• Is defined in Article 1825 of the Civil

Code of the Philippines as the change in

Partnershi the relation of the partners caused by
any partner ceasing to be associated in
p the carrying out of the business

Dissolutio • Refers to the termination of the life of

an existing partnership. The dissolution
n of an old partnership may be followed
by:
1. The formation of a new partnership-
(change in ownership structure)

2. Liquidation- (winding up)

CONDITIONS RESULTING TO
PARTNERSHIP DISSOLUTION

Admission of a
new partner

Retirement of a
partner

Withdrawal of a
partner

Death of a
partner

Incapacity of a
partner

Bankruptcy of a
partner

Incorporation of
a partner
Admission A new partner, with the consent of all the
of a new partners, may be admitted in an existing
partnership. Upon admission of a new
partner partner, the firm is automatically dissolved,
and a new partnership is formed.

• Types of admission of a new partner

1. Purchase of interest from one or more of the

original (old) partners; or

2. Investment or asset contributions to the

partnership
Admission
by (Name of Seller), Capital xxx
(Name of Buyer), xxx
Purchase
 Illustrative Problem : Coloma and Claudio are
partners with capital balances of P100,000
and P50,000 respectively. They share profits
and losses equally. Cordero is a new partner.

Case 1a – Purchase **Cordero purchases a 1/5 interest from

at book value from Coloma by paying P20,000.
one partner only
Coloma, Capital 20,000
Cordero, Capital 20,000
 Illustrative Problem : Coloma and Claudio are
partners with capital balances of P100,000
and P50,000 respectively. They share profits
and losses equally. Cordero is a new partner.
Case 1b – Purchase
at book value from **Cordero purchases a 1/5 interest from the
old partners by paying P30,000
more than one
partner
Coloma, Capital 20,000
Claudio, Capital 10,000
Cordero, Capital 30,000
(100,000*1/5)
( 50,000*1/5)
 Illustrative Problem : Coloma and Claudio are
partners with capital balances of P100,000
and P50,000 respectively. They share profits
and losses equally. Cordero is a new partner.

Case 2 – Purchase **Cordero purchases a 1/5 interest from the

at less than book old partners by paying P25,000
value
Coloma, Capital 20,000
Claudio, Capital 10,000
Cordero, Capital 30,000
(100,000*1/5)
( 50,000*1/5)
 Illustrative Problem : Coloma and Claudio are
partners with capital balances of P100,000
and P50,000 respectively. They share profits
and losses equally. Cordero is a new partner.

Case 3 – Purchase **Cordero pays P40,000 for a 1/5 interest of

at more than book the old partners
value
Coloma, Capital 20,000
Claudio, Capital 10,000
Cordero, Capital 30,000
(100,000*1/5)
( 50,000*1/5)
 Asset Revaluation of assets of the old partnership,
Revaluatio however, is generally undertaken prior to the
admission of a new partner. The effect of the
n Upon asset revaluation is carried to the capital
accounts of the old partners. The adjusted
admission capital of the old partners becomes the basis
of a new for the interest transferred to the new
partner
partner by
purchase To illustrate, assume the same data in Illustrative
Problem where Coloma and Claudio are partners with
capital balances of P100,000 and P50,000 respectively.
They share profits and losses equally. Cordero is a new
partner who purchases a 1/5 interest from Coloma and
Claudio paying P40,000. However, before the
admission of Cordero, partnership assets are to be
revalued using as basis the amount to be paid by
Cordero.

Step1 –The new partnership capital is equal to the

amount paid by the incoming partner divided by his
fraction of interest
NEW partnership capital = P40,000/(1/5) =
P200,000
 Asset Step2 – The amount of asset revaluation is equal to the new
Revaluatio partnership capital less old partnership capital
Asset Revaluation= P200,000-P150,000= P50,000
n Upon Step3 – The allocation of the amount of the asset revaluation
admission among the old partner is as follows
P50,000/2= P25,000 per partner
of a new Step4 – The capital balances of the old partners after revaluation
partner by is equal to their old capital plus their share on asset revaluation
Coloma Claudio
purchase Capital bal before revaluation
Share on asset revaluation
P100,000 P50,000
25,000 25,000
Capital bal after revaluation P125,000 P75,000

