R, S, and T, lawyers, decide to form a partnership and agree to divide profits in the ratio 4:3:1.

It is agreed,
however, that R and S shall guarantee fees from their own clients of P 80,000 and P 50,000 respectively, that
any deficiency is to be charged directly against the account of the partner failing to meet his guarantee and
that any excess is to be credited directly to the account of the partner exceeding his guarantee. Fees eanred
by the partnership during the first year of operations were P 200,000 which included fees from clients of R, P
95,000, and fees from clients of S, P 40,000. Operating expenses for the year were P 100,000. By what
amount should the partners' capital account increase?

R (4) S (3) T (1)

Guarantee Fees 15,000 (10,000)
R (80,000 vs. 95,000) = 15,000
S (50,000 vs. 40,000) = (10,000)
Remainder (95,000) 47,500 35,625 11,875
Total 62,500 25,625 11,875

Dissolution - situation in which interest of ownership to the partnership among partners changes due to: (1)
admission of new partner, (2) withdrawal/death of a partner, or (3) incorporation of a partnership.

In the Philippines, if a partnership dissolution occurs, there is also a dissolution or change of the
partnership's TIN Number in the BIR because it will be considered as a new entity.

A. Admission of a New Partner

1. Purchase of Interest
A new partner enters the partnership by purchasing the interest of existing partner/s. The purchase price
paid for that interest is irrelevant to the partnership records because the transaction between the buyer of
the interest (new partner) and the seller (existing partner) is considered a private/personal transaction.

In dissolution, the old partnership is dissolved and a new partnership will be formed due to the admission of
a new partner.

The partnership records will only be affect by the transfer of interest/capital from the existing partner/s to
the new partner. The assets and liabilites of the partnership are not affected. The capital account of the new
partner is recorded by merely reclassifying the capital account of the old/existing partner/s. (transfer of
capital)

Any gain or loss will only be recognized by the buyer (new partner) or seller (existing partner/s) on their
separate books/accounting records.

Purchase price is ignored and not recorded by the partnership. The purchase price will go directly to the seller
of the capital interest. This will only be used as a basis for asset revaluation, given that no basis was
given/provided.

Only the capital balance of existing or old partner/s will be affected by such asset revaluation. Asset
revaluation can either be upward (increase in capital) or downward (decrease in capital).

Normally, asset revaluation is done prior to the admission of the new partner. Distribution of the asset
revaluation will be based on the original profit or loss ratio agreement of the existing partner/s.
For example, X, a new partner, bought 20% of the capital interest of the partnership. It is considered inclusive
of all existing partner/s at the time of the admission. But it can also be from a specific partner.

2. Admission by Investment of Additional Assets

By admission through the investment of additional assets, the new partner will give the purchase price of the
additional assets directly to the partnership, not the existing partners. The new partner is having a
transaction with the partnership. Therefore, the purchase price will be recorded in the partnership's books.

(Dr) Asset XX
(Cr) New Partner Capital XX

For the assets to be invested additionally, cash will be recorded at face value, non-cash assets will be
recorded either at agreed value or fair value. This will be the capital contribution of the new partner.

After computing for the new partner's capital conribution, the new partner's agreed capital or capital credit
will have to be computed. This may be equal or not to the capital contribution of the new partner.

Agreed Capital (new partner) = TCCOP + CCOP x InterestNP

CC (NP) = AC (NP)
a. TCC (new) = TAC (new) no: bonus, no asset revaluation.

CC (NP) = AC (NP)
b. TCC (new) > TAC (new) no: bonus but downward asset revaluation.
(negative asset; charged directly to capital
balance of existing partner/s)

CC (NP) = AC (NP)
c. TCC (new) < TAC (new) no: bonus but upward asset revaluation.
(positive asset; increases the capital
balance of existing partner/s)

CC (NP) > AC (NP)

a. TCC (new) = TAC (new) old
: partner will receive bonus from new
partner. (the capital balances of existing
partner/s will increase)

Bonus will be allocated based on the original profit or loss ratio of the old partners. But, if there is a separate
agreement on the allocation of bonus, it must be stipulated in the problem. But generally, it is the P/L ratio.

