AFAR 2701

PARTNERSHIPS

DE LEON/ DE LEON/ DE LEON

 PARTNERSHIP

1. FORMATION FORMATION
1. All contributions must recognized at its Fair Value
2. OPERATION 2. If FV is not given, assume that the BV is equal to
3. DISSOLUTION its FV, except Goodwill and Prepaid Expenses
1. ADMISSION
3. Two methods of formation:
1. Net Investment – No given Capital Ratio; FV
2. RETIREMENT
of contribution is equal to its capital credit
4. INCORPORATION 2. Bonus Method- With given Capital Ratio; FV
of contribution can be > < its capital credit
5. LIQUIDATION 4. Liabilities must be assumed by the partnership to
be recognized
 PARTNERSHIP FORMATION
NET INVESTMENT METHOD

Cherry Donna Ellen Total

Assets P1,993,340 P 786,938 P341,402 P3,121,680

Liabilities 972,000 72,000 35,000 1,079,000
Net assets
(capitals) 1,021,340 P 714,938 P306,402 2,042,680
2. JOURNAL ENTRY

CASH P 785,340
ACCOUNTS RECEIVABLE 164,880
INVENTORY 435,000
PPE 1,736,460
ACCOUNTS PAYABLE P 35,000
PPE MORTGAGES 1,044,000
C, CAPITAL 1,021,340
D, CAPITAL 714,938
E, CAPITAL 306,402
3. BONUS METHOD

Cherry: (P2,042,680 * 50%) P1,021,340

Donna (P2,042,680 * 30%) 612,804
Ellen (P2,042,680 * 20%) 408,536
TOTAL P2,042,680
 MULTIPLE CHOICE
1. A
Total agreed capital
Blas’ contribution P1,890,000
Divide by his interest ratio 30%
Implied Total Partnership Interest P6,300,000
Multiply by Aljon’s interest ratio 70%
Aljon’s required contribution and
capital credit P4,410,000
Aljon’s initial contribution (P3,881,000
+ P756,000 – P252,000) 4,385,000
Cash to be invested P 25,000
 MULTIPLE CHOICE

2. C
Anne’s contribution at book value P1,100,160
Net decrease (P7,680+ P19,200+ P13,440- P11,520) ( 28,800)
Anne’s contribution at fair value P1,071,360
Multiply by 5/4
Fair value of Jessie’s contribution P1,339,200
Less Jessie’s cash contribution 748,800
Fair value of equipment invested by Jessie P 590,400
 MULTIPLE CHOICE
3. C
I/R PARTNERS TAC CNA DIFF
60% Jessie 1,446,336 1,339,200 107,136
40% Anne 964,224 1,071,360 (107,136)
100% Total 2,410,560 2,410,560 0
OPERATION

1. GAAP WAY: SALARIES, INTEREST AND BONUS ARE ONLY TOOLS TO ALLOCATE THE NET
INCOME AND ARE NOT SUPPOSED TO BE CONSIDERED AS INCOME (NET INCOME IS
BEFORE S, I, AND B)
BONUS:
1. AFTER NI: (-)
2. BEFORE NI- (X) AS IS

2. NON GAAP WAY: ONE OR MORE OF THE TOOLS WILL BE CONSIDERED AS EXPENSE AND
IS DEDUCTED FROM THE NET INCOME (NET INCOME IS AFTER S, I AND B)
BONUS:
1. AFTER NI: (X) AS IS
2. BEFORE NI: (+)

CAP, END= CAP, BEG+ ADDTL INV- WITHDRAWALS- DRAWINGS-+/- SHARE NI/NL
*AVERAGE CAPITALS AND INTERESTS.

F: P 405,000 * 12/12 P405,000 G: P 270,00* 12/12 P 270,000

135,000 * 11/12 123,750 90,000 * 8/12 60,000

(67,500) * 5/12 (28,125) 45,000* 2/12 7,500

Average capital P500,625 Ave. Cap. P337,500

8% 8%
Interest P 40,050 Interest P 27,000
Bonus to Fred 10% * (P257,400 – P67,050 -
P64,800 - Bonus) P 11,414
PARTNERSHIP OPERATIONS
1. Net Income, P257,400
Fred Glenn TOTAL

