of a Partnership
1. Mutual Agency- Any partner may act as an agent of the partnership in conducting its affairs.
2. Unlimited Liability- The personal assets of any partner may be used to satisfy the creditors’ claims
in the partnership if the firm’s assets are not enough to settle the liabilities to outsiders.
3. Limited Life- A partnership may be dissolved at any time by action of the partners or by operation
of law.
4. Mutual Participation in Profit- A partner has the right to share in partnership profits.
5. Legal Entity- A partnership has a legal personality separate and distinct from that each of the
partners.
6. Co-ownership of Contributed Assets- Assets contributed to the partnership become assets of the
partnership by virtue of its separate legal personality.
7. Income Tax- Partnership except those organized for the exercise of professions (General
Professional Partnerships) like CPA’s, Lawyers, etc., are subject to income tax rate of 30% based
on Net Income.
Articles of Co-Partnerships
➢ A partnership is created by an oral or a written agreement. Since partnerships are required to be
registered with the Securities and Exchange Commissions (SEC), it is necessary that the agreement
be in writing. In this case, misunderstanding and disputes among the partners relative to the
nature and terms of contract may be avoided or minimized. The written agreement between or
among the partners which governs the formation, operation, and dissolution of the partnerships
is referred to as the “Articles of Co-Partnerships”.
Accounting for Partnership
➢ As compared to other forms of business organization, accounting for partnership differs with
regard to capital accounts. In a partnership, there should be as many capital accounts and as many
drawing accounts as there are partners.
CAPITAL ACCOUNT
-Permanent withdrawal (decrease) of capital. -Original investment by a partner.
-Share in partnership loss from operations. -Share in the partnership profit from operations.
-Debit balance of drawing account closed to - Additional investment by a partner.
capital.
DRAWING ACCOUNT
-Personal withdrawal by a partner in -Share in partnership profit from operation. (can
anticipation of profits. (temporary withdrawal be directly credited to capital)
of capital)
-Share in partnership loss from operation. (can
be directly debited to capital)
➢ Aside from the contribution, the partnership may acquire additional financing from its present
partners. Any loan between a partner and the partnership is always accompanied by a proper loan
documentation such as promissory note. A loan from partner is shown as “Loan Payable,
Advances from Partner, Due to Partner” on the partnership books similar to any other loan. Unless
all partners agree otherwise, the partnership is obligated to pay the individual partner interest on
the loan and such interest is reported in the Income Statement of the partnership as an “Expense”.
➢ On the other hand, the partnership may also lend money to a partner. In this case, the partnership
records a “Loan Receivable, Advances to Partner, Due to Partner”. Again, unless otherwise agree
by the partners, the loan bears interest is reported in the Income Statement of the partnership as
“Income”.
Kinds of Partnerships
1. As to Activity
a) Trading Partnership- one whose main activity is the manufacture and sale or the purchase
and sale of goods.
b) Non-trading Partnership- one which is organized for the purpose of rendering services.
2. As to Object
a) Universal Partnership
1) Universal Partnership of All Present Property- one in which the partners contribute,
at the time of the constitution of the partnership, all the properties which actually
belong to each of them into a common fund with the intention of dividing the same
among themselves as well as the profits which they may acquire therewith. All assets
contributed to the partnership and subsequent acquisitions become common
partnership assets.
2) Universal Partnership of All Profit- one which comprises all that the partners may
acquire by their industry or work during the existence of the partnership and the
usufruct of movable or immovable property which each of the partners may possess
at the time of the institution of the contract. Partnership assets consist of assets
acquired during the life of the partnership and only the usufruct or use of assets
contributed at the time of partnership formation. The original movable or immovable
property contributed do not become common partnership assets
b) Particular Partnership/General Professional Partnership- one which has for its object
determinate things, their use or fruits, or a specific undertaking or the exercise of a
profession or vocation.
3. As to Liability of Partners
a) General Partnership- one consisting of general partners who are liable prorate and
sometime solidarily with their separate property for partnership liabilities.
b) Limited Partnership- one formed by two or more persons having as members one or more
general partners and one or more limited partners, who as such are not bound by the
obligations of the partnership. The word “LIMITED” or “LTD.” Is added to the name of the
partnership to inform the public that it is a limited partnership.
4. As to Duration
a) Partnership at will- one for which no term is specified and is not formed for a particular
undertaking or venture and which may be terminated any time by mutual agreement of the
partners or the will of one partner alone.
b) Partnership with a fixed term- one in which the term or period for which the partnership is
to exist is agreed upon. It may also refer to a partnership formed for a particular undertaking
and upon the expiration of that term or completion of the particular undertaking the
partnership is dissolved; unless continued by the partners.
5. As to Representation to Others
a) Ordinary Partnership- one which actually exists among the partners and also to third
persons.
b) Partnership by Estoppel- one which in reality is not a partnership but is considered as one
only in relation to those who, by their conduct or omission are precluded to deny or disprove
the partnership’s existence.
6. As to Legality of Existence
a) De Jure Partnership- one which has complied with all the requirements for its
establishment.
b) De Facto Partnership- one which failed to comply with one or more of the legal
requirements for its establishment.
7. As to Publicity
a) Secret Partnership- one wherein the existence of certain persons as partners is not made
known to the public by any of the partners.
b) Open Partnership- one wherein the existence of certain persons as partners is made known
to the public by the members of the firm.
Classes of Partners
1) As to Contribution
a) Capitalist Partner- one which contributes capital in cash or property.
b) Industrial Partner- one who contributes industry, labor, skill, talent or service.
c) Capitalist-Industrial Partner- one who contributes cash, property, and industry.
2) As to Liability
a) General Partner- one whose liability to third persons extends to his separate (private)
property.
b) Limited Partner- one whose liability to third persons is limited only to the extent of his
capital contribution to the partnership
3) As to Management
a) Managing Partner- one who manages actively the business of the partnership.
b) Silent Partner- one who does not participate in the management of the partnership affairs.
4) Other Classifications
a) Liquidating Partner- one who takes charge of the winding up of partnership affairs upon
dissolution.
b) Nominal Partner- one who is not really a partner, not being a party to the partnership
agreement, but is made liable as a partner for the protection of innocent third persons.
c) Ostensible Partner- one who takes active part in the management of the firm and is known
to the public as a partner in the business.
d) Secret Partner- one who takes active part in the management of the business but whose
connection with the partnership is concealed or unknown to the public.
e) Dormant Partner- one who does not take active part in the management of the business
and is not known to the public as a partner; he is both a silent and a secret partner.
PARTNERSHIP FORMATION
Partnership can be formed by (at least):