CC (NP) > AC (NP) bonus on the existing partner/s (increase

b. TCC (new) > TAC (new)
the
: capital balance of the existing
partner/s) and downward asset revaluation
(negative asset; charged directly to capital
balance of existing partner/s)

Effect first the asset revaluation before the bonus. This is because asset revaluation usually happens before
the admission of the new partner. Asset revaluation is only affecting the existing partner/s.
CC (NP) < AC (NP)
a. TCC (new) = TAC (new) new
: partner will receive bonus; bonus will
decrease capital balance of existing
partner/s. (transfer of capital)

Problem 1: Valix was admitted in the partnership operated by Dayag, Guerrero, and Punzalan with a 20%
interest in the partnership by purchasing 30% of Dayag’s interest and 40% of Punzalan’s interest for a certain
amount. Capital balances of Dayag, Guerrero , and Punzalan along with their profit or loss ratio, prior to
Valix’s admission were as follows:

Dayag (40%) 240,000

Guerrero (40%) 240,000
Punzalan (20%) 120,000

All assets and liabilities are fair valued.

Case 1: Valix paid Dayag and Punzalan a total of P 120,000, which is divided between Dayag
and Punzalan in proportion to the equities given up, for his 20% interest in the
partnership.

Capital Contribution Interest Bought (%) Purchase Agreed Capital

Dayag 240,000 30% (72,000) 168,000
Guerrero 240,000 240,000
Punzalan 120,000 40% (48,000) 72,000
Valix 120,000 120,000
Total 600,000 600,000

Dayag 168,000 28% : new profit or loss

Guerrero 240,000 40% agreement, but
Punzalan 72,000 12% generally, it can be
Valix 120,000 20% stipulated.
(40% x 30%) + (20% x 40%)

Total 600,000

CC (NP) = AC (NP)
a. TCC (new) = TAC (new) : no bonus, no asset revaluation. (no
personal gain or loss to Dayag and
Punzalan)

Dayag 72,000 : equal to the purchase priced paid by Valix

Punzalan 48,000 to both Dayag and Punzalan. Therefore, no
Total 120,000 personal gain or loss.

1. By how much should the total capital of the new partnership 0

increase after Valix’s admission?
2. What would be the capital balance and the new profit and loss Dayag = 28% (P 168,000)
percentage of Dayag and Punzalan immediately after Valix’s Punzalan = 12% (P 72,000)
admission?
 Case 2: Valix paid Dayag and Punzalan a total of P 150,000, which is divided between Dayag
and Punzalan in proportion to the equities given up, for his 20% interest in the
partnership.

Capital Contribution Interest Bought (%) Purchase Agreed Capital

Dayag 240,000 30% (72,000) 168,000
Guerrero 240,000 240,000
Punzalan 120,000 40% (48,000) 72,000
Valix 120,000 120,000
Total 600,000 600,000

Dayag 72,000 18,000 90,000

Punzalan 48,000 12,000 60,000
Total 120,000 30,000 150,000

To allocate the P 30,000 personal gain between Dayag and Punzalan, we have to use the capital transferred.
Generally, the personal gain is to be allocated based on ratio of the capital transferred.

3. By how much should the total capital of the new partnership 0

increase after Valix’s admission?
4. What would be the capital balance and the new profit and loss Dayag = 28% (P 168,000)
percentage of Dayag and Punzalan immediately after Valix’s Punzalan = 12% (P 72,000)
admission?
For these questions, they have the same answer for Case 1 since there is no asset revaluation. As stated, all
assets and liabilities are faily valued.

5. How much is the personal gain of Dayag and Punzalan and P 30,000, gain
how should this be divided between Dayag and Punzalan?

If the problem stated that not all assets and/or liabilities are fairly valued, there is asset revaluation. If there
is no basis given, use the purchase price of P 150,000 for the new agreed capital.

