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CHAPTER 1: PARTNERSHIP

Part 1: Theory of Accounts

1. Which of the following statements concerning the formation of partnership

business is correct?
a. Philippine Financial Reporting Standards allows recognition of goodwill
arising from the formation of partnership.
b. The juridical personality of the partnership arises from the issuance of
certification of registration.
c. The parties may become partners only upon contribution of money or
property but not of industry or service.
d. The capital to be credited to each partner upon formation may not be the
amount actually contributed by each partner.
2. Under the generally accepted accounting principles in the Philippines, what is
the acceptable reason when the amount credited to a partner is greater than the
amount actually contributed by such partner during partnership formation?
a. Recognition of goodwill by virtue of special skills or reputation of said
partner.
b. Receipt or transfer of capital from other partner by virtue of partner’s
agreement resulting to bonus to the said partner.
c. Recognition of impairment loss on the property contributed by said
partner.
d. When there is bonus given by said partner to the other partners.
3. He refers to a partner who contributed not only money and property but also
industry to the newly formed partnership.
a. Industrial partner
b. Nominal partner
c. Capitalist-industrial partner
d. Capitalist partner
4. It refers to a type of partnership wherein all partners are liable to the creditors’
pro-rata up to the extent of personal or separate assets after the partnership’s
assets are exhausted.
a. General partnership
b. Partnership by estoppel
c. Limited partnership
d. Particular partnership
5. Which of the following transactions shall not affect the capital balance of a
partner?
a. Share of a partner in the partnership’s net loss.
b. Receipt of bonus by a partner from another partner based on the
agreement.
c. Advances made by the partnership to a partner.
d. Additional investment by a partner to the partnership.
6. In the absence of agreement as to distribution of profit, how shall the
partnership profit be distributed to the partners?
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a. The industrial partner shall receive a share equivalent to the least share
of a capitalist partner while the capitalist partners shall share based on
capital contribution ratio.
b. The industrial partner shall receive a just and equitable share and the
remainder shall be distributed to the capitalist partners on the basis of
capital contribution ratio.
c. The profit shall be distributed on the basis of loss contribution ratio
which may have been agreed upon by the partners.
d. The profit shall be distributed equally to all partners including the
industrial partner.
7. In the absence of agreement as to distribution of loss, how shall the partnership
loss is distributed to the partners?
a. The loss shall be distributed equally to all partners including the
industrial partner.
b. The industrial partner shall be exempted from partnership loss while the
capitalist partners shall share equally.
c. The industrial partner shall be exempted from partnership loss while the
capitalist partners shall be distributed on the basis of capital
contribution ratio.
d. The industrial partner shall be exempted from partnership loss while the
capitalist partners shall be distributed in accordance with profit
agreement ratio.
8. Which of the following will decrease the capital balance of a partner?
a. Share in partnership profit
b. Receipt of share in revaluation surplus from a partnership property,
plant and equipment
c. Drawing made by a partner
d. Advances made by a partner to the partnership
9. Which of the following statements pertains to partnership dissolution?
a. It refers to the process of converting the noncash 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.
10.Which of the following statement 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 assets 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.
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11.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 a partner
12.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.
13.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 partner
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
14. In the liquidation of general partnership, which of the following credits shall be
paid first?
a. Those owing to third persons
b. Those owing to partners other than capital and profits
c. Those owing to partners for their capital contribution
d. Those owing to partners for their share in profits
15.In the liquidation of limited partnership, which of the following credits shall be
paid last?
a. Those owing to third persons
b. Those owing to limited partners
c. Those owing to general partners for their share in profits
d. Those owing partners for their capital contribution
16.What is the nature of liability of general partners as to partnership debts or
obligation?
a. They are liable equally up to the extent of their separate assets after the
partnership assets are exhausted.
b. They are liable pro-rata up to the extent of their separate assets after the
partnership assets are exhausted.
c. They are liable pro-rata up to the extent of their capital contribution only.
d. They are liable solidarily up to the extent of their separate assets after the
partnership assets are exhausted.
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17.What is the nature of liability of limited partners as to limited partnership debts

or obligations?
a. They are liable equally up to the extent of their separate assets after the
partnership assets are exhausted.
b. They are liable pro-rata up to the extent of their separate assets after the
partnership are exhausted.
c. They are liable pro-rata up to the extent of their capital contribution only.
d. They are liable equally up to the extent of their capital contribution only.

