PARTNERSHIP DISSOLUTION - CHANGE IN OWNERSHIP INTEREST

* Partnership dissolution due to changes in ownership interests:

1. Admission of a new partner
2. Retirement/withdrawal of a partner
3. Death of a partner
4. Incorporation of a partnership

1. ADMISSION OF A NEW PARTNER

a. Purchase of all or part of the interest of one or more of the existing partners.
b. Investment of assets in the partnership by the incoming partner.
a. When an incoming partner purchase a portion or all of the interests of one or more of the original partners, the partne
remain unchanged and no cash or other assets flow from the new partner to the partnership. The cash paid by the new
(buyer) is not recorded in the books of the partnership for this is a personal transaction between the selling partner an
new partner (buyer).
Illustration: Assume the following data for the Lanie, Maricar and Nica Partnership on December 31,2016.
Partners Capital P/L Ratio
Lanie ₱ 20,000.00 20%
Maricar 20,000.00 30%
Nica 30,000.00 50%
On this date, Denise is admitted to the partnership.
Case 1. Purchase from one partner. Assume that Denise purchase one-half of the interest of Lanie.
Journal entry:
Lanie,Capital ₱ 10,000.00
Denise,Capital ₱ 10,000.00
#
Revised partners capital and profit and loss ratios:
Partners Capital before Admission Transfer of interest
Lanie ₱ 20,000.00 10,000.00 (1/2 x 20,000.00)
Maricar 20,000.00
Nica 30,000.00
Denise -
Case 2:Purchase from all partners. Assume the following:
a. Denise is admitted into the partnership for a 50% interest in the profit and loss of the partnership
b. The old partners, Lanie, Maricar and Nica are to retain their original capital and profit sharing relatio
(50%) of their own capital accounts to Denise in order to accomplish her admissin as planned.. If Den
and Nica, the entry to record the transaction appear as follows:
Journal entry:
Lanie, Capital ₱ 10,000.00
Maricar, Capital 10,000.00
Nica, Capital 15,000.00
Denise, Capital
#
There is no definite rule as to how the P50,000.00 cash is to be divided among the individual partners. T
 equitable division of cash among the selling partners:
1. determine the amounts of capital balances to be transferred by the existing (selling) partne
2. apportion any excess (or deficiency) in the original partners profit and loss ratio.
Total
Amount of capital trnasferred ₱ 35,000.00
Excess: (50,000.00 - 35,000.00)
divided using P/L ratio 15,000.00
Total cash distributed ₱ 50,000.00
Revised Partners capital and Profit and Loss Ratio:
Partners Capital before admission Transfer of InteCapital after admission
Lanie ₱ 20,000.00 1/2 ( 10,000.00) ₱ 10,000.00
Maricar 20,000.00 1/2 (10,000.00) 10,000.00
Nica 30,000.00 1/2 (15,000.00) 15,000.00
Denise - 35,000.00
Total ₱ 70,000.00 ₱ 70,000.00
* Alternative method: The net assets of the partnership may be revalued when the purchase of interest from all t
the interest acquired. Thus, if Denise buys 50% interest in Lanie, Maricar and Nica Partnership for P50,000.00 an
be revalued, the computation would be:
Implied value of the partnership (P50,000.00 / 50%) ₱ 100,000.00
Book value of the partnership (total capital ) 70,000.00
Undervaluation of identifiable assets ( or Goodwill) ₱ 30,000.00
To record admission of Denise:
Journal entry:
Identifiable asset (or Goodwill) ₱ 30,000.00
Lanie, Capital
Maricar, Capital
Nica, Capital
#
Lanie, Capital ₱ 13,000.00
Maricar, Capital 14,500.00
Nica, Capital 22,500.00
Denise, Capital
Note: Goodwill should not be recorded until all identifiable assets have been adjusted to their fair value
Revised partners Capital and Profit and Loss Ratio:
Partners Capital before admission Capital after adjustment Transfer of interest
Lanie ₱ 20,000.00 ₱ 26,000.00 1/2 ( P13,000.00)
Maricar 20,000.00 ₱ 29,000.00 1/2 ( P14,500.00
Nica 30,000.00 ₱ 45,000.00 1/2 (P22,500.00)
Denise -
total ₱ 70,000.00 ₱ 100,000.00