Interest* P 40,050 P 27,000 P67,050

Salaries 32,400 32,400 64,800
Bonus 11,414 11,414
Balance 57,068 57,068 114,136
Total P140,932 P116,468 P257,400
2. a
FRED GLENN TOTAL
Initial capital P405,000 P270,000 P 675,000
Addl investment 135,000 135,000 270,000
Capital withdrawal ( 67,500) ( 67,500)
Drawings ( 10,800) ( 10,800) ( 21,600)
Sub-totals P461,700 P394,200 P 855,900
Share in net
income 140,932 116,468 257,400
Capitals,
12/31/19 P602,632 P510,668 P1,113,300
b. FRED GLENN TOTAL
Sub-totals (See 2. a) P 461,700 P394,200 P 855,900
Interests 40,050 27,000 67,050
Salaries 32,400 32,400 64,800
Share in net income@ 68,482 57,068 125,550
Capitals, 12/31/19 P 602,632 P510,668 P1,113,300

@ Revised Net income (P257,400–P67,050–P64,800) P125,550

FRED GLENN TOTAL
Bonus P11,414 11,414
Balance 57,068 57,068 114,136
Totals P68,482 P57,068 P 125,550

BONUS= .10 (125,550-B)= 11,414

 MULTIPLE CHOICE
1. A
ROBERT ROY JAYR TOTAL
BEG. BALANCE 208,000 240,000 224,000 672,000
ADDITIONAL INV 12,800 12,800
WITHDRAWAL (16,000) ( 12,800) (28,800)
DRAWINGS ( 4,500) ( 4,500)
SHARE OF NI 36,700 78,300 39,900 154,900
ENDING BALANCES 257,500 297,800 251,100 806,400

SALARY 35,200 35,200

INTEREST 41,600 48,000 44,800 134,400
BALANCES ( 4,900) ( 4,900) ( 4,900) (14,700)
TOTALS 36,700 78,300 39,900 154,900
2. A MULTIPLE CHOICE 3. B
XANDER AGNES KATE XANDER AGNES KATE Total

BB 88,000 64,000 90,000 Sal 16,000 - 8,000 24,000

W/als (8,000) (8,000) (8,000) Int 8,800 6,400 9,000 24,200

N /Loss (7,300) (6,440) (2,260) Bal (32,100) (12,840) (19,260) (64,200)

Tot ( 7,300) ( 6,440) ( 2,260) (16,000)

Sal 16,000 - 8,000 24,000

EB/BB 72,700 49,560 79,740
Int 7,270 4,956 7,974 20,200
W/als (8,000) (8,000) (8,000)
Bal ( 6,100) (2,440) (3,660) ( 12,200)
N/Inc 17,170 2,516 12,314
Tot 17,170 2,516 12,314 32,000
EB 81,870 44,076 84,054
 PARTNERSHIP DISSOLUTION
1. ADMISSION
1. PURCHASE METHOD- TOTAL PARTNERSHIP CAPITAL WILL NOT CHANGE; PAYMENT GOES DIRECTLY TO
THE PARTNER SELLING ITS INTEREST; A TRANSFER OF CAPITAL INTEREST OF THE OLD PARTNER/S
GOING TO THE NEWLY ADMITTED PARTNER
2. INVESTMENT- CONTRIBUTION GOES INTO THE PARTNERSHIP; PARTNERSHIP CAPITAL WILL INCREASE BY
THE AMOUNT OF THE CONTRIBUTION
1. INVESTMENT- WITHOUT CAPITAL INTEREST; CONTRIBUTION = CAPITAL CREDIT
2. BONUS METHOD- WITH INTEREST RATIO; CONTRIBUTION .> < CAPITAL CREDIT

2. RETITREMENT
1. CAPITAL BALANCE OF THE RETIRING PARTNER MUST BE EQUAL TO ZERO

* CAPITAL BALANCES MUST BE ADJUSTED BY THE REVALUATION INCREASE OR DECREASE AND ALLOCATION
OF THE NET INCOME
 PARTNERSHIP DISSOLUTION
ADMISSION- PURCHASE METHOD

Hugo , Capital (P81,000 x 40%) P 32,400

Isko, Capital (P40,500 x 40%) 16,200
Jose, Capital 48,600
 Partnership Admission Thru Purchase Method
Cash Received by Old Partners