1. One individual and one individual.
2. One individual and one sole proprietorship.
3. One sole proprietorship and one sole proprietorship.
Partners may contribute cash, property or industry to the partnership. Assets contributions are debited
to the appropriate asset accounts and credited to the capital accounts of the partners. Below are the
rules:
1. If the asset contributed is in the form of CASH, it is recorded in the partnership books at FACE
VALUE.
2. If the assets contributed is in the form of PROPERTIES or NON-CASH ASSETS, such are recorded at
AGREED VALUE. In the absence of an agreement, such are recorded at FAIR MARKET VALUE.
3. If the contribution is SERVICES, a MEMORANDUM ENTRY is prepared.
In some instances, one or two or all of the partners are former sole proprietors who decide to unite their
assets and liabilities to form a stronger enterprise. In such situation, the new partnership may OPEN A
NEW SET OF BOOKS or may CONTINUE USING THE BOOKS OF ONE OF THE SOLE PROPRIETORS. If a new
set of books will be used, entries are prepared to record the contributions. However, if the books of one
of the sole proprietors will be used, the following procedures shall be followed:
1. Adjust the books of the sole proprietor which shall be used as partnership books.
2. Record the investment of the other partners.
Prior to recording partners initial contributions to the partnership, the individual partners first agree not
only on the valuation of asset contributions but also on their capital credit. The “Capital Credit” of each
partner is the percentage of equity that each of them will have in the net assets of the newly formed
partnership.
Generally, the capital share of partner is proportionate to his capital contribution. However, in recognition
of intangible factors such as a partner’s special expertise, established clientele or necessary business
connections, partners may agree to a division of capital that is not proportionate to their capital
contributions. This will give rise to allowing “BONUS” on initial investment.
Illustrative Problem
On July 01, 2019, Allison and Klaus pooled their resources in a partnership with the firm taking over their
business assets and assuming their business liabilities. They agreed to make the following adjustments
and to make settlement among themselves to conform to the 40:60 capital and profit and loss ratio.
a) Klaus inventory to be reduced by ₱5,000.
b) Allowance for doubtful accounts be recognized in the amount of ₱1,500 each.
c) ₱4,000 of unrecorded accounts payable to supplier be recorded in the books of Allison.
d) Accrued Utilities of ₱1,200 be recognized in the books of Klaus.
e) The store equipment has a fair market value of ₱80,000 and the agreed value amounted to
₱70,000.
The individual trial balance before adjustments shows the following:
Accounts Allison Klaus
Cash ₱20,000 ₱20,000
Account Receivable ₱10,000 ₱10,000
Merchandise Inventory ₱30,000 ₱30,000
Office Supplies ₱10,000 ₱15,000
Furniture and Fixture ₱50,000
Store Equipment ₱75,000
Accumulated Depreciation ₱10,000 ₱10,000
Accounts Payable ₱25,000 ₱40,000
Notes Payable ₱15,000 ₱25,000
Capital ₱70,000 ₱75,000
Assumption 1: Old Set of Books. (Assuming the books of Klaus is to be retained by the new partnership)
To Record Adjustments
Books of Allison Books of Klaus
a. Klaus, Capital 5,000
Merchandise Inventory 5,000
b. Allison, Capital 1,500 b. Klaus, Capital 1,500
Allow for doubtful accounts 1,500 Allow for doubtful accounts 1,500
c. Allison, Capital 4,000
Accounts Payable 4,000
d. Klaus, Capital 1,200
e. Klaus, Capital 5,000
Accumulated Depreciation 5,000
To Close the Books

Allow for doubtful accounts 1,500
Notes Payable 15,000
Allison, Capital 64,500
Cash 20,000
Account Receivable 10,000
Office Supplies 10,000
Furniture and Fixture 50,000
To Record Investments
Cash 20,000
Account Receivable 10,000
Allow for doubtful accounts 1,500
Allison Capital 13,780
Klaus Capital 13,780
Allison Klaus Total

Capital 70,000 75,000 145,000
Merchandise Inventory (5,000) (5,000)
Allowance for Doubtful Accounts (1,500) (1,500) (3,000)
Unrecorded Accounts Payable (4,000) (4,000)
Accrued Utilities (1,200) (1,200)
Agreed Value of Store Equipment (5,000) (5,000)
Adjusted Capital 64,500 62,300 126,800
Bonus to Klaus [64,500-(126,800*40%)] (13,780) 13,780 0
Capital Credit ₱50,720 ₱76,080 ₱126,800
Assumption 2: New Set of Books.