b. Investment of assets in the partnership by the incoming partner

* New partner invest in the partnership - a new partner may acquire interest in the partnership by investing in the bu
or other assets, thereby increasing its total assets as well as capital. This method of admission is a transaction betw
cases may exists when a new partner invests in a partnership.
Case 1 - The new partner's investment (contributed capital) equals the new partner's proportion of the partnersh
Case 2 - The new partner's investment is more than the new partner's agreed capital. This suggests that the partn
ot that unrecorded goodwill exists.
Case 3 - The new partner's investment is less than the new partner's agreed capital. This suggests that the partner
or that the new partner may be contributing goodwill in addition to the assets invested.
The following steps/procedures may be used in determining how to account for the admission of a new partner.
1. Compute the new partner's proportion of the partnership's book value(agreed capital) as follows:
Agreed Capital = Prior Capital of Old Partners + Investment of New Partner X Perce
2. Compare the new partner's contributed capital with his/her agreed capital to determine the procedu
for his/her admission.
3. Determine the specific admission method. Three different method may be used to account for the ad
a. Revalue net assets
b. Recognize Goodwill
c. Bonus Method
Under the Ravaluation of assets and Goodwill recognition methods, the historical costs bases of the par
of the new partner . Under the Bonus method, net assets remain at their historical costs.

Overview of Accounting for Admission of a New Partner:

Step 2: Compare agreed capital and investment of new partner Step 3: Alternative methods to acco
Case 1: Investment cost = Agreed capital 1. No revaluation, goodwill or bonu
Case 2: Investment cost > Agreed capital 1. Revalue net assets up to fair valu
2. Record unrecognized goodwill an
3. Allocate bonus to old partners
Case 3: Investment cost < Agreed capital 1. Revalue net assets down to fair v
2. Recognize goodwill brought in by
3. Assign bonus to new partner.