Step5 – The amount of interest transferred by the old partners to

the new partner is based on the new capital balances
Coloma Claudio
Capital bal after revaluation P125,000 P70,000
Interest transferred 1/5 1/5
Capital bal after revaluation P25,000 P15,000

Step6 – The journal entries to record the revaluation of asset and

the admission of Cordero are as follows:

Asset 50,000 Coloma, Capital 25,000

Coloma, Capital 25,000 Claudio, Capital 15,000
Claudio, Capital 25,000 Cordero, Capital 40,000
 Agreed Capital (AC) – is the amount of new
capital set by the partners for the partnership.

Example: Corpus and Carlos are partners with

capital balances of P150,000 each. Cabral
Admission invests P100,000 for a 2/5 interest in the new
partnership. The agreed capital of the new
by partnership is determined as follows:

Investmen Computation 1 – the new partner’s investment

used as a basis
t P100,000/(2/5) = P250,000

Computation 2 – the old partners’ investment

used as a basis
P300,000/(3/5) = P500,000

Total Contributed Capital (CC) – it is the

investment of all the partners, both old and new
to the partnership
 Illustrative Problem : Calma and Castro are
partners with capital balances of P200,000
and P100,000 respectively. They share profit
and losses equally. Conde is to be admitted in
the partnershop
Case 1 – No Bonus,
no asset **Conde invest P100,000 for a ¼ interest in
revaluation the agreed capital of P400,000
Cash P100,000
Conde, Capital 100,000

  AC CC
₱
Old   300,000.00
₱
New   100,000.00
₱ ₱
400,000.00 400,000.00
 Illustrative Problem : Calma and Castro are partners
with capital balances of P200,000 and P100,000
respectively. They share profit and losses equally.
Conde is to be admitted in the partnershop

Case 2 – Bonus to **Conde invest P100,000 for a 1/5 interest in the

the old partners, new firm capitalization of P400,000
no asset Cash P100,000
Conde, Capital 100,000
revaluation
Conde, Capital P20,000
Calma, CapitalP10,000
  AC CC Bonus
₱ ₱ ₱ Castro, Capital 10,000
Old 320,000.00 300,000.00 20,000.00
₱ ₱ -₱
New 80,000.00 100,000.00 20,000.00 Cash P100,000
₱ ₱
400,000.00 400,000.00 ₱ - Conde, CapitalP 80,000
Calma, Capital 10,000
Castro, Capital 10,000
 Illustrative Problem : Calma and Castro are partners
with capital balances of P200,000 and P100,000
respectively. They share profit and losses equally.
Conde is to be admitted in the partnershop

Case 3 – Bonus to **Conde invest P60,000 for a 1/4 interest in the total
the new partners, capitalization of P360,000
no asset
Cash P 60,000
revaluation Calma, Capital 15,000
Castro, Capital 15,000
Conde, Capital P 90,000

  AC CC Bonus
₱ ₱ -₱
Old 270,000.00 300,000.00 30,000.00
₱ ₱ ₱
New 90,000.00 60,000.00 30,000.00
₱ ₱
360,000.00 360,000.00 ₱ -
 Illustrative Problem : Calma and Castro are partners
with capital balances of P200,000 and P100,000
respectively. They share profit and losses equally.
Conde is to be admitted in the partnershop

**Conde invest P100,000 for a 1/5 interest in the

Case 4 – Positive agreed capital of P500,000
asset revaluation,
no bonus Other asset P 100,000
Calma, Capital 50,000
Castro, Capital 50,000

Cash P 100,000
Conde, Capital P 100,000
  AC CC A.Reval
₱ ₱ ₱
Old 400,000.00 300,000.00 100,000.00
₱ ₱
New 100,000.00 100,000.00 ₱ -
₱ ₱ ₱
500,000.00 400,000.00 100,000.00
 Illustrative Problem : Calma and Castro are partners
with capital balances of P200,000 and P100,000
respectively. They share profit and losses equally.
Conde is to be admitted in the partnership