To Record Adjustments
a. Klaus, Capital 5,000
b. Allison, Capital 1,500 b. Klaus, Capital 1,500
c. Allison, Capital 4,000
d. Klaus, Capital 1,200
Utilities Payable 1,200
e. Klaus, Capital 5,000
To Close the Books
Accumulated Depreciation 10,000 Accumulated Depreciation 15,000
Accounts Payable 29,000 Accounts Payable 41,200
Notes Payable 15,000 Notes Payable 25,000
Allison, Capital 64,500 Klaus, Capital 62,300
Cash 20,000 Cash 20,000
Account Receivable 10,000 Accounts Receivable 10,000
Merchandise Inventory 30,000 Merchandise Inventory 25,000
Office Supplies 10,000 Office Supplies 15,000
Furniture and Fixture 50,000 Store Equipment 75,000
To Record Investments
Cash 40,000
Accounts Receivable 20,000
Store Equipment 60,000
Allowance for Doubtful Accounts 3,000
Klaus, Capital 62,300
Klaus, Capital 13,780
PARTNERSHIP OPERATION
Accounting for partnership operations is essentially the same as accounting for the operations of any
other forms of business organization. Sales of merchandise on account is debited to AR and credited to
Sales. Collection of accounts is debited to Cash and credited to AR. The purchase of merchandise on
account is recorded by a debit to Purchases and credit to AP. Payment of accounts is debited to AP and
credited to Cash. Payment of expenses is debited to Expenses and credited to Cash.
At the end of the accounting period, adjustments are made for merchandise inventory, accruals,
prepayments, provisions for uncollectible accounts and provision for depreciation. Profit is determined in
the usual manner that is by matching revenues and expenses.
Methods of Distributing Profits and Losses Based on Partner’s Agreement
1. Equally- it is simple to apply but does not give due recognition on the disparity of capital
contribution nor does it recognize the time and effort that a partner may devote in running the
firm’s business operations.
2. Arbitrary Ratio (Percentage, Decimal, Fraction, Ratio)- it is simple to apply but does not give
recognition on the disparity of capital contributions nor does it recognize the time and effort that
a partner may devote in running the firm’s business operations.
3. Capital Ratio (Original, Beginning, Ending, Average)- this method recognized the differences in
the capital contributions but does not take into account the time and effort that a partner may
devote in running the firm’s business operation.
4. Interest on Capital and the Balance on Agreed Ratio- this method recognizes the differences in
the capital contributions but does not take into account the time and effort that a partner may
devote in running the firm’s business operations. Interest is allowed to partners for the use of
invested capital. Interest as agreed by the partners shall be allowed in proportion over the period
such capital was actually used. Moreover, the interest shall be provided whether the profit is
sufficient or insufficient or there is a net loss unless otherwise agreed upon by the partners.
5. Salary Allowances to Partners and the Balance on Agreed Ratio- this method recognized the time
and effort that a partner may devote in running the firm’s business operations but does not take
into consideration the differences in capital contributions. Salaries are allowed to partners as
compensations for their time devoted in the business. Salaries as agreed by the partners shall be
allowed in proportion to the time the partners actually rendered services to the firm. Such salaries
shall be provided whether the profit is sufficient or insufficient or there is net a loss unless
otherwise agreed upon by the partners.
6. Bonus to Managing Partner and the Balance on Agreed Ratio- this method allows a bonus, as an
incentive, to the managing partner. It is usually a percentage of the profit. Bonus, therefore, is
allowed only when there is a profit. It may be computed using any of the following as basis:
a) Bonus is based on profit before deducting bonus and income tax.
b) Bonus is based on profit after deducting bonus but before deducting income tax.
c) Bonus is based on profit after deducting income tax but before deducting bonus.
d) Bonus is based on profit after deducting both bonus and income tax.
7. Interest on Capital, Salaries to Partners, Bonus to Managing Partner, and the Balance on Agreed
Ratio
Rules for Dividing Profits and Losses
1) As to Capitalist Partners
a) Division of Profits
• In accordance with agreement.
• In the absence of an agreement, division of profits is in accordance with capital
contribution.
b) Division of Losses
• If only the division of profits is agreed upon, then the division of losses will follow
the same proportion.
contribution.
2) As to Industrial Partners
a) Division of Profits
contribution.
b) Division of Losses
• In the absence of an agreement, the industrial partner shall have NO SHARE in his
character as an industrial partner.
The following data are available in the books of Andrei and Joan Partnership for the year 2019.
Andrei, Capital
Jul 01 ₱100,000 Jan 01 Balance ₱2,500,000
Apr 01 ₱250,000
Oct 01 ₱500,000
Balance ₱3,150,000
Andrei, Drawing
Jan 01-Dec 31 ₱100,000
Joan, Capital
June 01 ₱150,000 Jan 01 Balance ₱1,500,000
Dec 01 ₱60,000 Oct 01 ₱510,000
Balance ₱1,800,000
Joan, Drawing
Jan 01-Dec 31 ₱225,000
Income Summary
Dec 31 ₱600,000
Case 1- Profit is divided equally

Income Summary 600,000
Andrei, Capital 300,000
Joan, Capital 300,000
600,000/2= 300,000
Case 2- Profit is divided 1/3 and 2/3 to Andrei and Joan

Income Summary
600,000
Andrei, Capital
200,000
Joan, Capital
400,000
600,000*1/3= 200,000
600,000*2/3= 400,000
Case 3- Profit is divided in the ratio of 2:8 to Andrei and Joan

Income Summary
600,000
Andrei, Capital
120,000
Joan, Capital
480,000
600,000*2/10= 120,000
600,000*8/10= 480,000
Case 4- Profit is divided 35% and 65% to Andrei and Joan

Income Summary
600,000
Andrei, Capital
210,000
Joan, Capital
390,000
600,000*35%= 210,000
600,000*65%= 390,000
Case 5- Profit is allocated based on the beginning capital ratio

Income Summary
600,000
Andrei, Capital
375,000
Joan, Capital
225,000
600,000*2500/4000= 375,000
600,000*1500/4000= 225,000
Case 6- Profit is allocated based on the ending capital ratio

Income Summary
600,000
Andrei, Capital
381,820
Joan, Capital
218,180
600,000*3150/4950= 381,820
600,000*1800/4950= 218,180
Case 7- Profit is allocated based on the average capital ratio
Income Summary
600,000
Andrei, Capital
385,689
Joan, Capital
214,311
600,000*2,762.5/4,297.5= 385,689
600,000*1,535/4297.5= 214,311
Andrei
Jan 01 2,500,000*12/12 2,500,000
Apr 01 250,000*9/12 187,500
Jul 01 100,000*/12 (50,000)
Oct 01 500,000*3/12 125,000 2,762,500
Joan
Jan 01 1,500,000*12/12 1,500,000
Jun 01 150,000*7/12 (87,500)
Oct 01 510,000*3/12 127,500
Dec 01 60,000*1/12 (5,000) 1,535,000
4,297,500
Case 8- Each partner is allowed 10% interest on ending capital and the remaining profit is divided 25%
and 75%
Andrei Joan Total

Interest on Ending Capital
3,150,000*10% 315,000
1,800,000*10% 180,000 495,000
Remainder (600,000-495,000=105,000)
105,000*25% 26,250
105,000*75% 78,750 105,000
Total 341,250 258,750 600,000
Case 9- Joan is allowed salaries of 200,000 and the remaining profit is divided in the ratio of 6:4
Andrei Joan Total
Salaries 200,000 200,000
Remainder (600,000-200,000=400,000)
400,000*6/10 240,000
400,000*4/10 160,000 400,000
Total 240,000 360,000 600,000
Case 10- The partners are allowed ₱5,000 and ₱10,000 weekly salaries, 10% interest on average capital,
and the remainder is divided in the ratio of 2:3
Andrei Joan Total

Salaries
5,000*52 260,000
10,00*52 520,000 780,000
Interest on Average Capital
2,762,500*10% 276,250
1,535,000*10% 153,500 429,750
Remainder 600,000- (780,000+429,750) = (609,750)
(609,750) *2/5 (243,900)
(609,750) *3/5 (365,850) (609,750)
Total 292,350 307,650 600,000
Case 11- The partners are allowed 100,000 annual salaries, 10% interest on average capital, bonus to
Joan equal to 25% on profit after bonus and tax, and the remainder is divided in the ratio of 2:3
Andrei Joan Total