Illustration:
Assume that after operations during 2015, Marifel and Samantha Partnership has a book value of P300,00
as follows:
Capital Balance Profi/Loss Ratio
Marifel ₱ 200,000.00 60%
Samantha 100,000.00 40%
Total ₱ 300,000.00 100%
On January 2, 2016, Myra is to invest cash into the partnership. Myra will have a one-fourth interest and
will share the remaining 75% of profits in the ratio of 60:40, resulti ting in Marifel a 45% share of any pr
Case 1: Investment equals proportion of the partnership's book value (agreed capital)
Myra invests P100,000.00. After the invenstment, the difference between the new partner's investment a
Investment in partnership ₱ 100,000.00
New partner's proportionate book value
(agreed capital)
 (P300,000.00 + P100,000.00) x 25% 100,000.00
Difference - 0 -
Journal entry:
Cash ₱ 100,000.00
Myra, Capital ₱ 100,000.00
#
TCC TAC Inc./ (Dec. )
Old partners ₱ 300,000.00 ₱ 300,000.00 -
New partner 100,000.00 100,000.00 -
Total ₱ 400,000.00 ₱ 400,000.00 -
Case 2: New partner's investment more than proportion of the Partnership Book Value (agreed value).
Myra invests P110,000.00 for 1/4 capital interest in the partnership. The difference between the new pa
proportionate book value is computed as follows:
Investment in partnership ₱ 110,000.00
New partner's proportionate book value
(agreed capital)
(P300,000.00 + P110,000.00) x 25% 102,500.00
Difference ₱ 7,500.00
Myra had invested P110,000.00 for an interest with a book value of P102,500.00, thus paying an excess o
Three alternative accounting treatment exists in this case.
1. Revalue assets upward:
a. asset book values are increased to their fair values
b. the old partners' capital accounts are increased for their respective shares of increase in the book va
c. the partnership's total resulting capital reflects the prior capital balances plus the amount of asset re
investment.
2. Record unrecognized goodwill
a. unrecognized goodwill is recorded.
b. the old partners capital accounts are increased for their respective shares of goodwill.
c. the partnership's total resulting capital is now equal the prior capital balances plus the goodwill reco
3. Use Bonus method - this method is used when the partners do not wish to record adjustments in asset
a. the old partners' capital accounts are increased for their respective shares of the bonus paid by the
b. the partnership's total resulting capital equals the prior capital balances plus the new partner's inve
Illustration:
1. Revaluation of Asset Approach:
Assume that Myra paid a P7,500.00 excess over the proportionate book value because the partnership ow
but a recent appraisal indicates the land has a market value of P70,000.00.
a. to record revaluation of land.
Journal entry:
Land ₱ 30,000.00
Marifel, Capital ₱ 18,000.00
Samantha, Capital 12,000.00
#
b. to record investment of Myra.
 Journal entry:
Cash ₱ 110,000.00
Myra, Capital ₱ 110,000.00
#
Computation of total agreed capitalization:
Total capital of old partnership ₱ 300,000.00
Revaluation of land 30,000.00
Myra, investment 110,000.00
Total ₱ 440,000.00
TCC TAC Inc/(Dec.)
Old Partners ₱ 330,000.00 ₱ 330,000.00 -
New Partner 110,000.00 110,000.00 -
Total ₱ 440,000.00 ₱ 440,000.00 -
2. Goodwill recognition.
Computation of Goodwill:
Estimated total resulting capital ( P110,000.00 / 25%) ₱ 440,000.00
Total net assets ( P300,000.00 + P110,000.00) 410,000.00
Goodwill ₱ 30,000.00
TCC TAC Inc./(Dec.)
Old Partners ₱ 300,000.00 ₱ 330,000.00 ₱ 30,000.00
New Partner 110,000.00 110,000.00 -
Total ₱ 410,000.00 ₱ 440,000.00 ₱ 30,000.00
a. to record good will to old partners ( since the basis of computing the total resulting capital is the invest
Journal entry:
Goodwill ₱ 30,000.00
Marifel, Capital ₱ 18,000.00
Samantha, Capital 12,000.00
#
b. to record investment of Myra.
Cash ₱ 110,000.00
Myra, Capital ₱ 110,000.00
#
3. Bonus method
Computation of Bonus:
New partner's investment ₱ 110,000.00
New partner's proportionate book value (agreed capital)
(P300,000.00 + P110,000.00) x 25% 102,500.00
Bonus to old partners ₱ 7,500.00
a. to record admission of Myra.
Journal entry:
Cash ₱ 110,000.00
Marifel, Capital ₱ 4,500.00
Samantha, Capital 3,000.00
 Myra, Capital 102,500.00
#
Case 3: New partner's investment less than proportion of the Partnership Book Value ( agreed capital).
Assume that Myra invests P80,000.00 for a 1/4 capital interest in the partnership
Computation of the difference between the new partner's investment and her proportionate book value