P
HUGO: (P 81,000 * 40%) 32,400 (2,835) P 29,565
ISKO: (P 40,500 * 40%) 16,200 (1,890) 14,310
P 48,600 P (4,725) P 43,875
Investment Method
I/R PARTNERS TAC CNA DIFF
HUGO 67,635 81,000 (13,365)
ISKO 31,590 40,500 (8,910)
40% JOSE 66,150 43,875 22,275
Total 165,375 165,375 0

CASH 43,875
HUGO, CAPITAL 13,365
ISKO, CAPITAL 8,910
JOSE, CAPITAL 66,150
 MULTIPLE CHOICE

1. A
MYRNA: (P 180,000 * 40%) P 72,000 (6,300) P 65,700

NORMA (P 90,000 * 40%) 36,000 (4,200) 31,800

P 108,000 P (10,500) P 97,500

 MULTIPLE CHOICE
2. C
I/R PARTNERS TAC CNA DIFF
MYRNA 150,300 180,000 (29,700)
NORMA 70,200 90,000 (19,800)
40% OLGA 147,000 97,500 49,500
Total 367,500 367,500 0
 MULTIPLE CHOICE
3. D
I/R TAC CNA DIFF
KING 435,200 512,000 (76,800)
QUEEN 204,800 256,000 (51,200)
1/3 JACK 320,000 192,000 128,000
TOTAL 960,000 960,000 0
 MULTIPLE CHOICE

4. A
Implied FV upon admission (P270,000 / 30%) P900,000
BV (P220,000 + P160,000 + P110,000) 490,000
Asset adjustment increase P410,000
Dennis’ capital credit (P900,000 x 30%) P270,000
 MULTIPLE CHOICE

5. A
GEMMO NORMA ELLERY TOTAL
Capital balances at BV P120,000 P 80,000 P200,000
Overstatement of NA (55,200) (36,800) (92,000)
Capital balances at FV P 64,800 P 43,200 P108,000
Admission of Ellery 3,660 2,440 48,900 55,000 (6,100)
Capital balances P 68,460 P45,640 P48,900 P163,000
 RETIREMENT OF PARTNER
2. Kathy Lilia Minda Total
Capitals P105,000 P97,500 P225,000 P427,500
Adjustments -
(90,000 +
P100,000) 57,000 57,000 76,000 190,000

Adj. capital 162,000 154,500 301,000 617,500

Cash paid for
adj. capital (150,500) - - (150,500)

Bonus (11,500) 4,929 6,571

-
Ending Capital P159,429 P307,571 P467,000
-
Income summary P100,000
Non cash assets 90,000
Kathy, Capital 57,000

Lilia, Capital 57,000

Minda, Capital 76,000

Kathy, Capital 162,000

Kathy, loan 22,500
Lilia, Capital 4,929
Minda, Capital 6,571
Cash 173,000
 MULTIPLE CHOICE
1. C
WILMA XELYN YSKA TOTAL
Capitals P168,000 P156,000 P360,000 P684,000
ADJ (P144,000 -
+P160,000) 91,200 121,600 91,200 304,000

Adjusted capital P259,200 277,600 451,200 988,000

Cash paid for
adjusted capital (240,800) 240,800)
Bonus ( 18,400) 10,514 7,886 -
Ending capitals 288,114 459,086 747,200
 MULTIPLE CHOICE
2. D
COCO PIOLO DANIEL TOTAL
Total Interest 280,000 260,000 600,000 1,140,000
Adjustments 72,000 72,000 96,000 240,000
Adj: balances 352,000 332,000 696,000 1,380,000
Cash paid (408,000) ( 408,000)
Bonus 56,000 (24,000) (32,000) -