Salaries 100,000 100,000 200,000
2,762,500*10% 276,250
1,535,000*10% 153,500 429,750
Bonus 84,000 84,000
Remainder 600,000- (200,000+429,750+84,000) = (113,750)
(113,750) *2/5 (45,500)
(113,750) *3/5 (68,250) (113,750)
330,750 269,250 600,000
Bonus Computation
1. If bonus is based on profit before bonus and tax;
B=Profit*Percentage of Bonus
B=600,000*25%
B=150,000
2. If bonus is based on profit after bonus but before tax;

B=Percentage of Bonus*(Profit-Bonus)
B=25%*(600,000-B)
B=150,000-.25B
B+.25B=150,000
1.25B=150,000
1.25B/1.25=150,000/1.25
B= 120,000
3. If bonus is based on profit before bonus but after tax;

B=Percentage of Bonus*(Profit-Tax)
B=25%*(600,000-T)
T=Profit*Percentage of Tax
T= 600,000*30%
T= 180,000
B=25%*(600,000-180,000)
B=25%*420,000
B= 105,000
4. If bonus is based on profit after bonus and tax;

B=Percentage of Bonus*(Profit-Bonus-Tax)
B=25%*[600,000-B-(600,000*30%)]
B=25%*[600,000-B-180,000]
B=25%*[420,000-B]
B=105,000-.25B
B+.25B=105,000
1.25B=105,000
1.25B/1.25=105,000/1.25
B= 84,000
Case 12- The partners are allowed ₱5,000 and ₱10,000 weekly salaries, 10% interest on average capital,
and the remainder is divided in the ratio of 2:3. But instead of a profit, the partnership incurred 600,000
loss
Andrei Joan Total
Salaries
5,000*52 260,000
10,00*52 520,000 780,000
2,762,500*10% 276,250
1,535,000*10% 153,500 429,750
Remainder -600,000- (780,000+429,750) = (1,809,750)
(1,809,750) *2/5 (723,900)
(1,809,750) *3/5 (1,085,850) (1,809,750)
Total (187,650) (412,350) (600,000)
NOTE: In the preceding examples, salaries, interest and bonus are treated as a distribution of partnership
profit and therefore, they are not deductible as an expense in determining the amount of taxable profit.
Partnership Dissolution
Dissolution is defined in Article 1825 of the Civil Code of the Philippines as the change in the relationship
of the partners caused by any partner ceasing to be associated in the carrying out of the business. It refers
to the termination of the life of the existing partnership. The dissolution of the partnership may be
followed by:
1. Formation of a New Partnership
2. Liquidation
Reasons of Partnership Dissolution
1. Admission of a new partner
2. Retirement or withdrawal of a partner
3. Death, incapacity or bankruptcy of a partner
4. Incorporation of a partnership
Changes in Ownership Structure
➢ Accounting for changes in ownership structure of a partnership is influenced by the legal concept
of dissolution. When there is a change in the ownership structure, the original partnership is
dissolved and often a new partnership is created. The dissolution and subsequent creation of a
new partnership indicates that a new legal entity has been created and accounting should
measure properly the initial contributions of capital being made to the new partnership. Changes
in the ownership structure of the partnership are presumed to be arm’s-length transactions which
reflect the current value of the partnership. Therefore, such changes may indicate that:
• The existing assets of the original partnership should be revalued.
• Unrecorded intangible assets exist that are allowing bonus to partners.
Admission of a New Partner
➢ New partners are often a primary source of additional capital or needed business expertise. A new
partner may be admitted in an existing partnership with THE CONSET OF ALL THE PARTNERS. Upon
admission, the original partnership is automatically dissolved and a new one is formed although
the daily operations of the business generally are not affected. A new partner may be admitted
into a partnership by:
1. Admission of a New Partner by Purchase- the admission of a new partner by purchase is

the acquisition of capital interest directly from one or more of the present partners
provided that it is with consent of all the partners. The purchase of interest from one or
more of the partners is a personal transaction between the incoming and the selling
partner and not to the partnership. Thus, any gain or loss is recognized by the selling
partner and not the partnership. The amount of capital transferred will be EQUAL TO THE
BOOK VALUE OF THE INTEREST SOLD regardless of the purchase price or consideration.
The purchase price of the interest sold to a new partner may be:
• Equal to the book value of the interest sold.
• Less than the book value of the interest sold.
• More than the book value of the interest sold.
Gon and Killua are partners in Hunter Partnership with capital of ₱150,000 and ₱100,000 respectively.
They share profit and losses equally. Hisoka is to be admit as a new partner.
Case 1- Purchase at book value from one partner only. Hisoka purchases a ¼ interest from Gon by paying
₱37,500
Gon, Capital 37,500
Hisoka, Capital 37,500
150,000*1/4= 37,500
Case 2- Purchase at book value from more than one partner. Hisoka purchases a ¼ interest from the old
partners by paying ₱62,500
Gon, Capital 37,500
Killua, Capital 25,000
150,000*1/4= 37,500
100,000*1/4=25,000
37,500+25,000= 62,500
Case 3- Purchase at less than book value. Hisoka purchases a ¼ interest from the old partners by paying
₱50,000
Gon, Capital 37,500
150,000*1/4= 37,500
100,000*1/4=25,000
37,500+25,000= 62,500
Case 4- Purchase at more than book value. Hisoka purchases a ¼ interest from the old partners by paying
₱70,000
Gon, Capital 37,500
150,000*1/4= 37,500
100,000*1/4=25,000
37,500+25,000= 62,500
NOTE: In the preceding cases, the transfer of capital from the old partners to the new partner is recorded
at BOOK VALUE regardless of the amount paid. Payment at less than book value and at more than book
value are recorded as if they were made at book value. In addition, the four cases show that the total
partnership capital before and after the admission of a new partner are the same. Thus, the total
partnership capital of ₱250,000 before the admission of Hisoka is also the total partnership capital after
his admission. Therefore, the admission of a new partner by purchase will not affect the total assets and
the total capital of the partnership.
Asset Revaluation Upon admission of a New Partner by Purchase. Revaluation of asset of
the old partnership, however, is generally undertaken prior to the admission of new partner.
It may be a positive or negative asset revaluation. The effect of the asset revaluation is carried
to the capital accounts of the old partners. The adjusted capital of the old partners becomes
the basis for the interest transferred to the new partner. In asset revaluation, there is no gain
or loss to be recognized since the asset revaluation reflected the adjusted capital of the old
partners.
Luffy and Zoro are partners in Thousand Sunny Partnership with capital of ₱150,000 and ₱100,000
respectively. They share profit and losses equally. Usopp is to be admitted to the partnership by
purchasing 1/4 interest from the old partners paying ₱70,000. The assets should be revalued prior to the
admission of Usopp.
Step 1: The new partnership capital is equal to the amount paid by the incoming partner divided by his
fraction of interest
New Partnership Capital= 70,000/¼ = 280,000
Step 2: The amount of asset revaluation is equal to the new partnership capital less old partnership
capital.
Asset Revaluation= 280,000-250,000=30,000
Step 3: Allocate the asset revaluation among the old partners in accordance with their profit and loss
agreement.
30,000/2=15,000 per partner
Step 4: The capital balaces of the old partners after asset revaluation is equal to their old capital balances
plus their share on asset revaluation.
Luffy Zoro
Capital balances before revaluation 150,000 100,000
Share on asset revaluation 15,000 15,000
Capital balances after revaluation 165,000 115,000
Step 5: The amount of interest transferred by the old partners to the new partner is based on the new
capital balances.
Luffy Zoro
Capital balances after revaluation 165,000 115,000
Multiply: Interest transferred ¼ ¼
Capital transferred to Usopp 41,250 28,750
Step 6: The journal entries to record the revaluation of asset and the admission of Usopp are as follows:
Other Assets 30,000
Luffy, Capital 15,000
Zoro, Capital 15,000
Luffy, Capital 41,250

