Advanced Financial Accounting

Partnership Dissolution

Part I: Theory of Accounts

1. Which of the following statements pertains to partnership dissolution?

a. It refers to the process of converting the non-cash assets of the partnership
and distributing the total cash to the creditors and the remainder to the partners.
b. It refers to the change in the relation of the partners caused by any partner
ceasing to be associated in the carrying on of the partnership.
c. It refers to the extinguishment of the juridical personality of the partnership.
d. It refers to the end of the life of the partnership.

2. 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 partner’s interest to a third person.
d. Retirement of the partner.

3. Which of the following statements is correct when a new partner is admitted to an

existing partnership by purchasing a portion of a capital interest of an existing
partner?
a. It will result to revaluation or impairment of existing asset of the partnership.
b. The partnership will recognize gain or loss in the transfer of capital from one
partner to another partner.
c. The partnership is not dissolved by the admission of a new partner by
purchase.
d. It will just result to credit to capital of newly admitted partner with
corresponding debit to capital of the selling partner.

4. In case of admission of a new partner in an existing partnership through

investment to the partnership, which of the following scenario will result to bonus
to new partner and asset revaluation?
a. The total contributed capital of all partners is equal to the total agreed capital
of new partnership while the agreed capital of new partner is higher than the
amount he has contributed.
b. The total contributed capital of all partners is more than the total agreed capital
of new partnership while the agreed capital of new partner is lower than the
amount he has contributed.
c. The total contributed capital of all partners is less than the total agreed capital
of new partnership while the agreed capital of new partner is higher than the
amount he has contributed.
d. The total contributed capital of all partners is more than the total agreed capital
of new partnership while the total agreed capital of old partners is equal to the
amount they contributed.

5. If a partner who retired from the partnership receives less than the capital
balance before retirement which also resulted to decrease in the capital balance
of remaining partners, which is correct?
a. The retiring partner receives bonus from remaining partners.
b. An impairment loss is recognized before the retirement.
c. Revaluation surplus is recognized before the retirement.
d. The retiring partner gives bonus to the remaining partner.
Part II: Problem Solving

1. On December 31, 2017, the Statement of Financial Position of CAR Partnership

shows the following data with profit or loss sharing ratio of 1:3:6:
Cash P5,000,000 Total Liabilities P10,000,000
Noncash Asset 15,000,000 Carla, Capital 5,000,000
Ara, Capital 3,000,000
Ren, Capital 2,000,000
On January 1, 2018, Ellen is admitted to the new partnership name CARE by
purchasing 20% capital interest of Carla in the amount of P1,200,000. Which of
the following statement is correct?
a. Ellen will have capital credit of P200,000 after the dissolution.
b. The old partnership will recognize gain of P200,000 resulting from Ellen ’s
admission.
c. The new partnership will have total capital of P10,200,000.
d. Carla will have P4,000,000 capital balance after the admission of Ellen.

2. SG, AP and TS are partners with capital balances of P784,000, P2,730,000 and
P1,190,000 respectively, sharing profit and losses in the ratio of 3:2:1. DJ is
admitted as a new partner bringing with him expertise and is to invest cash for a
25% interest in the partnership which includes a credit of P735,000 for bonus
upon his admission.

How much cash should Diaz contribute?

a. P1,323,000
b. P2,100,000
c. P1,575,000
d. P588,000

3. On December 31, 2020, the Statement of Financial Position of DEL Partnership

shows the following data with a profit or loss sharing of 1:3:6:
Cash P5,000,000 Total Liabilities P10,000,000
Noncash Asset 15,000,000 Diane, Capital 5,000,000
Ellen, Capital 3,000,000
Liz, Capital 2,000,000
On January 1, 2021, Ana will be admitted to the partnership named ADEL
Partnership by investing P4,000,000 for 30% capital interest in the new
partnership which has total agreed capitalization of P20,000,000.

What is the new capital balance of Liz upon admission of Ana in ADEL
Partnership?
a. P4,400,000
b. P8,400,000
c. P5,600,000
d. P3,200,000

4. On December 31, 2016, the Statement of Financial Position of OVE Partnership

shows the following data with a profit or loss sharing of 5:3:2:
Cash P10,000,000 Total Liabilities P20,000,000
Noncash Asset 40,000,000 Ona, Capital 10,000,000
Vina, Capital 15,000,000
Ena, Capital 5,000,000
 On January 1, 2017, Lina is admitted to the new partnership named LOVE by
investing P20,000,000 for 50% capital interest in the new partnership.

What is the new capital balance of Ena after Lina ’s admission in LOVE
Partnership?
a. P6,000,000
b. P5,000,000
c. P4,000,000
d. P3,000,000

5. On December 31, 2020, the unadjusted Statement of Financial Position of UFC

Partnership shows the following data with a profit or loss sharing agreement of
2:3:5:
Total Assets P100,000,000 Total Liabilities P40,000,000
Umber, Capital 10,000,000
Fritz, Capital 20,000,000
Carol, Capital 30,000,000
On December 31, 2020, Umber decided to retire from the partnership. However,
before the distribution of cash to Umber, the following data errors were
discovered during the pre-retirement audit:
 During 2020, the property, plant and equipment has not be subject to
revaluation surplus by P15,000,000.
 The 2020 net income is overstated by P5,000,000.

After the adjustment, Umber received retirement pay of P15,000,000 for his
capital interest.
What is the capital balance of Fritz after the retirement of Umber?
a. P23,000,000
b. P21,000,000
c. P18,875,000
d. P21,875,000

6. Before the retirement of Ana from ABC Partnership, Ana, Ben and Cara have
capital balance of P1M, P3M and P6M, respectively. The pre-retirement capital
profit or loss ratio of the partnership is 5:1:4, respectively. If the capital balance of
Bea after Ana’s retirement becomes P3,120,000 and a particular partnership
asset is undervalued.

How much did Ana receive at the time of her retirement?

a. P1,600,000
b. P400,000
c. P880,000
d. P520,000

7. Using the same data in number 6, except the fact that all the assets of the
partnership prior to retirement are properly value, how much did Ana receive at
the time of her retirement?
a. P1,600,000
b. P400,000
c. P880,000
d. P520,000