Ending capital 0 308,000 664,000 972,000

 MULTIPLE CHOICE
3. D
Mora (30%) Rico (30%) Cara (20%) Tano (20%) Total
BB P129,750 P108,750 P 80,000 P 71,500 P 390,000
Cash Payment ( 90,000) (90,000)
Bonus to Cara ( 3,750) ( 3,750) 10,000 ( 2,500) --
EB P126,000 P105,000 -- P 69,000 P300,000
IR 42% 35% 23% 100%
4. B 5. D
MULTIPLE CHOICE
A B C TOTAL
Beginning balances P100,000 P200,000 P300,000 P600,000
Net loss from operations ( 6,000) (6,000) (8,000) (20,000)
Ending balances P 94,000 P194,000 P292,000 P580,000
Payment to C (250,000) (250,000)
Bonus to remaining
partners 21,000 21,000 ( 42,000) -
Balances, 12/31/18 P 115,000 P215,000 -- P330,000
Net income for 1st qtr 3,500 3,500 7,000
Adjusted balances P118,500 P218,500 D P337,000
Admission of D ( 19,400) ( 19,400) 198,800 160,000 38,800
Balances after
admission P 99,100 P199,100 198,800 P497,000
Net income – balance 4,900 4,900 4,200 14,000
Balances, 12/31/19 P104,000 P204,000 P203,000 P511,000
 INCORPORATION

1. THE TOTAL FV OF THE NET ASSETS WILL BE ISSUED CORRESPONDING

SHARES
2. IF THE TOTAL PV OF THE SHARES ISSUED IS LESS THAN THE FV OF THE NET
ASSETS, THE DIFFERENCE IS CREDITED TO APIC
 MULTIPLE CHOICE
1. B

BV of net assets (P70,000 + P60,000) P130,000

Add net credit adj (P10,000 - P6,000 - P2,000) P 2,000
FV of NA contributed to the corporation P132,000

Less total PV of shares issued (P132,000 x 80%) P105,600

Total credit to APIC for the excess contribution P 26,400

 MULTIPLE CHOICE
2. C

Mar’s FV contribution [P60,000 + (P2,000 x 50%) P61,000

Multiply by 80%
Total par value of shares issued to Mar P48,800

Number of shares received to Mar (P48,800 /

P200 pv per share) 244 shares
 MULTIPLE CHOICE
3. C

FV of net assets (P80,000 + P12,000) P 92,000

PV of shares issued (30,000 shares * P2.50) 75,000
Amount credited to APIC P 17,000
 PARTNERSHIP LIQUIDATION
LIQUIDATION METHODS
CUMULATIVE LOSSES
1. LUMP SUM
1. LOSS ON RALIZATION
2. INSTALLMENT
2. THEORETICAL LOSS
3. LIQUIDATION EXPENSE
LIQUIDATION PROCEDURE 4. CASH WITHHELD
1. SONCADOL/ SONCADOG
2. PAYMENT OF LIQUIDATION EXP AND LIABILITIES
3. ELIMINATION OF DEFICIENCIES
4. PAYMENT TO PARTNERS
PARTNERSHIP LIQUIDATION.
LUMP-SUM
Cash OA A/P TONIO, Loan PEDRO ROGER TONYO
BBL 68,750 451,250 130,370 5,000 76,250 200,880 107,500
Soncadol 212,500 (451,250) - (47,750) (71,625) (119,375)

Balance 281,250 130,370 5,000 28,500 129,255 (11,875)

A/P paid (130,370) (130,370) - - - -

Balance 150,880 5,000 28,500 129,255 (11,875)

ROO - (5,000) - - 5,000
Balance 150,880 - 28,500 129,255 (6,875)
AI 5,125 - - 5,125

Balance 156,005 28,500 129,255 (1,750)

APL (700) (1,050) 1,750

Balance 156,005 27,800 128,205

Cash Paid (156,005) (27,800) (128,205)
Cash 212,500
Pedro, capital 47,750
Roger, capital 71,625
Tonio, capital 119,375
OA 451,250
A/P 130,370
Cash 130,370

Tonio, loan 5,000

Tonio, Capital 5,000

Cash 5,125
Tonio, Capital 5,125
 Pedro, Capital 700
.
Roger, Capital 1,050
Tonio, capital 1,750

Pedro, Cap 27,800

Roger, Cap 128,205
Cash 156,005
 MULTIPLE CHOICE
1. A CARLA TOTAL
GELYN MARIA
BBL P 800,000 P960,000 P320,000 P 2,080,000

NI Allocation 281,600 211,200 211,200 704,000

Adj Balance 1,081,600 1,171,200 531,200 2,784,000
Total Loss (198,400) (148,800) (148,800) (496,000)

Cash paid to
partners 883,200 1,022,400 382,400 2,288,000
Cash + NCA = Liab + Equity Cash Proceeds- BV of NCA= Gain or (Loss)
NCA= Liab + Equity – Cash Cash Proceeds= BV of NCA – loss
NCA= 1,440,000 + 2,784,000- 640,000 Cash Proceeds= 3,584,000- 496,000
NCA= 3,584,000 Cash Proceeds= 3,088,000
 MULTIPLE CHOICE