Zoro, Capital 28,750
Usopp, Capital 70,000
Capital Balances after the admission of Usopp shall be:
Luffy 150,000+15,000-41,250= 123,750
Zoro 100,000+15,000-28,750= 86,250
Usopp 41,250+28,750= 70,000
2. Admission of a New Partner by Investment- is a transaction between the original

partnership and the new partner. The investment of the new partner increases the assets
of the partnership and its total capital. The entry to record the admission of the new
partner depends upon the capital interest credited to the partners account. In
determining the capital credit of the partners, the following should be fully understood.
• Agreed Capital (AC)- the amount of new capital set by the partners for the
partnership. It may be equal to, more than or less than the total contributions of
the partners, both old and new. It is also known as new firm capital, total capital
or agreed capitalization. The terms of the admission of a new partner may
indicate the agreed capital. If not given, it may be computed in either of two ways:
a) Investment of the new partner divided by the new partner’s interest.
b) Investment of the old partners divided by the old partners interest.
Example: A and B are partners with capital balances of ₱100,000 and ₱200,000
respectively. C is to be admitted by investing ₱50,000 for a ¼ interest. Agreed
capital may be computed as follows:
a) 50,000/ ¼ = ₱200,000 (the new partner’s investment is used as a basis)
b) 300,000/ ¼ = ₱400,000 (the old partner’s investment is used as a basis)
• Contributed Capital (CC)- the investment of all partners, both and new. Using the
example above the total contributed capital is ₱350,000
(100,000+200,000+50,000).
• Asset Revaluation- evidence provided by the amount of an investment which
related to the total value of the business or values of the identifiable assets as
determined on an individual basis by appraisal or other valuation technique. The
amount of asset adjustment may be determined as the difference between the
agreed capital and the total contributed capital. Generally, asset revaluation upon
partnership formation relate to the partners of the old partnership only.
• Bonus- the transfer of capital from one partner to another. Bonus to old partners
is capital transfer from new partner to the old partners and vice versa. There is a
bonus when capital credit to individual partners do not equal their capital
contributions although the agreed capital is equal to the total contributed capital.
• Capital Credit- the interest or equity of a partner in the firm. It is computed by
multiplying the agreed capital by the interest of the partners.
Sora and Shiro are partners in Elchea Partnership with capital balances of ₱175,000 and ₱125,000,
respectively. They share profits and losses 3:2. Tet is to be admitted in the partnership.
Case 1- No Bonus, No Asset Revaluation. Tet invests ₱100,000 for a ¼ interest in the AC of ₱400,000.
Cash 100,000
Tet, Capital 100,000
Step 1: Make a table.
Bonus/Asset
Partners AC CC
Revaluation
Old
New
Total
Step 2: Fill the given data in the table.

Bonus/Asset
Partners AC CC
Revaluation
Old ¾ 300,000
New ¼ 100,000
Total 400,000 400,000
Step 3: Compare AC and CC.

Bonus/Asset
Partners AC CC
Revaluation
Old ¾ 300,000
New ¼ 100,000
Total 400,000 400,000 0
In this case AC=CC, therefore there is no asset revaluation.
Step 4: Determine if there is bonus

Bonus/Asset
Partners AC CC
Revaluation
Old ¾ 300,000
New ¼ 100,000 100,000 0
Total 400,000 400,000 0
a) Compute for the capital credit of the new partner. AC * Fraction of Interest; 400,000* ¼ =
100,000
b) Write this amount in the AC column of the new partner.
c) Compare the new partners’ AC with his CC. In this case, AC and CC are the same; therefore, there
is no bonus.
Step 5: Complete the table

Bonus/Asset
Partners AC CC
Revaluation
Old ¾ 300,000 300,000 0
New ¼ 100,000 100,000 0
Total 400,000 400,000 0
a) Compute for the capital credit of the old partner. AC * Fraction of Interest; 400,000* ¾ = 300,000
NOTE: In actual problem solving, only one table is prepared. The missing items are filled as they are
needed.
Case 2- Bonus to the old partners, no asset revaluation. Tet invests ₱100,000 for a 1/5 interest in the
new firm capitalization of ₱400,000
Cash 100,000
Tet, Capital
Sora, Capital 12,000
Shiro, Capital 8,000

Bonus/Asset
Partners AC CC
Revaluation
Old
New
Total

Bonus/Asset
Partners AC CC
Revaluation
Old 4/5 300,000
New 1/5 100,000
Total 400,000 400,000

Bonus/Asset
Partners AC CC
Revaluation
Old 4/5 300,000
New 1/5 100,000
Total 400,000 400,000 0