Case 2.1: Valix paid Dayag and Punzalan a total of P 150,000, which is divided between Dayag
and Punzalan in proportion to the equities given up, for his 20% interest in the
partnership. (with asset revaluation)

Purchase Price (Valix) 150,000

Divide by: Capital Interest 20%
Total Agreed Capital (new) 750,000
Total Contributed Capital (new) 600,000
Asset Revaluation 150,000

TCC (new) < TAC (new) : upward asset revaluation; (asset increase;
capital balances of existing partner/s will
increase) use old P/L ratio.

If the amount of the asset or liability under/overvaluation is given, that will be the amount allocated (increase
or decrease) to the old partner/s. Still, this will be allocated based on their original P/L ratio.
 Capital Contribution Asset Revaluation CC after A/Rev.
Dayag 240,000 60,000 300,000
Guerrero 240,000 60,000 300,000
Punzalan 120,000 30,000 150,000
Valix
Total 600,000 150,000 750,000

CC after A/Rev. Interest Bought (%) Purchase Agreed Capital

Dayag 300,000 30% (90,000) 210,000
Guerrero 300,000 300,000
Punzalan 150,000 40% (60,000) 90,000
Valix 150,000 150,000
Total 750,000 750,000

Case 3: Valix paid Dayag and Punzalan a total of P 100,000, which is divided between Dayag
and Punzalan in proportion to the equities given up, for his 20% interest in the
partnership.

Capital Contribution Interest Bought (%) Purchase Agreed Capital

Dayag 240,000 30% (72,000) 168,000
Guerrero 240,000 240,000
Punzalan 120,000 40% (48,000) 72,000
Valix 120,000 120,000
Total 600,000 600,000

Dayag 72,000 (12,000) 60,000

Punzalan 48,000 (8,000) 40,000
Total 120,000 (20,000) 100,000

To allocate the P 30,000 personal gain between Dayag and Punzalan, we have to use the capital transferred.
Generally, the personal gain is to be allocated based on ratio of the capital transferred.

3. By how much should the total capital of the new partnership 0

increase after Valix’s admission?
4. What would be the capital balance and the new profit and loss Dayag = 28% (P 168,000)
percentage of Dayag and Punzalan immediately after Valix’s Punzalan = 12% (P 72,000)
admission?
For these questions, they have the same answer for Case 1 since there is no asset revaluation. As stated, all
assets and liabilities are faily valued.

5. How much is the personal gain of Dayag and Punzalan and P 20,000, loss
how should this be divided between Dayag and Punzalan? Dayag = P 12,000, loss
Punzalan = P 8,000, loss
Problem 2: The following condensed balance sheet is presented for the partnership of De Leon and Soriano,
who shares profit or losses in the ratio of 2:3, respectively.

Cash 120,000
Non-Cash Assets (excluding partner loans) 200,000
Soriano, Loan 25,500
346,000

Liabilities 150,000
De Leon, Capital 78,400
Soriano, Capital 117,600
346,000

De Leon and Soriano decided to admit Tabag as a new partner with 20% interest.

Case 1: The assets and liabilities are fairly valued on the balance sheet provided.
1. What amount should Tabag invest into the partnership P 49,000
assuming no bonus is to be recognized?

Capital Contribution Capital Interest Agreed Capital

De Leon 78,400 78,400
80%
Soriano 117,600 117,600
Tabag 49,000 20% 49,000
Total 245,000 245,000

Total Capital Contribution is equal to the

(117,600+78,400)
Investment (T) = x 20% Total Agreed Capital (no asset
80%
Investment (T) = 245,000 x 20% revaluation); Capital Contribution of Tabag
Investment (T) = 49,000 is equal to Agreed Capital of Tabag (no
bonus)

(Journal Entries)
Cash 49,000
Tabag, Capital 49,000

2. Assuming Tabag invested a total of P 34,000 into the P 12,000 (bonus to new partner)
partnership, how much is the bonus to/from new partners
(indicate whether to/from)

Capital Contribution Bonus Agreed Capital

De Leon 78,400 (4,800) 73,600
Soriano 117,600 (7,200) 110,400
Tabag 34,000 12,000 46,000
Total 230,000 230,000

Agreed Capital (T) = 230,000 X 20%

Agreed Capital (T) = 46,000
 Agreed Capital (T) = 46,000

CC (NP) < AC (NP)

TCC (new) = TAC (new) : new partner will receive bonus; bonus will
decrease capital balance of existing
partner/s. (transfer of capital)
3. With regards to item no. 2, what is the capital balance of De P 73,600
Leon immediately after admission of Tabag?
4. With regards to item no. 2, what is the capital balance of P 110,400
Soriano immediately after admission of Tabag?