Investment in partnership ₱ 80,000.00
New partner's proportionate book value (agreed capital)
(P300,000.00 + P80,000.00) x 25% 95,000.00
Difference -₱ 15,000.00
The fact that Myra's investment is less than the book value of 1/4 interest in the partnership indicates tha
or that Myra is contributing additional value in the form of expertise or skills she possesses.
1. Revalue assets downward
a. asset book values are decreased to their fair values.
b. the old partners' capital accounts are decreased for their respective shares of the decrease in the value
c. the totla partnership's total resulting capital reflects the old partners' capital balances less the amount
new partner's investment.
2. Recognized goodwill brought in by the new partner.
a. Goodwill brought in by the new partner is recorded and included in the new partner's capital account.
b. the old partners' capital accounts remain unchanged.
c. the partnership's totla resulting capital reflects the old partners' capital balances plus the new goodwill
3. Use Bonus method.
a. the new partner is assigned a bonus from the old partners' capital balances which are decreased for th
b. the partnership's total resulting capital is equal to the old partners capital balances plus the new partn
Illustration:
Assume that the inventory of the partnership which is currently recorded at book value of P140
because some items are obsolete. The partners agree to write -down the inventory to its fair va
1. Revaluation of Asset Approach.
a. to record the write-down of inventory.
Journal entry:
Marifel, Capital ₱ 36,000.00
Samantha, Capital 24,000.00
Inventory ₱ 60,000.00
#
b. to record admission of Myra
Journal entry:
Cash ₱ 80,000.00
Myra, Capital ₱ 80,000.00
#
Computation of total agreed capitalization:
Total capital of old partnership ₱ 300,000.00
Revaluation of Inventory -60,000.00
Myra, investment 80,000.00
Total agreed capitalization ₱ 320,000.00
 2. Goodwill recognition for new partner.
Computation of goodwill:
Total resulting capital (P300,000.00 / 75%) ₱ 400,000.00
Total net assets excluding goodwill
(P300,000.00 + P80,000.00) 380,000.00
Goodwill ₱ 20,000.00
TCC TAC Inc./(Dec)
Old Partners ₱ 300,000.00 ₱ 300,000.00 -
New Partner 80,000.00 100,000.00 ₱ 20,000.00
Total ₱ 380,000.00 ₱ 400,000.00 ₱ 20,000.00
NOTE: Goodwill to Old Partners, use New Partner's investment to estimate goodwill to old partners.
Goodwill to New Partner, use Old Partners total capital to estimate goodwill to new partner.
a. to record investment of Myra.
Journal entry:
Cash ₱ 80,000.00
Goodwill 20,000.00
Myra, Capital ₱ 100,000.00
#
3. Bonus Method
Computation of Bonus:
New partner's proportionate book value
( Agreed Capital =( P300,000.00 + P80,000) x 25% ₱ 95,000.00
New partner's investment 80,000.00
Bonus to new partner ₱ 15,000.00
TCC TAC Inc./(Dec.)
Old Partners ₱ 300,000.00 ₱ 285,000.00 -₱ 15,000.00
New partner 80,000.00 95,000.00 ₱ 15,000.00
Total ₱ 380,000.00 ₱ 380,000.00 -
a. to record admission of Myra.
Journal entry:
Cash ₱ 80,000.00
Marifel, Capital 9,000.00
Samantha, Capital 6,000.00
Myra, Capital ₱ 95,000.00
#
Determining a New Partner's Investment Cost'
1. In some instances, the amount of cash investment the new partner should contribute is to be determined.
Illustration: Assuming the old partners, Marifel and Samantha agree that the assets of the partnership be revalued u
the increase in the value of land held by the partnership. The required cash to be invested by the new partner is co
Total reasulting capital (360,000.00/75%) ₱ 480,000.00
Less: Old partners capital after revaluation of land 360,000.00
Required cash investment by new partner ₱ 120,000.00
2. In some cases, the amount of bonus maybe determined before the determination of the cash investment required fro
Illustration: Assuming that Marifel and Samantha agree togive a bonus to Myra, P15,000.00, for joining the partners
by the new partner is computed as follows:
Prior capital of Old Partners ₱ 300,000.00
Less: Bonus given to New Partner 15,000.00
Capital retained by Old Partners 285,000.00
÷
Capital interest of Old Partners 75%
Total resulting capital ₱ 380,000.00
X
Capital interest of New Partner 25%
Required capital credit of New Partner ₱ 95,000.00
Less: Bonus to New Partner 15,000.00
Required cash investment by New partner ₱ 80,000.00
he original partners, the partnership assets
rship. The cash paid by the new partner
between the selling partner and the