Partners AC CC Bonus
Old 4/5 300,000
New 1/5 80,000 100,000 (20,000)
Total 400,000 400,000 0
a) Compute for the capital credit of the new partner. AC * Fraction of Interest; 400,000*1/5 =
80,000
c) Compare the new partners’ AC with his CC. In this case, agreed capital of Tet is less than in his
contributed capital; therefore, there is a bonus to the old partners.
Old 4/5 320,000 300,000 20,000
New 1/5 100,000 100,000 (20,000)
Total 400,000 400,000 0
a) Compute for the capital credit of the old partner. AC * Fraction of Interest; 400,000*4/5 =
320,000. The bonus is shared by the old partners according to their profit and loss sharing ratio;
therefore, for Sora ₱12,000 (20,000*3/5) and for Shiro ₱8,000 (20,000*2/5)
Case 3- Bonus to the new partners, no asset revaluation. Tet invests ₱60,000 for a ¼ interest in the new
firm capitalization of ₱360,000
Cash 60,000

Tet, Capital 30,000

Bonus/Asset
Partners AC CC
Revaluation
Old
New
Total

Bonus/Asset
Partners AC CC
Revaluation
Old ¾ 300,000
New ¼ 60,000
Total 360,000 360,000

Bonus/Asset
Partners AC CC
Revaluation
Old ¾ 300,000
New ¼ 60,000
Total 360,000 360,000 0
Old ¾ 300,000
New ¼ 90,000 60,000 30,000
Total 360,000 360,000 0
a) Compute for the capital credit of the new partner. AC * Fraction of Interest; 360,000* ¼ = 90,000
c) Compare the new partners’ AC with his CC. In this case, the agreed capital of Tet is greater than
his capital contributions; therefore, there is a bonus to the new partner.

Old ¾ 270,000 300,000 (30,000)
New ¼ 90,000 60,000 30,000
Total 360,000 360,000 0
a) Compute for the capital credit of the old partner. AC * Fraction of Interest; 360,000* ¾ =
270,000. The bonus given to the new partner is shared by the old partners according to their
profit and loss sharing ratio; therefore, for Sora ₱18,000 (30,000*3/5) and for Shiro ₱12,000
(30,000*2/5)
Case 4- Positive Asset Revaluation, no bonus. Tet invest ₱100,000 for a 1/5 interest in the agreed capital
of ₱500,000
Other Assets 100,000
Cash 100,000

Bonus/Asset
Partners AC CC
Revaluation
Old
New
Total

Bonus/Asset
Partners AC CC
Revaluation
Old 4/5 300,000
New 1/5 100,000
Total 500,000 400,000
Partners AC CC Asset Revaluation
Old 4/5 300,000
New 1/5 100,000
Total 500,000 400,000 100,000
In this case AC > CC, therefore there is a positive asset revaluation.

Old 4/5 300,000
New 1/5 100,000 100,000 0
Total 500,000 400,000 100,000
a) Compute for the capital credit of the new partner. AC * Fraction of Interest; 500,000* 1/5 =
100,000
is no bonus.

Old 4/5 400,000 300,000 100,000
New 1/5 100,000 100,000 0
Total 500,000 400,000 100,000
a) Compute for the capital credit of the old partner. AC * Fraction of Interest; 500,000* 4/5 =
400,000. The positive asset revaluation is credited to the old partners in accordance to their
profit and loss ratio; therefore, for Sora ₱60,000 (100,000*3/5) and for Shiro ₱40,000
(100,000*2/5)
Case 5- Negative Asset Revaluation, no bonus. Tet invest ₱60,000 for a 1/5 interest in the agreed capital
of ₱300,000
Other Assets 60,000
Cash 60,000
Tet, Capital 60,000

Bonus/Asset
Partners AC CC
Revaluation
Old
New
Total
Bonus/Asset
Partners AC CC
Revaluation
Old 4/5 300,000
New 1/5 60,000
Total 300,000 360,000

Old 4/5 300,000
New 1/5 60,000
Total 300,000 360,000 (60,000)
In this case AC < CC, therefore there is negative sset revaluation.

Old 4/5 300,000
New 1/5 60,000 60,000 0
Total 300,000 360,000 (60,000)
a) Compute for the capital credit of the new partner. AC * Fraction of Interest; 300,000* 1/5 =
60,000
is no bonus.

Old 4/5 240,000 300,000 (60,000)
New 1/5 60,000 60,000 0
Total 300,000 360,000 (60,000)
a) Compute for the capital credit of the old partner. AC * Fraction of Interest; 300,000*4/5 =
240,000. The negative asset revaluation is debited to the old partners in accordance to their
profit and loss ratio; therefore, for Sora ₱36,000 (60,000*3/5) and for Shiro ₱24,000
(60,000*2/5)
NOTE: In conclusion, if AC=CC there is bonus, if AC>CC there is a positive asset revaluation, and if AC<CC
there is a negative asset revaluation.
3. Retirement, Withdrawal, or Death of a Partner (not within the scope of this handout.)
Partnership Liquidation
Dissolution VS Termination VS Liquidation
➢ Dissolution is a legal concept indicating a change in the legal relationship between or among
partners. Termination is the end of the normal business operation of the partnership. Liquidation
is the winding up of business affairs. The partnership assets are sold, the creditors are paid and
any remaining assets are distributed to the partners as return of their investment.
Reasons of Partnership Liquidation
• Accomplishment of the purpose for which the partnership was organized.

• Termination of the period covered by the partnership contract.
• Bankruptcy of the partnership.
• Mutual agreement among the partners to close their business.
• Court Decree.
Accounting Problems in Partnership Liquidation
• Determination of the profit or loss from the beginning of the current accounting period to the
date of liquidation and the distribution of such profit or loss.
• Correction of accounting errors in prior periods.
• Closing of partnership books.
• Liquidation of the business.
Partnership Liquidation
➢ At the pint of liquidation, the assets and liabilities of the partnership are directly intertwined with
those of the individual partners because of the unlimited liability of each partner. The priorities
for creditors claim against the available assets to pay the partnership’s liabilities involve two
concepts:
1. Marshalling of Assets- involve the order of creditors’ rights in the partnership assets and
the personal assets of the individual partners. The order in which claims against the
partnership assets will be marshalled as follows:
• Partnership creditors other than partners.
• Partners claim other than capital and profit such as loans payable and any accrued
interest payable.
• Partners claims to capital and profits to the extent of credit balances in capital
accounts.
2. Right of Offset- involves offsetting a deficit in a partner’s capital against the loan payable
to that partner. The effect is that the loans due to partners (credit balance) are combined
with respective partners capital balances.
Types of Partnership Liquidation
1. Lumpsum Liquidation (Liquidation by Totals)- the distribution of cash to the partners is done only
after all the non-cash assets have been realized, the total amount of gain or loss on realization is
known and all liabilities have been paid
Procedures:
1. Compute the interest of each partner.
2. Sale of Non-Cash Assets and allocation of gain or loss on realization in accordance with
profit and loss sharing ratio.
3. Payment of Liquidation Expenses in accordance with profit and loss sharing ratio.
4. Absorption of Deficient Partner/Additional Investment.
5. Distribution of cash to creditors and partners.
2. Installment Liquidation (Piece-Meal Liquidation)- Assets are realized on a piece-meal basis over
an extended or longer period of time and cash is distributed to partners periodically as it becomes
available. (not within the scope of this handout.)
The statement of financial position of Rick, Morty, and Summer on June 30, 2019 when they decided to
liquidate is given below. The partners share profits and losses in the ratio 2:2:1. Liquidation expenses
amounted to ₱10,000. The other assets were sold for ₱100,000
Cash 8,000 Liabilities 44,800