Part II. Problem Solving

1. A, B and C decided to form ABC Partnership. It was agreed that A will

contribute equipment with assessed value of P 100,000 with historical cost of P
800,000 and accumulated depreciation of P 600,000. A day after the
partnership formation, the equipment was sold for P 300,000.

B will contribute a land and building with carrying amount of P 1,200,000 and
fair value of P 1,500,000. The land and building are subject to a mortgage
payable amounting to P 300,000 to be assumed by the partnership. The
partners agreed that B will have 60% capital interest in the partnership. The
partners also agreed that C will contribute sufficient cash to the partnership.

1.1. What is the total agreed capitalization of ABC Partnership?

a. 1,500,000 b. 2,000,000 c. 2,500,000 d. 3,000,000

1.2. What is the cash to be contributed by C in the ABC Partnership?

a. 500,000 b. 600,000 c. 700,000 d. 800,000

2. On January 1, 2020, Regina, Jessica and Nataly formed a partnership with

profit or loss sharing agreement of 2:3:5.

Regina contributed a land with assessed value from city assessor in the amount
of P 1,000,000. The land is subject to a real estate mortgage which is annotated
to the title of the land in the amount of P 800,000 and will be assumed by the
partnership. The appraised value of the land is P 2,400,000. Jessica contributed
a building with a cost of P 2,000,000 and accumulated depreciation of P
1,500,000. The fair value of the building is P 800,000. Nataly contributed
investment in trading securities with historical cost of P 6,000,000. The trading
securities have quoted price in active market of P 3,000,000.

The partners decided to bring their capital balances in accordance with their
profit or loss sharing agreement. The total agreed capitalization of the new
partnership is P 10,000,000. Which of the following statement is correct?
a. The agreed capital of Nataly is P 500,000.
b. Regina should contribute additional capital in the amount of P
1,800,000.
c. Jessica should contribute additional capital in the amount of P
2,200,000.
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d. Nataly is entitled to withdraw in the amount of P 1,000,000.

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

partnership to operate supermarket. Lean and May both owned a grocery
business with the Statements of Financial Position as of December 31, 2018:
LEN MAY
Cash P 10 M P 20M
Accounts receivable 20M 30M
Inventories 70M 40M
Property, plant and equipment 50M 10M
Accounts payable 40M 20M
Notes payable 30M 50M
Capital 80M 30M
The following additional notes are provided:
 Len and May will contribute all its assets and liabilities to the newly formed
partnership.
 The parties agree to provide 10% and 20% allowance for bad debts to the
accounts receivable of Len and May, respectively.
 The inventories of Len and May are reported at historical cost and have net
realizable value of P 60M and P 45M, respectively.
 The PPE of Len and May have not been depreciated and should be
depreciated by 40% and 30%, respectively.
 The interest payable on both notes payable was unrecorded and unpaid
since the date of contract. Len’s note payable is dated April 1, 2018 while
May’s note payable is dated June 30, 2018.
 Nancy shall have 20% interest in the partnership upon contribution of
sufficient cash.
What is the amount of cash to be contributed by Nancy on January 1, 2019?
a. 16,375,000 b. 17,625,000 c. 15,825,000 d. 18,475,000

4. On January 1, 2018, A, B and C formed ABC Partnership with original capital

contribution of P 300,000, P 500,000 and P 200,000. A is appointed as
managing partner.

During 2018, A, B and C made additional investments of P 500,000, P 200,000

and P 300,000, respectively. At the end of 2018, A, B and C made drawings of P
200,000, P 100,000 and P 400,000, respectively. At the end of 2018, the capital
balance of C is reported at P 320,000. The profit or loss agreement of the
partners is as follows:
 10% interest on original capital contribution of the partners.
 Quarterly salary of P 40,000 and P 10,000 for A and B, respectively.
 Bonus to A equivalent to 20% of Net Income after interest and salary to
all partners.
 Remainder is to be distributed equally among the partners.

4.1. What is the partnership profit for the year ended December 31, 2018?
a. 900,000 b. 1,020,000 c. 1,050,000 d. 960,000
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4.2. What is A’s share in partnership profit for 2018?

a. 190,000 b. 340,000 c. 540,000 d. 200,000

4.3. What is B’s share in partnership profit for 2018?

a. 200,000 b. 290,000 c. 50,000 d. 90,000

5. On January 1, 2018, K and S formed KS Partnership and the articles of co-

partnership provides that profit or loss shall be distributed accordingly:
 10% interest on average capital balance
 P 50,000 and P 100,000 quarterly salary for K and S, respectively
 The remainder shall be distributed in the ratio of 3:2 for K and S,
respectively
The following transactions regarding the capital balances of the partners for
year 2018 are provided:
K, capital S, capital
January 1, 2018 investment P 1,000,000 P 500,000
March 31, 2018 investment 100,000
July 1, 2018 withdrawal (200,000)
September 30, 2018 withdrawal (200,000)
October 1, 2018 investment 700,000
The chief account of the partnership reported net income of P 1,000,000 for the
year 2018. What is the capital balance of K on December 31, 2018?
a. 1,951,500 b. 1,451,500 c. 2,151,500 d. 1,251,500

6. On July 1, 2018, D and J formed DJ Partnership with initial investment of P 1M

and P 2M, respectively. D is appointed as the managing partner.

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

accordingly:
 30% interest on original capital contribution ratio
 Monthly salary of P 20,000 and P 10,000 respectively for D and J
 D shall be entitled to bonus equivalent to 20% of net income after
interest, salary and bonus
 The remainder shall be distributed in ratio of 3:2 for D and J,
respectively.
 For the year ended December 31, 2018, the partnership reported net
income of P 750,000.

6.1. What is the share in net income of D?

a. 400,000 b. 250,000 c. 350,000 d. 500,000

6.2. Using the same data, what is the share in net income of J assuming the
bonus is equivalent to 20% of net income after interest and salary but
before bonus for the year ended December 31, 2018?
a. 351,600 b. 398,400 c. 350,000 d. 500,000

7. Partners Samson and Delilah have profit and loss agreement with the following
provisions: salaries of P 90,000 and P 135,000 for Samson and Delilah,
respectively; a bonus to Samson of 10% of net income after salaries; and
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interest of 10% on average capital balances of P 60,000 and P 105,000,

respectively. One-third of any remaining profits will be allocated to Samson and
the balance to Delilah.

If the partnership had net income of P 66,000, how much should be allocated to
Partner Samson, 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?
a. 39,600 b. 37,500 c. 36,000 d. 26,400

8. On December 31, 2018, the Statement of Financial Position of ABC Partnership

provided the following data with profit or loss ratio of 1:6:3:
Current assets 1,000,00 Total liabilities 600,000
Noncurrent assets 0 A, capital 900,000
2,000,00 B, capital 800,000
0 C, capital 700,000
On January 1, 2019, D is admitted to the partnership by purchasing 40% of the
capital interest of B at a price of P 500,000. What is the capital balance of B
after the admission of D on January 1, 2019?
a. 540,000 b. 480,000 c. 420,000 d. 300,000

9. On December 31, 2018, the Statement of Financial Position of ABC Partnership

provided the following data with profit or loss ratio of 1:6:3:
Current assets 1,300,00 Total liabilities 300,000
Noncurrent assets 0 A, capital 1,400,000
2,000,00 B, capital 700,000
0 C, capital 900,000
On January 1, 2019, D is admitted to the partnership by investing P 1,000,000
to the partnership for 20% capital interest. If all the assets of the existing
partnership are properly valued, what is the capital balance of C after the
admission of D?
a. 960,000 b. 900,000 c. 840,000 d. 1,200,000

10. On December 31, 2018, the Statement of Financial Position of ABC Partnership
provided the following data with profit or loss ratio of 5:1:4:
Current assets 1,500,00 Total liabilities 500,000
Noncurrent assets 0 A, capital 1,100,000
2,000,00 B, capital 1,200,000
0 C, capital 700,000
On January 1, 2019, D is admitted to the partnership by investing P 500,000 to
the partnership for 10% capital interest. The total agreed capitalization of the
new partnership is P 3,000,000.

10.1. What is the capital balance of D after his admission to the partnership?
a. 500,000 b. 300,000 c. 350,000 d. 400,000

10.2. What is the capital balance of C after the admission of D to the

partnership?
a. 580,000 b. 820,000 c. 500,000 d. 780,000
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11. On December 31, 2018, ABC Partnership’s Statement of Financial Position

shows that A, B and C have capital balances of P 500,000, P 300,000 and P
200,000 with profit or loss ratio of 1:3:6. On January 1, 2019, C retired from
the partnership and received P 350,000. At the time of C’s retirement, an asset
of the partnership is undervalued. What is the capital balance of A after the
retirement of C?
a. 462,500 b. 537,500 c. 562,500 d. 525,000

12. On December 31, 2018, the unadjusted Statement of Financial Position of UFC
Partnership shows the following data with profit or loss sharing agreement of
2:3:5:
Total assets 100,000,00 Total liabilities 40,000,000
0 U, capital 10,000,000
F, capital 20,000,000
C, capital 30,000,000
On December 31, 2018, U decided to retire from the partnership. However,
before the distribution of cash to U, the following errors were discovered during
the pre-retirement audit:
 During 2018, the property, plant and equipment have not been subject
to revaluation surplus by P 15,000,000.
 The 2018 net income is overstated by P 5,000,000.
After adjustment, U received retirement pay of P 15,000,000 for his capital
interest. What is the capital balance of F after the retirement of U?
a. 23,000,000 b. 21,000,000 c. 18,875,000 d. 21,875,000

13. S, A and T are partners with capital balances of P 784,000, P 2,730,000 and P
1,190,000, respectively, sharing profits and losses in the ratio of 3:2;1. D 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 P 735,000 for
bonus upon his admission? How much cash should D contribute?
a. 1,323,000 b. 2,100,000 c. 1,575,000 d. 588,000

14. Juliet and Kilo have capital balances of P 200,000 and P 220,000, respectively
before admission of Lima. Their profit or loss agreement was 35:65. Lima was to
be admitted for 40% interest in the partnership and 20% in the profits and
losses by contributing a used machine which had a cost of P 205,000 and an
appraised value of P 180,000. After admission of Lima, Juliet and Kilo agreed to
share profits and losses equally. At the end of the year, the new partnership
generated net income of P 130,000.
14.1. How much is the capital balance of Kilo after admission of Lima?
a. 174,500 b. 259,000 c. 181,000 d. 240,000

14.2. How much is the capital balance of Juliet at the end of the year?
a. 231,000 b. 221,000 c. 224,500 d. 247,000

14.3. Assuming there is an implied undervalued or overvaluation of an asset,

how much is the undervaluation or (overvaluation) of the asset?
a. 300,000 b. (150,000) c. (300,000) d. 150,000
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14.4. Assuming there is an implied undervaluation or overvaluation of an

asset, how much is the capital balance of Kilo at the end of the year?
a. 467,000 b. 77,000 c. 369,500 d. 174,500

15. D, E and F are partners in DEF Partnership with profit or loss sharing ratio of
6:1:3. Due to disagreement, the partners decided to liquidate their business
with pre-liquidation statement of financial position presented below:
Current assets 3,000,000 Total liabilities 10,000,000
Noncurrent assets 17,000,000 D, capital 1,000,000
E, capital 4,000,000
F, capital 5,000,000
The following additional notes are provided:
 All partners are legally declared to be personally insolvent.
 All noncash assets are sold during the liquidation process.
 Liquidation expenses amounting to P 2,000,000 were paid.
 E receives a total of P 2,500,000 at the end of liquidation.

15.1. What is the amount received by F at the end of liquidation?

a. 500,000 b. 2,500,000 c. 0 d. 3,500,000

15.2. What is the net proceeds from the sale of all noncash assets?
a. 14,000,000 b. 10,000,000 c. 12,000,000 d. 8,000,000

16. On December 31, 2018, the Statement of Financial Position of ABC Partnership
with profit or loss ratio of 5:3:2 of respective partners A, B and C showed the
following information:
Current assets 1,600,00 Total liabilities 2,000,000
Noncurrent assets 0 A, capital 100,000
1,400,00 B, capital 500,000
0 C, capital 400,000
On January 1, 2019, the partners decided to liquidate the partnership in
installment. All partners are legally declared to be personally insolvent. As of
January 31, 2019, the following transactions occurred:
 Noncash assets with a carrying amount of P 1,000,000 were sold at a
gain of P 100,000.
 Liquidation expenses for the month of January amounting to P 50,000
were paid.
 It is estimated that liquidation expenses amounting to P 150,000 will be
incurred for the month of February, 2019.
 20% of the liabilities to third persons were settled.
 Available cash was distributed to the partners.
As of February 28, 2019, the following transactions occurred:
 Remaining noncash assets were sold at a loss of P 100,000.
 The final liquidation expenses for the month of February amounted to P
100,000.
 The remaining liabilities to third persons were settled.
 Remaining cash was finally distributed to the partners.
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16.1. What is the amount of cash received by partner C on January 31, 2019?
a. 260,000 b. 240,000 c. 300,000 d. 350,000

16.2. What is the share of B in the maximum possible loss on January 31,
2019?
a. 275,000 b. 110,000 c. 120,000 d. 165,000

16.3. What is the amount of total cash withheld on January 31, 2019?
a. 550,000 b. 1,600,000 c. 1,750,000 d. 1,700,000

16.4. What is the amount of cash received by partner A on February 28, 2019?
a. 0 b. 25,000 c. 195,000 d. 130,000

17. On January 1, 2017, ACJ Partnership entered into liquidation. The partners’
capital balances on this date were as follows: A (25%) P 2,500,000; C (35%) P
5,400,000; J (40%) P 3,700,000. The partnership has liabilities amounting to P
4,400,000, including a loan from C P 600,000. Cash on hand before the start of
liquidation is P 800,000.

With the information given, answer the following independent situations:

17.1. Noncash assets amounting to P 7,400,000 were sold at book value and
the rest of the noncash assets were sold at a loss of P 4,200,000. How
much cash will be distributed to the partners?
a. 8,000,000 b. 4,400,000 c. 7,400,000 d. 11,800,000

17.2. After exhausting the noncash assets of the partnership, assuming all
partners has personal assets more than their personal liabilities. How
much cash must be invested by the partners to satisfy the claims of the
outside creditors and to pay the amount due to the partner/s?
a. 3,680,000 b. 4,480,000 c. 4,360,000 d. 3,800,000

17.3. If C received P 2,255,000, how much was the loss from the realization of
the noncash assets?
a. 5,255,000 b. 10,700,000 c. 10,525,000 d. 9,945,000

END