2. D
ARISTON (5) BERNARDO (3) CONRADO (2)
Balances P19,000 P 18,000 P(12,000)
APL P/L ( 7,500) ( 4,500) 12,000
Free Interests P11,500 P 13,500 P --
 MULTIPLE CHOICE
3. A

SAMMY JOSHUA TOTAL

BBL P 280,000 P248,000 P528,000
Sonca-doG 30,000 20,000 50,000
Cash payment P 310,000 P268,000 P578,000
 PARTNERSHIP LIQUIDATION.
1. INSTALLMENT
Cash OA A/P D, Loan C, Cap D, Cap O, Cap

BBL 15,360 271,360 51,200 20,480 49,152 73,728 92,160

Soncadol 81,920 (133,120) (15,360) (15,360) (20,480)
Balances 97,280 138,240 51,200 20,480 33,792 58,368 71,680
Expenses (4,100) (1,230) (1,230) (1,640)
paid
Balances 93,180 138,240 51,200 20,480 32,562 57,138 70,040
Liab Paid (40,000) (40,000)
Balances 53,180 138,240 11,200 20,480 32,562 57,138 70,040
Cash Paid (41,980)
 PARTNERSHIP LIQUIDATION
INSTALLMENT METHOD

Computations for Safe Payments, end of Period 1.

Cherry Dorie Oscar Total

Total interest 32,562 77,618 70,040 180,220
Loss (41,472) (41,472) ( 55,296) (138,240)
Balances ( 8,910) 36,146 14,744 41,980
APL 8,910 ( 3,819) ( 5,091) -
Free interest - 32,327 9,653 41,980
 PARTNERSHIP LIQUIDATION.
INSTALLMENT
Cash OA A/P D, Loan C, Cap D, Cap O, Cap
BBL 15,360 271,360 51,200 20,480 49,152 73,728 92,160
Soncadol 81,920 (133,120) (15,360) (15,360) (20,480)
Balances 97,280 138,240 51,200 20,480 33,792 58,368 71,680
Expenses (4,100) (1,230) (1,230) (1,640)
paid
Balances 93,180 138,240 51,200 20,480 32,562 57,138 70,040
Liab Paid (40,000) (40,000)
Balances 53,180 138,240 11,200 20,480 32,562 57,138 70,040
Cash Paid (41,980) (20,480) - (11,847) (9,653)
Balances 11,200 138,240 11,200 - 32,562 45,291 60,387
 PARTNERSHIP LIQUIDATION.
INSTALLMENT
Cash OA A/P C, Cap D, Cap O, Cap
BBL 11,200 138,240 11,200 32,562 45,291 60,387
Soncadol 51,200 (76,800) (7,680) (7,680) (10,240)
Balances 62,400 61,440 11,200 24,882 37,611 50,147
Expenses (4,800) (1,440) (1,440) (1,920)
paid
Balances 57,600 61,440 11,200 23,442 36,171 48,227
Liab Paid (11,200) (11,200)
Balances 46,400 61,440 - 23,442 36,171 48,227
Cash Paid (40,000)
 PARTNERSHIP LIQUIDATION.
INSTALLMENT

Computations for Safe Payments, end of Period 2.

C D O TOTAL
Total interest 23,442 36,171 48,227 107,840
TPL (61,440 + 6,400) (20,352) (20,352) (27,136) 67,840
Free interest 3,090 15,819 21,091 P40,000
 PARTNERSHIP LIQUIDATION.
INSTALLMENT
Cash OA A/P C, Cap D, Cap O, Cap
BBL 11,200 138,240 11,200 32,562 45,291 60,387
Soncadol 51,200 (76,800) (7,680) (7,680) (10,240)
Balances 62,400 61,440 11,200 24,882 37,661 50,147
Expenses (4,800) (1,440) (1,440) (1,920)
paid
Balances 57,600 61,440 11,200 23,442 36,171 48,227
Liab Paid (11,200) (11,200)
Balances 46,400 61,440 - 23,442 36,171 48,227
Cash Paid (40,000) (3,090) (15,819) (21,091)
Balances 6,400 61,440 - 20,352 20,352 27,136
 PARTNERSHIP LIQUIDATION.
INSTALLMENT

Period 3 Cash NCA C. Cap. D. Cap. O. Cap.