Other Assets 136,000 Loans Payable – Morty 2,000
Loans Payable – Summer 3,200
Rick, Capital 38,000
Morty, Capital 24,000
Summer, Capital 32,000
Total Assets 144,000 Total Liabilities and Equity 144,000
Realization of assets and distribution of loss on realization

Cash 100,000
Other Assets 136,000
Payment of Liabilities
Liabilities 44,800
Cash 44,800
Payment of Liquidation Expenses

Liquidation Expenses 10,000
Cash 10,000
Payment to Partners
Loans Payable- Morty 2,000
Loans Payable- Summer 3,200
Cash 53,200

Rick 2/5 Morty 2/5 Summer 1/5
Capital Interest
Gain (Loss) on Realization
Liquidation Expenses
Absorption of
Deficiency/Additional
Investment
Total
Step 2: Compute for the capital interest of partners.

Capital Interest 38,000 26,000 35,200
Gain (Loss) on Realization
Absorption of
Investment
Total
Capital Interest is the sum of a partners capital, due to partners and advances to the partnership.
a) Rick= 38,000
b) Morty- 24,000+2000= 26,000
c) Summer- 32,000+3,200= 35,200
Step 3: Compute for the Loss/Gain on Realization of Assets.

Gain (Loss) on Realization (14,400) (14,400) (7,200)
Absorption of
Investment
Total
136,000-100,000=36,000 Loss
a) Rick= 36,000*2/5= 14,400
b) Morty- 36,000*2/5= 14,400
c) Summer- 36,000*1/5= 7,200
Step 4: Payment of Liquidation Expenses.
Liquidation Expenses (4,000) (4,000) (2,000)
Absorption of
Investment
Total
a) Rick= 10,000*2/5= 4,000
b) Morty- 10,000*2/5= 4,000
c) Summer- 10,000*1/5= 2,000
Step 5: Check if there are any capital deficiency.

Absorption of
Deficiency/Additional - - -
Investment
Total
Capital Deficiency is the excess of a partners share on losses over his capital.
Capital Deficiency is eliminated by:

a) Making additional cash investment, if the deficient partner is solvent.
b) Charging the deficiency as additional loss to the remaining partners, if the deficient partner is
insolvent. The division additional loss to the remaining partners is based on the REMAINING
profit and loss ratio.
The personal status of partners (that is, personal assets and personal liabilities) is sometimes provided in
the problem to indicate that a partner is solvent or insolvent. When personal assets exceeded personal
liabilities, the partner is solvent to the extent of the excess. When personal assets are less than personal
liabilities, the partner is insolvent
In this case, no partner is capital deficient.

Absorption of
Deficiency/Additional - - -
Investment
Total 19,600 7,600 26,000
Exercises
I. Multiple Choice. Choose the letter of your best answer. Write it on the space provided.
1. The partnership contract provides that “in the absence of the agreement, net
income or losses are to be distributed in accordance with capital contribution.” The
appropriate interpretation of this provision is that net income or losses should be
distributed in the ratio of:
A. Beginning Capital Account Balances C. Ending Capital Account Balances
B. Original Capital Account Balances D. Average Capital Account Balances
2. Partners Glenn and Sab share profits and losses equally after each has been credited
in all circumstances with annual salary allowances of ₱50,000 and ₱40,000
respectively. Under this agreement, in which of the following circumstances will
Glenn benefit by ₱10,000 more than Sab?
A. Only if the partnership has net income of ₱90,000 or more for the year.
B. Only if the partnership does not incur a loss for the year.
C. In all income or loss situation.
D. Only if the partnership has earnings of at least ₱10,000 for the year.
3. Arrange the hierarchy of valuation in partnership.

I. Fair Market Value
II. Agreed Value
III. Cost/Book Value
A. I, II, and III C. II, III, and I
B. III, II, and I D. II, I, and III
4. If A = Total Capital of the partnership before the admission of a new partner, B is the
total capital of the partnership after the investment of a new partner, C is the
amount of the new partners investment, D is the amount of capital credit to the new
partner, then there is
A. A bonus to the new partner if B=A+C and D<C
B. Revaluation to the new partners if B>(A+C) and D<C
C. Revaluation to the old partners if B>(A+C) and D=C
D. Neither bonus nor revaluation if B=A-CD>C
E. None of the Above
5. Statement 1: Assuming the there was no profit-sharing scheme agreed, partnership

profit must be allocated to the partners on the basis of start-up capital of the
partners.
Statement 2: If the agreement specifies only how profits are shared but silent as to
division of losses, the losses are to be divided on the ratio of capital contribution.
A. True, True C. False, True
B. True, False D. False, False
6. Two individuals who were previously sole proprietors formed a partnership.
Property other than cash which is part of the initial investment in the partnership
would be recorded for financial accounting purposes at the
A. Proprietors book value or the fair value of the property at the date of the
investment, whoever is higher.
B. Proprietors book value or the fair value of the property at the date of the
investment, whoever is lower.
C. Proprietors book value of the property at the date of the investment.
D. Fair value of the property at the date of investment.
E. None of the Above
7. Which of the following will not result to the dissolution of a partnership?