on December 31,2016.

nterest of Lanie.

Capital after Admission New Profit/Loss Ratio

₱ 10,000.00 10%
20,000.00 30%
30,000.00 50%
10,000.00 10%

t and loss of the partnership

apital and profit sharing relationship to each other and are to transfer sufficient amount
her admissin as planned.. If Denise agreed to pay a total of P50,000.00 to Lanie, Maricar

₱ 35,000.00

mong the individual partners. The following procedures are recommended for fair and
d by the existing (selling) partners.
profit and loss ratio.
Lanie Maricar Nica
₱ 10,000.00 ₱ 10,000.00 ₱ 15,000.00

3,000.00 4,500.00 7,500.00

₱ 13,000.00 ₱ 14,500.00 ₱ 22,500.00

ital after admission New Profit/Loss Ratio

10%
15%
25%
50%
100%
e purchase of interest from all the partners is for an amount more than
a Partnership for P50,000.00 and it is agredd that the net assets should

₱ 6,000.00
9,000.00
15,000.00

₱ 50,000.00
been adjusted to their fair value.

Transfer of interest Capital after admission New P/L Ratio

( P13,000.00) ₱ 13,000.00 10%
( P14,500.00 14,500.00 15%
(P22,500.00) 22,500.00 25%
50,000.00 50%
₱ 100,000.00 100%

rtnership by investing in the business. In this case, the partnership receive the cash
admission is a transaction between the partnership and the incoming partner. Three

r's proportion of the partnership's book value (agreed capital)

tal. This suggests that the partnership's prior net assets are undervalued on the books

l. This suggests that the partnership's prior net assets are overvalued on its books
assets invested.
he admission of a new partner.
e(agreed capital) as follows:
stment of New Partner X Percentage of Capital to New Partner
apital to determine the procedures to be followed in accounting

ay be used to account for the admission of a new partner .

historical costs bases of the partnership's net assets are adjusted during the admission
r historical costs.

p 3: Alternative methods to account for admission.

o revaluation, goodwill or bonus
evalue net assets up to fair value and allocate to old partners.
ecord unrecognized goodwill and allocate to old partners
llocate bonus to old partners
evalue net assets down to fair value and allocate to old partners
ecognize goodwill brought in by new partner
ssign bonus to new partner.

ship has a book value of P300,000.00 and profit percentages on January 1, 2016

fi/Loss Ratio

have a one-fourth interest and 25% share of profit. Marifel and Samantha
in Marifel a 45% share of any profit and Samantha having 30%.

n the new partner's investment and her agreed capital is computed as follows:
Value (agreed value).
difference between the new partner's investment and the new partner's

500.00, thus paying an excess of P7,500.00 over the present book value.

shares of increase in the book values of the assets.

nces plus the amount of asset revaluation plus the new partner's

hares of goodwill.
l balances plus the goodwill recognized plus the new partner's investment.
h to record adjustments in asset accounts or recognized goodwill.
shares of the bonus paid by the new partner.
nces plus the new partner's investment.

alue because the partnership owns land with a book value of P40,000.00
tal resulting capital is the investment of the new partner)

TCC TAC Inc./Dec.

Old Partners ₱300,000.00 ### ###
New Partner 110,000.00 ### -7,500.00
Total ₱410,000.00 ### -
lue ( agreed capital).

d her proportionate book value (agreed capital):

t in the partnership indicates that the partnership's net assets is overvalued

ills she possesses.

ares of the decrease in the values of the assets.

apital balances less the amount of the asset revaluation write-downs plus the

new partner's capital account.

balances plus the new goodwill brought in plus the new partner's cash investment.

nces which are decreased for their respective shares of the bonus paid to the new partner.
tal balances plus the new partner's investment.

y recorded at book value of P140,000.00 has a fair market value of only P80,000.00
-down the inventory to its fair value before the admission of new partner.
ate goodwill to old partners.
ate goodwill to new partner.

is to be determined.
of the partnership be revalued up(increased) by P60,000.00 to recognize
vested by the new partner is computed as follows:

he cash investment required from the new partner.

,000.00, for joining the partnership. The required cash to be invested
2. RETIREMENT/WITHDRAWAL OF A PARTNER
When a partner retires or withdraws from the partnership, the partnership is dissolved, but the remaining partners m
the business. The existing partners may buy out the retiring partner, either by making a direct acquisition or by having the p
the retiring partner's interest. If the present partner directly acquire the retiring partner's interest, the only entry on the par
record the transfer of capital from the retiring partner to the remaining partner. If the partnership acquires the interest of t
partnership must pay the retiring partner an amount equal to his interest,more than his interest, or less than his interest.
The interest of the retiring partner is usually measured by his capital balance,increased or decreased by his share in th
1. Profit or loss from partnership operation from the last closing date to the date of his retirement.
2. Changes in the valuation of all assets and liabilities (book values to fair values).
If the net income or loss of prior years were improperly computed, these should likewise be corrected before dete
the retiring partner.
Illustration:
On January 2,2016, the capital balances and profit and loss ratio of Eloisa May, Daisy Rey and Racy Jasmin
Partners Capital Balances Profit/Loss Ratio
Eloisa May ₱ 10,000.00 50%
Daisy Rey 15,000.00 30%
Racy jasmine 20,000.00 20%
On April 30,2016, Eloisa May withdraws from the partnership. The net income of the partnership for the
is P14,000.00. It is agreed that the inventory costing P5,000.00 has a market value of P7,000.00 on April 3
Case 1: Settlement equals withdrawing partner's interest.
Assume that Eloisa May agrees to accept payment equal to her interest.
Journal entry: April 30,2016.
Income summary ₱ 14,000.00
Eloisa May, Capital ₱ 7,000.00
Daisy Rey, Capital 4,200.00
Racy Jasmine, Capital 2,800.00
#
Inventory ₱ 2,000.00
Eloisa May, Capital ₱ 1,000.00
Daisy Rey, Capital 600.00
Racy Jasmine, Capital 400.00
#
Eloisa May, Capital ₱ 18,000.00
Cash ₱ 18,000.00
#
Case 2: Settlement more than withdrawing partner's interest.
When the withdrawing partner is paid an amount more than his interest, three(3) approaches can be used namely:
1. Record the goodwill equal to the excess payment made to the retiring partner. (Partial Goodwill Method)
2. Record the implied goodwill of the partnership computed by dividing the excess payment with the retiring partne
share percentage. (Total Goodwill method)
3.Treat the excess payment as bonus from the remaining partners. This is accomplished by decreasing the remainin
the excess using their profit and loss percentages.'

Using the data in the preceding illustration and assuming that Eloisa May is paid P19,500.00.
 1. Partial Goodwill method
Journal entry:
Goodwill ₱ 1,500.00
Eloisa May, Capital 18,000.00
Cash ₱ 19,500.00
#
2. Total Goodwill method
Journal entry:
Goodwill(P1,500.00/50%) ₱ 3,000.00
Eloisa May, Capital 18,000.00
Daisy Rey, Capital (30% x P3,000.00) ₱ 900.00
Racy Jasmine, Capittal (20% x P3,000.00) 600.00
Cash 19,500.00
#
3. Bonus Method
Journal entry:
Eloisa May, Capital ₱ 18,000.00
Daisy Rey, Capital (3/5x1,500.00) 900.00
Racy Jasmine, Capital (2/5x 1,500.00 600.00
Cash ₱ 19,500.00
#
NOTE: The most satisfactory method to record the excess payment to retiring/withdrawing partner is the Bonus m
if there is no agreement regarding the method to be used, it is advisable to use the Bonus Method becaus
change in ownership but avoid the theoretical problems associated with partnership goodwill . On the oth
agreed to use Goodwill Method and is silent whether the Partial Goodwill Method or the Total Goodwill m
use the Partial Goodwill Method.
Case 3: Settlement less than withdrawing partner's interest.
Often, particularly in successful partnership, withdrawals of partners require payment in excess of a partner's inte
some cases wherein withdrawals require payments for less than the partner's interest. In such cases, an attempt
the difference to specific asset which are overstated.

Using the same data and assuming Eloisa May is paid P17,000.00 for her interest.
Journal entry:
Eloisa May, Capital ₱ 18,000.00
Cash ₱ 17,000.00
Identifiable asset 1,000.00
#
If the causes of the difference are not determinable or assignable to specific assets, then the Bonus Method should
Journal entry:
Eloisa May, Capital ₱ 18,000.00
Cash ₱ 17,000.00
Daisy Rey, Capital (3/5 x 1,000.00) 600.00
Racy Jasmine, Capital (2/5 x 1,000.00) 400.00
 #
3. DEATH OF A PARTNER.
In the event of the death of a partner, the estate of the deceased partner is entitled to received the amount of his
at the date of his death. The deceased partner's capital is adjusted using his profit and loss share percentage for c
from revaluation of assets and from profit on date were closed.

4. INCORPORATION OF A PARTNERSHIP.
When a partnership is converted into a corporation, the corporation takes over the assets and assumes the liabili
exchange for shares of stocks. The stocks received by the partnership are distributed to the partners in settlemen
stockholders of the newly formed corporation.
The accounting procedures in recording the incorporation of the partnership will depend on whether the original
by the corporation or new books will be opened.
a. Partnership Books retained.
Steps to be taken:
1. Revalue the assets and recognized goodwill, if any.
2. Close the partners' capital accounts to the corporate capital accounts.
b. New Books Opened for the Corporation.
Accounting procedures are as follows:
1. In the Books of the Partnership.
a. Revalue the assets ( and any other items agreed on ) in accordance with the agreed transfer values.
b. Record the transfer of assets and liabilities to the corporation and the receipts of capital stocks by the partn
c. Record the distirbution of stocks to the partners in settlement of the balances of their capital accounts.
2. In the Books of the Corporation.
a. Record the acqusition of assets and liabilities from the partnership at their adjusted values.
b. Record the issuance of shares of stocks to other incorporators.

Illustration:
Marjorie and Ynnah Mae, partners who shares profits in an 80% and 20% ratio, organized the MYM Corpo
The MYM Corporation is authorized to issue 10,000 shares of P20.00 par value capital stock, of which 5,5
partners in accordance with their adjusted capital accounts. MYM Corporation also issued 1,000 shares fo
a share. The statement of of financial position of the partnership as of June 30,2016, the date of the incor

Marjorie and Ynnah Mae Partnership

Statement of Financial Position
as of June 30,2016

ASSETS;
Cash ₱ 24,000.00
Account receivable ₱ 56,200.00
Less: Allowance for bad debts 1,200.00 55,000.00
Inventories 51,000.00
Equipment 120,000.00
Less: Accum depreciation 52,000.00 68,000.00
 Total Assets ₱ 198,000.00
LIABILITIES
Account payable ₱ 30,000.00
Note payable 40,000.00
Total liabilities ₱ 70,000.00
PARTNERS' EQUITY
Marjorie, Capital ₱ 95,980.00
Ynnah Mae, Capital 32,020.00 128,000.00
Total Liabilities and Partners' Equity ₱ 198,000.00

The partners agree to make the following adjustments before the incorporation.
1. Increase the allowance for bad debts account to P2,000.00
2. Increase the cost of the inventories to its current market value of P60,000.00
3. Increase the historical cost of the equipment to its reproduction cost (new) of P140,000.00 and th
to be increased to P61,000.00.
4. Recognized accrued expenses of of P2,200.00.
5. Recognized goodwill of P20,000.00
1. Partnership Books retained as Books of the corporation.
Journal entries:
Inventories ₱ 9,000.00
Equipment 20,000.00
Goodwill 20,000.00
Allowance for bad debts ₱ 800.00
Accumulated depreciation 9,000.00
Accrued expense payable 2,200.00
Marjorie, Capital 29,600.00
Ynnah Mae, Capital 7,400.00
To adjust assets and liabilities to
agreed amounts and to divide the
net adjustments between the partners
80:20 ratios.
#
Marjorie, Capital ₱ 125,580.00
Ynnah Mae, Capital 39,420.00
Capital stock ₱ 110,000.00
Paid-in capital in excess
of par 55,000.00
To record issuance of 5,500 shares
of P20.00 par value stock to the
partners at a price of P30.00 per share.
(P165,000.00 ÷ 5,500 shares) distributed
as follows;
Marjorie: P125,580.00 ÷ P30/share = 4,186 shares
 Ynnah Mae: P39,420.00/ P30/share= 1,314 shares
#
Cash ₱ 30,000.00
Capital Stock ₱ 20,000.00
Paid-in capital in excess
in excess of par 10,000.00
To record issuance of 1,000 shares
at P30.00 per share.
#
2. New Books opened for the Corporation
a. Books of the Partnership.
Journal entries:
Inventories ₱ 9,000.00
Equipment 20,000.00
Goodwill 20,000.00
Allowance for bad debts ₱ 800.00
Accumulated depreciation 9,000.00
Accrued expense payable 2,200.00
Marjorie, Capital 29,600.00
Ynnah Mae, Capital 7,400.00
#
Stocks of MYM Corporation ₱ 165,000.00
Account payable 30,000.00
Note payable 40,000.00
Accrued expense payable 2,200.00
Allowance for bad debts 2,000.00
Accumulated depreciation 61,000.00
Cash ₱ 24,000.00
Account receivable 56,200.00
Inventories 60,000.00
Equipment 140,000.00
Goodwill 20,000.00
To record transfer of assets and
liabilities to MYM Corp.and the
receipts of 5,500 shares of P20.00 par
value stock valued at P30./share.
#
Marjorie, Capital ₱ 125,580.00
Ynnah Mae, Capital 39,420.00
Stocks of MYM Corporation ₱ 165,000.00
To record distribution of stocks
to partners as follows:
Marjorie: P125,580.00 ÷ P30/share = 4,186 shares
 Ynnah Mae: 39,420.00/P30./share = 1,314.00 shares
#
b. Books of the New Corporation
Journal entries:
Cash ₱ 24,000.00
Account receivable 56,200.00
Inventories 60,000.00
Equipment (net) 79,000.00
Goodwill 20,000.00
Allowance for bad debts ₱ 2,000.00
Account payable 30,000.00
Note payable 40,000.00
Accrued expense payable 2,200.00
Capital Stock 110,000.00
Paid-in capital in excess
excess of par 55,000.00
To record the acquisition of assets
and liabilities from the partnership
at their adjusted values.
#
Cash ₱ 30,000.00
Capital Stock ₱ 20,000.00
Paid-in capital in excess
of par 10,000.00
To record issuance of 1,000 shares
at P30.00 per share.
#
The Statement of Financial Position of MYM Corporation after recording the required entries for the incorporation

MYM Corporation
Statement of Financial Position
as at June 30, 2016

Assets:
Cash ₱ 54,000.00
Account receivable ₱ 56,200.00
Less: Allowance for bad debts 2,000.00 54,200.00
Inventories 60,000.00
Equipment 79,000.00
Goodwill 20,000.00
Total Assets ₱ 267,200.00
Liabilities and Stockholders' Equity
Liabilities:
 Account payable ₱ 30,000.00
Note payable 40,000.00
Accrued expense payable 2,200.00
Total liabilities ₱ 72,200.00
Stockholders' Equity:
Capital Stock, P20.00 par value, authorized
10,000 shares, issued and outstanding,
6,500 shares 130,000.00
Paid-in capital in excess of par 65,000.00
Total Liabilities and Stockholders' Equity ₱ 267,200.00
but the remaining partners may continue operating
acquisition or by having the partnership acquire
rest, the only entry on the partnership books is to
ship acquires the interest of the retiring partner, thee
st, or less than his interest.
r decreased by his share in the following adjustments:
his retirement.

wise be corrected before determining the interest of

ay, Daisy Rey and Racy Jasmine are as follows;

me of the partnership for the months ended April 30,2016

et value of P7,000.00 on April 30,2016.

Eloisa May, Capital

₱ 10,000.00 4/30/2016
7,000.00
1,000.00
₱ 18,000.00 ₱ 18,000.00

roaches can be used namely:

rtial Goodwill Method)
yment with the retiring partner's profit and loss

ed by decreasing the remaining partners' capital accounts by

 rawing partner is the Bonus method. Therefore
se the Bonus Method because it reflects the legal
tnership goodwill . On the other hand, if the partners
ethod or the Total Goodwill method is to be used,

nt in excess of a partner's interest. But there are

st. In such cases, an attempt may be made to allocate

en the Bonus Method should be used.

 to received the amount of his interest in the partnership
nd loss share percentage for changes in assets values arising

assets and assumes the liabilities of the partnership in

d to the partners in settlement of their interest. The partners now be become

pend on whether the original books of the partnership will be continued

greed transfer values.

s of capital stocks by the partnership
of their capital accounts.

usted values.

tio, organized the MYM Corporation to take over the partnership business.
lue capital stock, of which 5,500 shares are issued at P30.00 a share to the
tion also issued 1,000 shares for cash to the other incorporators at P30.00
30,2016, the date of the incorporation, is shown below.
st (new) of P140,000.00 and the accumulated depreciation
d entries for the incorporation appears below.