**Conde invest P60,000 for a 1/5 interest in the

Case 5 – negative agreed capital of P300,000
asset revaluation,
no bonus Calma, Capital 30,000
Castro, Capital 30,000
Other Asset P60,000

Cash P 60,000
Conde, Capital P 60,000

  AC CC A.Reval
₱ ₱ -₱
Old 240,000.00 300,000.00 60,000.00
₱ ₱
New 60,000.00 60,000.00 ₱ -
₱ ₱ -₱
300,000.00 360,000.00 60,000.00
 Change in The partnership may allow any of its partners
capital to withdraw or retire from the firm. The
business may continue after withdrawals; on
structure the other hand, the interest of the retiring or
withdrawing partner may be:
by • Sold to a new partner (outsider)
withdrawal • Sold to the continuing (remaining) partners
, • Sold to the partnership

retirement, The following schedule will be helpful in

death or determining the interest of a retiring partner

incapacity Investments

of a - Withdrawals
+ Share in the partnership profit to date of retirement or
partner - Share in the partnership losses to date of retirement
+ Loans and advances to the partnership or
- Loans and advances to the partnership
+ Revaluation of assets increasing their recorded values
or
- Revaluation of assets decreasing their recorded values
Interest upon Retirement
 The statement of financial position of the partnership of Dy,
David and Diaz on December 31, 2020 follows:

Cash 110,000.00 Liabilities 20,000.00

Other
Assets 30,000.00 Dy Capital 20,000.00

David Capital 40,000.00

The partners share profit and losses in the ration of 4:2:4. On

Illustrative Problem Diaz Capital 60,000.00
July 1, 2021, Diaz asked to be allowed to withdraw from the
Total Asset 140,000.00 140,000.00
partnership. The partners decided to close the books as of
this date as to determine the capital interest of Diaz. Profit for
the six months ended amounted to P60,000 while drawings of
Dy, David and Diaz amount of P4,000, P6,000 and P2,000
respectively. Profit and losses are to be shared equally after
the retirement of Diaz.
Diaz Dy David

Capital balance Dec 31, 2020 60,000.00 20,000.00 40,000.00

Share in Profit from Jan - Jun 30 24,000.00 24,000.00 12,000.00

- -
Withdrawals 2,000.00 - 4,000.00 6,000.00

Capital balance , July 1, 2021 82,000.00 40,000.00 46,000.00

 Assumption 1 *Diaz sold his interest to Duque for
P100,000
Sale of interest to a
new partner Diaz, Capital 82,000
Duque, Capital 82,000
 Assumption 2 *Diaz sold his interest to Dy and David
for P75,000; the interest being divided
Sale of interest to equally by the remaining partners.
the continuing Profit and losses after retirement of Diaz
partners will be divided equally

Diaz, Capital 82,000

Dy, Capital 41,000
David, Capital 41,000
 Assumption 3 *Diaz sold his interest in the
partnership. The partners agreed to
Sale of interest in make immediate cash settlement to the
retiring partner. Profit and losses after
the partnership
retirement of Diaz will be divided
equally.

Case A: Settlement to retiring partner is

equal to his capital interest
Diaz, Capital P82,000
Cash P82,000
 Assumption 3 Case B: Settlement is less than the
capital interest of the retiring partner
Sale of interest in (at less than BV)
the partnership
*The partnership paid Diaz P76,000
which is P6,000 less than his capital
interest of P82,000

Diaz, Capital P82,000

Cash P76,000
Dy, Capital 4,000
David, Capital 2,000
 Assumption 3 Case B: Settlement is more than the
capital interest of the retiring partner
Sale of interest in (at more than BV)
the partnership
*The partnership paid Diaz P85,000
which is P3,000 more than his capital
interest of P82,000

Diaz, Capital P82,000

Dy, Capital 2,000
David, Capital 1,000
Cash P85,000
Change in
capital
structure
by death The death or incapacity of a partner legally
dissolves the old partnership since a partner
or ceases to be associated in the carrying on of
incapacity the business. The remaining partners may
continue operations based on a new
of a contract or Articles of Co-Partnership.
partner
The interest of the deceased or
incapacitated partner must be determined
by the partnership in order to make
necessary settlement with his legal
representatives.