A. Insolvency of the partnership.
B. Admission of a new partner in an existing partnership.
C. Assignment of an existing partners interest to a third person.
D. Retirement of a partner.
E. None of the Above.
8. If the partners have not drawn up any agreement, then they must share profits
and losses
A. equally
B. by any means that will save taxes.
C. by any appropriate ratio.
D. according to capital contributions
E. None of the Above.
9. If the total contributed capital exceeds the agreed capital with the new partners
investment is the same as his capital credit, then the admission of the new partner
involved a
A. Bonus to new partner C. Negative Asset Revaluation
B. Bonus to old partner D. Positive Asset Revaluation
10. A partner’s interest includes

A. Capital Balance C. A and B
B. Partners loan to the partnership D. None of the choices.
11. In the liquidation transaction, the remaining cash is distributed to the partners. The
partners share in the cash is according to their
A. Profit and Loss Ratio C. Capital Balances
B. Withdrawals D. Cash Balance
12. In a partnership liquidation, a loss from sale of non-cash assets is allocated to the
A. partners with the lowest capital balance.
B. partnership liabilities.
C. partners based on their capital balances.
D. partners based on the profit and loss sharing ratio
II. Problems. Write the answer on the space provided.
On June 01, 2019, Rimuru and Veldora decided to form the Tempest Partnership, with Rimuru transferring
its net assets excluding cash and Veldora contributing cash in an amount equal to three-fourth of the
investment of Rimuru after adjustments agreed by the parties. The parties also agreed to divide profits
and losses equally. The statement of financial position of Rimuru is as follows:
Cash 400,000 Accounts Payable 600,000

Accounts Receivable 500,000 Notes Payable 400,000
Inventory 1,000,000 Rimuru, Capital 1,140,000
Store Equipment 120,000
Office Equipment 50,000
Total Assets 2,140,000 Total Liabilities and Equity 2,140,000
Data for adjustments:

• Provision for uncollectible accounts equal to 10% of the AR is to be established.
• 20% of the inventories is worthless
• The fair value of the fixed assets on the date of formation is 80% of the carrying value.
• Accrued expenses of ₱15,000 are to be recorded.
13. How much is the investment of Veldora?

14. How much is the total assets immediately after the formation?
Harry, Hermione and Ron are partners in Ollivanders Partnership. They have the following beginning
balances: Harry- ₱270,000; Hermione- ₱210,000; and Ron- ₱280,000 They agreed to receive weekly
salaries of ₱800, ₱925, and ₱775 respectively. 10% interest on average capital shall be allowed to each
partner. There will be bonus of 4 ¼% on net income (before bonus) that is to be given to Harry. Residual
(remaining) income equal to 20% of which Ron is to receive 40% and the balance will be equally divided
to Harry and Hermione.
Harry had additional investment of ₱62,000 on June 30 and withdrawal of ₱12,000 on December 01.
Hermione withdrew amounting to ₱24,000 on July 31 while Ron invested additional ₱48,000 on August
01.
15. Compute the required Net Income that would comply with the conditions given.
(Round off your answer to 2 decimal places)
16. How much is the share of Harry in the net income?
Shanne and Carl are partners with P/L ratio of 75:25 and capital balances of ₱35,000 and ₱17,500
respectively. Norie is to be admitted into the partnership by purchasing a 20% interest in the capital,
profits and losses for ₱21,000.
17. How much is the capital balance of Carl after admission?

Guy and Chloe are partners with capital balances of ₱980,000 and ₱525,000 respectively. They decided to
admit Velzado into the partnership by investing sufficient cash in order to have 25% interest. Guy and
Chloe share profits 3:1 respectively. After the admission of Velzado, the capital balance of Chloe is
₱589,750.
18. How much is the investment of Velzado?
After a long dispute, Aang, Katara and Toph decided to liquidate their partnership. Their total interest as
of January 02, 2019 and their P&L ratio are: Aang (25%)- ₱375,000; Katara (40%)- ₱450,000; and Toph
(35%)- ₱280,000. Partnership total assets on this date include ₱125,000 cash and a receivable from Aang
amounting ₱25,000. Total liabilities to outside creditors are ₱320,000 and the partnership still owes Toph
an amount of ₱20,000. At the end of the liquidation, Katara received ₱400,000.
19. How much is the proceeds on the sale of non-cash assets?

20. How much is the amount received by Toph in the liquidation?

Week 6 Fundamentals of Partnership Accounting

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Week 6 Fundamentals of Partnership Accounting

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FUNDAMENTALS OF PARTNERSHIP

Partnership can be formed by (at least):

To Close the Books

Allison Klaus Total

Assumption 2: New Set of Books.

Methods of Distributing Profits and Losses Based on Partner’s Agreement

Case 1- Profit is divided equally

Case 2- Profit is divided 1/3 and 2/3 to Andrei and Joan

Case 3- Profit is divided in the ratio of 2:8 to Andrei and Joan

Case 4- Profit is divided 35% and 65% to Andrei and Joan

Case 5- Profit is allocated based on the beginning capital ratio

Case 6- Profit is allocated based on the ending capital ratio

Andrei Joan Total

Andrei Joan Total

Andrei Joan Total

2. If bonus is based on profit after bonus but before tax;

3. If bonus is based on profit before bonus but after tax;

4. If bonus is based on profit after bonus and tax;

1. Admission of a New Partner by Purchase- the admission of a new partner by purchase is

Luffy, Capital 41,250

2. Admission of a New Partner by Investment- is a transaction between the original

Step 2: Fill the given data in the table.

Step 3: Compare AC and CC.

Step 4: Determine if there is bonus

Step 5: Complete the table

Step 1: Make a table.

Step 2: Fill the given data in the table.

Step 3: Compare AC and CC.

Step 4: Determine if there is bonus

Sora, Capital 18,000

Step 1: Make a table.

Step 2: Fill the given data in the table.

Step 3: Compare AC and CC.

Step 5: Complete the table

Step 1: Make a table.

Step 2: Fill the given data in the table.

Step 4: Determine if there is bonus

Step 5: Complete the table

Step 1: Make a table.

Step 3: Compare AC and CC.

Step 4: Determine if there is bonus

Step 5: Complete the table

Dissolution VS Termination VS Liquidation

Reasons of Partnership Liquidation

• Accomplishment of the purpose for which the partnership was organized.

Accounting Problems in Partnership Liquidation

Types of Partnership Liquidation

Cash 8,000 Liabilities 44,800

Realization of assets and distribution of loss on realization

Payment of Liquidation Expenses

Step 1: Make a table.

Step 2: Compute for the capital interest of partners.

Step 3: Compute for the Loss/Gain on Realization of Assets.

Step 5: Check if there are any capital deficiency.

Capital Deficiency is eliminated by:

In this case, no partner is capital deficient.

Step 6: Complete the table

3. Arrange the hierarchy of valuation in partnership.

5. Statement 1: Assuming the there was no profit-sharing scheme agreed, partnership

7. Which of the following will not result to the dissolution of a partnership?

10. A partner’s interest includes

Cash 400,000 Accounts Payable 600,000

Data for adjustments: