Numbers 1 and 2 (Partnership Formation)

A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment
with assessed value of P100,000 with historical cost of P800,000 and accumulated depreciation
of P600,000. 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 P1,200,000 and fair value of
P1,500,000. The land and building are subject to a mortgage payable amounting to P300,000 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. What is the total agreed capitalization of the ABC Partnership?

A. 1,500,000
B. 2,000,000
C. 2,500,000
D. 3,000,000

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

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A. 500,000

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B. 600,000

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C. 700,000
D. 800,000 rs e
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Solution:
Number 1 Answer B
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Fair Market Value of Land and Building contributed by B 1,500,000

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Less: Mortgage Payable to be assumed by ABC Partnership ( 300,000)

Capital Credit of B in ABC Partnership 1,200,000
Divided by B’s Capital Interest Ratio /60%
Total Agreed Capitalization of ABC Partnership 2,000,000
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Fair Market Value of Land and Building contributed by B 1,500,000

Less: Mortgage Payable to be assumed by ABC Partnership ( 300,000)
Capital Credit of B in ABC Partnership 1,200,000
Capital Credit of A in ABC Partnership (Proceeds from sale of equipment) 300,000
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Number 2 Answer A
Total Agreed Capitalization of ABC Partnership 2,000,000
Less: Total Capital Credit of A and B (P300,000 + P1,200,000) 1,500,000
Cash to be contributed by C in ABC Partnership 500,000
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Numbers 3 and 4 (Partnership Operation – Capital Account Transactions)

On January 1, 2018, A, B and C formed ABC Partnership with total agreed capitalization of
P1,000,000. The capital interest ratio of the ABC Partnership is 5:1:4 while the profit or loss
ratio is 3:2:5, respectively for A, B and C.

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 During 2018, A and B made additional investments of P200,000 and P500,000, respectively. At
the end of 2018, B and C made drawings of P300,000 and P100,000, respectively. On December
31, 2018, the capital balance of B is reported at P200,000.

3. What is the net income or net loss of ABC Partnership for the year ended December 31,
2018?
A. 500,000 loss
B. 1,000,000 loss
C. 800,000 income
D. 1,200,000 income

4. What is the capital balance of C on December 31, 2018?

A. 150,000
B. 50,000
C. 200,000

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D. 250,000

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Solution:

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Number 3 Answer A

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January 1, 2018 B’s Capital Balance (P1,000,000 x 10%) 100,000
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Add: B’s additional investment during 2018 500,000
Less: B’s drawings at the end of 2018 (300,000)
Less: B’s capital balance on December 31, 2018 (200,000)
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B’s Share in Net Loss for the year ended December 31, 2018 (100,000)
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Divided by B’s interest in profit or loss /20%

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Net loss of ABC Partnership for the year ended December 31, 2018 (500,000)

Number 4 Answer B
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January 1, 2018 C’s Capital Balance (P1,000,000 x 40%) 400,000

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Less: C’s Share in Net Loss during 2018 (P500,000 x 50%) (250,000)
Less: C’s drawings at the end of 2018 (100,000)
December 31, 2018 Capital Balance of C 50,000
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Numbers 5, 6, and 7 (Partnership Operation – Distribution of profit or loss)

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On January 1, 2018, A, B and C formed ABC Partnership with original capital contribution of
P300,000, P500,000 and P200,000. A is appointed as managing partner.

During 2018, A, B and C made additional investments of P500,000, P200,000 and P300,000,
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respectively. At the end of 2018, A, B and C made drawings of P200,000, P100,000 and
P400,000, respectively. At the end of 2018, the capital balance of C is reported at P320,000. The
profit or loss agreement of the partners is as follows:

 10% interest on original capital contribution of the partners.

 Quarterly salary of P40,000 and P10,000 for A and B, respectively.

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  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.

5. 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

6. What is A’s share in partnership profit for 2018?

A. 190,000
B. 340,000
C. 540,000
D. 200,000

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

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A. 200,000

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B. 290,000
C. 50,000

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D. 90,000
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Number 5 Answer C
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December 31, 2018 C’s Capital Balance 320,000

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Add: C’s drawings at the end of 2018 400,000

Less: C’s additional investment during 2018 (300,000)
Less: C’s capital balance on January 1, 2018 (200,000)
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C’s share in partnership profit for the year ended December 31, 2018 220,000
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C’s share in profit for the year 2018 220,000

Less: Interest on original capital contribution of C (200,000 x 10%) ( 20,000)
C’s share in the remaining profit after interest, salary and bonus 200,000
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Multiply by number of partners x 3

Remaining profit after interest, salary and bonus 600,000
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Divided by 80% / 80%

Net profit after salary and interest but before bonus to managing partner 750,000
Add: Total interest and salary (100,000 + 200,000) 300,000
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Partnership profit for the year ended December 31, 2018 1,050,000

Number 6 Answer C
Interest on capital (10% x 300,000) 30,000
Salary (40,000 x 4) 160,000
Bonus to A 150,000

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 Equal share in remaining profit (600,000 / 3) 200,000
Total share of A in partnership profit 540,000

Partnership profit for the year ended December 31, 2018 1,050,000
Less: Total interest and salary (100,000 + 200,000) (300,000)
Net profit after salary and interest but before bonus to managing partner 750,000
Multiply by Bonus percentage x 20%
Bonus to A as managing partner 150,000

Number 7 Answer B
Interest on capital (10% x 500,000) 50,000
Salary (10,000 x 4) 40,000
Equal share in remaining profit 200,000
Total share of B in partnership profit 290,000

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