Balance 6,400 61,440 20,352 20,352 27,136
Soncadol 35,840 (61,440) ( 7,680) ( 7,680) (10,240)
Balance 42,240 - 12,672 12,672 16,896
Expenses paid (3,600) (1,080) (1,080) (1,440)
Balance 38,640 11,592 11,592 15,456
Paid to partners (38,640) (11,592) (11,592) (15,456)
- - - -
 CASH DISTRIBUTION PROGRAM
INTERESTS PAYMENTS
C D O C D O
BBL 49,152 94,208 92,160
Divide by 30% 30% 40%
LAA 163,840 314,026 230,400
Priority #1 ( 83,626) ________ 25,088
Balances 163,840 230,400 230,400
Priority #2 (66,560 (66,560) 19,968 26,624
Balances 163,840 163,840 163,840 - 45,056 26,624
Priority #3: All partners will receive cash in the original profit and loss ratio.
 PARTNERSHIP LIQUIDATION.
INSTALLMENT
3. PERIODIC CASH DISTRIBUTION

1. P 41,980 at end of 1P:

C D O TOTAL
Priority #1 P25,088
Payable now ( 25,088) 25,088 25,088
Priority #1 balance P -

Priority #2 P46,592
Payable now 16,892 -- 7,239 9,653 16,892
Priority #2 balance P29,700 -- 32,327 9,653 41,980
 PARTNERSHIP LIQUIDATION.
INSTALLMENT
2. P40,000 at end of 2P:
C D O TOTAL _
Priority #2 balance P29,700
Payable now (29,700) 12,729 16,971 29,700
Priority #2 balance P --

Priority #3 P10,300 3,090 3,090 4,120 10,300

Totals 3,090 15,819 21,091 40,000

3. P38,640 at end of 3P:

Priority #3 P38,640 11,592 11,592 15,456 38,640

 MULTIPLE CHOICE
1. A
P B A

Total interest P306,000 P 618,000 P 274,000

TPL (P1,166,000) ( 349,800) ( 583,000) ( 233,200)

Balances P( 43,800) P 35,000 P 40,800

APL (P43,800) 43,800 ( 31,286) ( 12,514)

Free interests P - P 3,714 P 28,286

 MULTIPLE CHOICE
2. A

P B A

BBL P306,000 P618,000 P274,000

Cum loss (303,000) (505,000) (202,000) (P1,010,000)

Cum cash
paid P 3,000 P113,000 P72,000
 MULTIPLE CHOICE
3. C
Carlo Diego Edgar Total
BBL P128,000 P144,000 P112,000 P384,000

Loss (48,000 + 160,000) ( 104,000) (62,400) ( 41,600) (208,000)

Cash paid to
partners P24,000 P 81,600 P70,400 P176,000
 MULTIPLE CHOICE
4. C
R (30%) S (50%) T (20%) Total
Total interest P402,000 P250,000 P226,000 P878,000
Maximum loss (102,000) (170,000) (68,000) (340,000)
Cash paid P300,000 P80,000 P158,000 P538,000

Cash from sale of NCA: P1,132,000 – P340,000 = P792,000

 MULTIPLE CHOICE
5. C
Loss absorption capabilities
Partner Claudia (P48,000 / 40%) P 120,000
Partner Petra ( 21,600 / 30%) 72,000
Partner Mona ( 34,400 / 20%) 172,000
Partner Hilda ( 16,000 / 10%) 160,000

First Allocation is to Mona (P172,000 –

P160,000) = P12,000 x 20% P 2,400

Only C is correct, the others are all incorrect as would be reflected

in a full cash distribution schedule prepared just before the start of
liquidation.
 MULTIPLE CHOICE
6. B
ASSER JING TONY
Total interest (P 8,000) P28,800 P 9,600
Theo. Loss P22,400 ( 4,480) (11,200) ( 6,720)
Balances (P12,480) P17,600 P 2,880
Loss absorption 12,480 ( 7,800) (4,680)
Balances P - P 9,800 P(1,800)
Further loss absorption ( 1,800) 1,800
Free interest to JING only P 8,000 -