(Journal Entries)
Cash 34,000
Tabag, Capital 34,000

De Leon, Capital 4,800

Soriano, Capital 7,200
Tabag, Capital 12,000

5. Assuming Tabag invested a total of P 74,000 into the P 20,000 (bonus from new partner)
partnership, how much is the bonus to/from new partners
(indicate whether to/from)
6. With regards to item no. 5, what is the capital balance of De P 86,400
Leon immediately after admission of Tabag?
7. With regards to item no. 5, what is the capital balance of P 129,600
Soriano immediately after admission of Tabag?

Capital Contribution Bonus Agreed Capital

De Leon 78,400 8,000 86,400
Soriano 117,600 12,000 129,600
Tabag 74,000 (20,000) 54,000
Total 270,000 270,000

(Journal Entries)
Agreed Capital (T) = 270,000 X 20%
Cash 74,000
Agreed Capital (T) = 54,000
Tabag, Capital 74,000

Tabag, Capital 20,000

De Leon, Capital 8,000
Soriano, Capital 12,000

CC (NP) > AC (NP)

TCC (new) = TAC (new) : old partner will receive bonus from new
partner. (the capital balances of existing
partner/s will increase)
 Case 2: Tabag invested a total of P 88,000 into the partnership. After the admission of Tabag,
the total partnership capital will be P 325,000 and Tabag’s capital credit will be P
92,000.

Capital Contribution Asset Revaluation CC after A/Rev.

De Leon 78,400 16,400 94,800
Soriano 117,600 24,600 142,200
Tabag 88,000 88,000
Total 284,000 41,000 325,000

CC (NP) < AC (NP) bonus on the new (decrease the capital

TCC (new) < TAC (new) : balance of the existing partner/s) and
upward asset revaluation (positive asset;
added directly to capital balance of
existing partner/s)

CC after A/Rev. Bonus Agreed Capital

De Leon 94,800 (1,600) 93,200
Soriano 142,200 (2,400) 139,800
Tabag 88,000 4,000 92,000
Total 325,000 325,000

(Journal Entries)
Cash 88,000 Asset 41,000
Tabag, Capital 88,000 De Leon, Capital 16,400
Soriano, Capital 24,600
De Leon, Capital 1,600
Soriano, Capital 2,400
Tabag, Capital 4,000

1. How much is the asset reveluation? (Indicate whether upward P 41,000 (upward revaluation)
or downward revaluation)
2. What is the amount of bonus upon admission of Tabag? P 4,000 (bonus to new partner)
(Indicate whether bonus will be given to the old partners or to the
new partner)
3. What is the capital balance of De Leon immediately after the P 93,200
admission of Tabag?
4. What is the capital balance of Soriano immediately after the P 139,800
admission of Tabag?

Case 3: Tabag invested a total of P 75,000 into the partnership. After the admission of Tabag,
the total partnership capital will be P 250,000 and Tabag’s capital credit will be P
60,000.

Capital Contribution Asset Revaluation CC after A/Rev.

De Leon 78,400 (8,400) 70,000
Soriano 117,600 (12,600) 105,000
 Tabag 75,000 75,000
Total 271,000 (21,000) 250,000

CC after A/Rev. Bonus Agreed Capital

De Leon 70,000 6,000 76,000
Soriano 105,000 9,000 114,000
Tabag 75,000 (15,000) 60,000
Total 250,000 250,000

CC (NP) > AC (NP) bonus on the existing partner/s (increase

TCC (new) > TAC (new) : the capital balance of the existing
partner/s) and downward asset revaluation
(negative asset; charged directly to capital
balance of existing partner/s)

(Journal Entries)
Cash 75,000 De Leon, Capital 8,400
Tabag, Capital 75,000 Soriano, Capital 12,600
Asset 21,000
Tabag, Capital 15,000
De Leon, Capital 6,000
Soriano, Capital 9,000

1. How much is the asset reveluation? (Indicate whether upward P 21,000 (downward revaluation)
or downward revaluation)
2. What is the amount of bonus upon admission of Tabag? P 15,000 (bonus to old partners)
(Indicate whether bonus will be given to the old partners or to the
new partner)
3. What is the capital balance of De Leon immediately after the P 76,000
admission of Tabag?
4. What is the capital balance of Soriano immediately after the P 114,000
admission of Tabag?

Multiple Choice Problem: (Admission by Purchase of Interest)

Problem A: On December 31, 2022, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of 1:6:3:

Current Assets 1,000,000

Noncurrent Assets 2,000,000

Total Liabilities 600,000

A, Capital 900,000
B, Capital 800,000
C, Capital 700,000

On January 1, 2023, D is admitted to the partnership by purchasing 40% of the capital interest of B at a price
of P 500,000.
 Capital Contribution Interest Bought (%) Purchase Agreed Capital
A 900,000 900,000
B 800,000 40% (320,000) 480,000
C 700,000 700,000
D 320,000 320,000
Total 2,400,000 2,400,000

What is the capital balance of B after the admission of D on P 480,000

January 1, 2023?

B 320,000 180,000 500,000 (personal loss of

Total 320,000 180,000 500,000 Partner B)

Multiple Choice Problem: (Admission by Additional Investment)

Problem B: On December 31, 2022, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of 1:6:3:

Current Assets 1,300,000

Noncurrent Assets 2,000,000

Total Liabilities 300,000

A, Capital 1,400,000
B, Capital 700,000
C, Capital 900,000

On January 1, 2023, D is admitted to the partnership by investing P1,000,000 to the partnership for 20%
capital interest.

Capital Contribution Bonus Agreed Capital

A 1,400,000 20,000 1,420,000
B 700,000 120,000 820,000
C 900,000 60,000 960,000
D 1,000,000 (200,000) 800,000
Total 4,000,000 4,000,000

If all the assets of the existing partnership are properly valued, P 960,000
what is the capital balance of C after the admission of D?

Original P/L Share to D New P/L

A 1,420,000 10% -2% 8%
B 820,000 60% -12% 48%
C 960,000 30% -6% 24%
D 800,000 20% 20%
Total 4,000,000 100% 100%
CC (NP) > AC (NP)
TCC (new) = TAC (new) : old partner will receive bonus from new
partner. (the capital balances of existing
partner/s will increase)

Multiple Choice Problem: (Admission by Additional Investment)

Problem C: On December 31, 2022, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of 5:1:4:

Current Assets 1,500,000

Noncurrent Assets 2,000,000

Total Liabilities 500,000

A, Capital 1,100,000
B, Capital 1,200,000
C, Capital 700,000

On January 1, 2023, 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.

Capital Contribution Asset Revaluation CC after A/Rev.

A 1,100,000 (250,000) 850,000
B 1,200,000 (50,000) 1,150,000
C 700,000 (200,000) 500,000
D 500,000 500,000
Total 3,500,000 (500,000) 3,000,000

CC after A/Rev. Bonus Agreed Capital

A 850,000 100,000 950,000
B 1,150,000 20,000 1,170,000
C 500,000 80,000 580,000
D 500,000 (200,000) 300,000
Total 3,000,000 3,000,000

Agreed Capital (D) = 3,000,000 X 10%

Agreed Capital (D) = 300,000

CC (NP) > AC (NP) bonus on the existing partner/s (increase

TCC (new) > TAC (new) : the capital balance of the existing
partner/s) and downward asset revaluation
(negative asset; charged directly to capital
balance of existing partner/s)

What is the capital balance of D after his admission to the P 300,000

partnership?
What is the capital balance of C after the admission of D to the P 580,000
partnership?

B. Withdrawal or Retirement of a Partner

Admission of a new partner is not only manner by which a partnership can undergo a change in composition.
Over the life of any partnership, partners may leave the organization. Thus, some method of establishing an
equitable settlement of the withdrawing partner’s interest in the business property is necessary.

1. Update all capital balances at the date of retirement.

(a) Distribute any profit or loss of the partnership prior to retirement. (b) The partnership may wish to
revalue their assets prior to the retirement.

2. Determine the updated capital balance of retiring/withdrawing partner/s.

This would be the basis for the settlement. For example, all withdrawals made by the partner will be
returned to their capital balances.

3. Determine who will settle the capital interest of retiring/withdrawing partner/s.

From the updated capital balance, any loan payable of the partnership to the partner will be added and
any loan receivable of the partnership from the partner will be deducted. Sometimes, there is a separate
payment for the loan payable of the partnership to the partner.

3.1 New Partner/Existing or Remaining Partner/s

Accounting method is the same as the one used for admission of a new partner by
purchase of interest. (100% of the interest will be acquired.)

Old New - 1 New - 2

A A A
B B B
C C C
D (retiring) E

The retiring partner may sell its interest to a new partner (e.g., D to E) and this will be
treated as a personal transaction outside of the partnership. (New - 1)
The retiring partner may also sell its interest to existing partner/s. (e.g., D to ABC)
Any transaction made will also be considered private and personal. (New - 2)

Old Capital Balance New - 1 Capital Balance

A 100 A 100
B 120 B 120
C 130 C 130
D (retiring) 150 E 150

After buying the interest of D, the new partner will acquire 100% of the capital
balance. (assuming there is no asset revaluation)
 Old Capital Balance New - 2 Capital Balance
A 100 A 150
B 120 B 170
C 130 C 180
D (retiring) 150

After buying the interest of D, the partnership will share the 100% of the capital
balance. (assuming the division is equal)

Old Capital Balance New - 1 Capital Balance

A 100 A 100
B 120 B 120
C 130 C 130
D (retiring) 150 E 180
D Loan 30 E will pay 180 to D,
D Loan (the partnership has a liability to including 30 as the
the retiring partner) payment to the loan
of the partnership.

If D Receivable, the partner has a liability to the partnership. Thus, the settlement of E
will be 150 less the 30 for the payment of the loan of the partner.

If the partnership will buy D's interest, the amount of the loan will be aggregated
(either additional or deduction) to the settlement price they will pay to D.

Due from a Partner Receivable

Due to a Partner Payable
D Loan (A) Receivable
D Loan (L) Payable
Loan from a Partner Payable
Loan to a Partner Receivable

3.1 Partnership
Compare the settlement amount with the capital interest.

a. SA = CI : no bonus, no asset
revaluation.

b. SA > CI Priority 1: Bonus Method

The bonus is the difference between the SA and CI. This will be given to the
retiring/withdrawing partner.

The bonus will be charged directly against the capital balances of the existing
partner/s on the basis of their remaining P/L ratio.

Priority 2: Stated in the Problem (Asset Revaluation Upward)

The basis of the asset revaluation is the difference between the SA and CI. The
difference is only allocated to the retiring partner. Because it only pertains to the
share/interest of the retiring partner, it should be grossed up.
 A 1,333 2
B 1,333 2
C 2,000 3
D (retiring) 2,000 3
Total 6,667
(2,000 ÷ 30%)

SA 10,000
CI 8,000
To D (upward) 2,000

After getting the asset revaluation, return to the first step which is to update the capital
balances. And proceed to the payment.

c. SA < CI Priority 1: Bonus Method

The bonus is the difference between the SA and CI. This will be given by the
retiring/withdrawing partner to the remaining partner/s.

The bonus will be added directly to the capital balances of the existing partner/s on
the basis of their remaining P/L ratio.

Priority 2: Stated in the Problem (Asset Revaluation Downward)

The basis of the asset revaluation is the difference between the SA and CI. The
difference is allocated to remaing partner/s. Because it only pertains to the
share/interest of the remaining partner/s, it should be grossed up.

Problem 3: Partners Gerber, Kenneth, and Boyet have capital balances of P 30,000, P 40,000, P 50,000
respectively on December 31, 2021. The partners share profit or losses in the ratio of 5:4:3, respectively.
During the calendar year 2021, the partnership suffered a net loss of P 18,000 and the withdrawal of each
partner are as follows: Gerber – P 4,000; Kenneth – P 2,500; Boyet – P 7,000. Boyet is not happy with the
partnership operation and has decided to withdraw as of December 31, 2021.

Case 1: Boyet received P 42,000 cash settlement of his interest in the partnership. The net
assets as of December 31, 2022 are fairly valued.

If the problem is silent, the settlement price already includes the payment for the loan payable or already
deducts the payment of the loan receivable. Usually, payment for the loan is a separate amount.

If the partnership wishes to revalue their assets, the partners may undergo asset revaluation before the
dissolution. All partners' capitals, from the remaining partner/s and the retiring partner, will be affected.

If there is no loan receivable or payable, the capital interest will be equal to the updated capital balance.

Capital, beg. Profit/Loss Withdrawal Capital, adj.

Gerber (5) 30,000 (7,500) (4,000) 18,500
Kenneth (4) 40,000 (6,000) (2,500) 31,500
Boyet (3) 50,000 (4,500) (7,000) 38,500
Total 120,000 (18,000) (13,500) 88,500
If the problem is silent, the basis for the allocated amount of asset revaluation will be the difference between
the settement amount and capital interest of the retiring partner.

Capital, adj. Retirement Agreed Capital

Gerber (5) 18,500 (1,944) 16,556
Kenneth (4) 31,500 (1,556) 29,944
Boyet (3 - W) 38,500 (38,500) 0
Total 88,500 (42,000) 46,500

If there is a partial asset revaluation, the difference between the settlement amount and the capital interest
will be the total amount of asset revaluation. It is not needed to be grossed up.

b. SA > CI Priority 1: Bonus Method = P 3,500

The bonus is the difference between the SA and CI. This will be given to the
retiring/withdrawing partner.

(Journal Entries)
Gerber, Capital 7,500 Gerber, Capital 4,000
Kenneth, Capital 6,000 Kenneth, Capital 2,500
Boyet, Capital 45,000 Boyet, Capital 7,000
Inc. Summary 18,000 Gerber, Draw. 4,000
Kenneth, Draw. 2,500
Boyet, Draw. 7,000
Gerber, Capital 1,944
Kenneth, Capital 1,556
Boyet, Capital 38,500
Cash 42,000

1. What is the capital balance of Gerber immediately after the P 16,556

withdrawal of Boyet on December 31, 2022?
2. What is the capital balance of Kenneth immediately after the P 29,944
withdrawal of Boyet on December 31, 2022?

Case 2: Boyet received P 42,000 cash settlement of his interest in the partnership. The
difference is attributable to the undervaluation of land.

Capital, adj. Asset Revaluation Capital after A/Rev.

Gerber (5) 18,500 5,833 24,333
Kenneth (4) 31,500 4,667 36,167
Boyet (3 - W) 38,500 3,500 42,000
Total 88,500 14,000 102,500

Total Asset Revaluation (Land) = 3,500 ÷ 12 x 3

Total Asset Revaluation (Land) = 14,000

Capital after A/Rev. Retirement Agreed Capital

 Gerber (5) 24,333 24,333
Kenneth (4) 36,167 36,167
Boyet (3 - W) 42,000 (42,000) 0
Total 102,500 60,500

3. By how much is the land undervalued? P 14,000

4. What is the capital balance of Gerber immediately after the P 24,333
withdrawal of Boyet on December 31, 2022?
5. What is the capital balance of Kenneth immediately after the P 36,167
withdrawal of Boyet on December 31, 2022?

Multiple Choice Problem: (Retirement/Withdrawal)

Problem D: On December 31, 2022, 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,
2023, C retired from the partnership and received P 350,000. At the time of C’s retirement, an asset of the
partnership is undervalued.

Capital, adj. Asset Revaluation Capital after A/Rev.

A (1) 500,000 25,000 525,000
B (3) 300,000 75,000 375,000
C (6 - W) 200,000 150,000 350,000
Total 1,000,000 250,000 1,250,000

Total Asset Revaluation (Asset) = 150,000 ÷ 10 x 6

Total Asset Revaluation (Asset) = 250,000

Capital after A/Rev. Retirement Agreed Capital

A (1) 525,000 525,000
B (3) 375,000 375,000
C (6 - W) 350,000 (350,000) 0
Total 1,250,000 900,000

What is the capital balance of A after the P 525,000

retirement of C?

Multiple Choice Problem: (Retirement/Withdrawal)

Problem E: On December 31, 2022, 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 100,000 with profit or loss ratio of 1:4:5. On January 1,
2023, C retired from the partnership and received P 80,000. At the time of C’s retirement, the assets and
liabilities of the partnership are properly valued.

Capital, adj. Retirement Agreed Capital

A (1) 500,000 4,000 504,000
B (4) 300,000 16,000 316,000
C (5 - W) 100,000 (100,000) 0
 Total 900,000 (80,000) 820,000

c. SA < CI Priority 1: Bonus Method

The bonus is the difference between the SA and CI. This will be given by the
retiring/withdrawing partner to the remaining partner/s.

What is the capital balance of B after the P 316,000

retirement of C?

Multiple Choice Problem: (Retirement/Withdrawal)

Problem F: On December 31, 2021, 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 100,000,000

Total Liabilities 40,000,000

U, Capital 10,000,000
F, Capital 20,000,000
C, Capital 30,000,000

On January 31, 2022, U decided to retire from the partnership. However, before the distribution of cast to U,
the following data errors were discovered during the pre-retirement audit:

During 2022, the property, plant and equipment has not be

subject to revaluation surplus by P 15,000,000.
The 2022 net income is overstated by P 5,000,000.

After the adjustment, U received retirement pay of P 15,000,000 for his capital interest.

Capital, beg. Net Income Over Revaluation Surplus Capital, adj.

U (2) 10,000,000 (1,000,000) 3,000,000 12,000,000
F (3) 20,000,000 (1,500,000) 4,500,000 23,000,000
C (5) 30,000,000 (2,500,000) 7,500,000 35,000,000
Total 60,000,000 (5,000,000) 15,000,000 70,000,000

Capital, adj. Retirement Agreed Capital

U (2) 12,000,000 (12,000,000) 0
F (3) 23,000,000 (1,125,000) 21,875,000
C (5) 35,000,000 (1,875,000) 33,125,000
Total 70,000,000 (15,000,000) 55,000,000

What is the capital balance of F after the P 21,875,000

retirement of U?

Multiple Choice Problem: (Admission by Additional Investment)

Problem G: A, B 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 ration 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 credits of P 735,000
for bonus upon his admission.

Capital Contribution Bonus Agreed Capital

A (3) 784,000 (367,500) 416,500
B (2) 2,730,000 (245,000) 2,485,000 75%
T (1) 1,190,000 (122,500) 1,067,500
D 588,000 (735,000) 1,323,000 25%
Total 5,292,000 5,292,000

Total Agreed Capital = (416,500 + 2,485,000 + 1,067,500) ÷ 75%

Total Agreed Capital = 5,292,000
Agreed Capital (D) = 5,292,000 x 25% = 1,323,000

How much cash should D contribute? P 588,000

Multiple Choice Problem: (Admission by Additional Investment)

Problem H: E and M are partners with capital balances of P 30,000 and P 70,000, respectively. E has a 30%
interest in profits and losses. At this time, the partnership has decided to admit R and L as new partners. R
contributes cash of P 55,000 for a 20% interest in capital and a 30% interest in profits and losses. L
contributes cash of P 10,000 and an equipment for a 25% interest in capital and 35% interest in profits and
losses.

If bonus amounting to P 18,250 is given to the old partners, what P 588,000

is the value of the equipment contributed by L?

Capital Contribution Bonus Agreed Capital

E 30,000 5,475 35,475
55%
M 70,000 12,775 82,775
R (20%) 55,000 (12,000) 43,000
45%
L (25%) 60,000 (6,250) 53,750
Total 215,000 18,250 215,000

Total Agreed Capital = (35,475 + 82,775) ÷ 55%

Total Agreed Capital = 215,000

Equipment (L) = 53,750 + 6,250 - 10,000

Equipment (L) = 50,000

Multiple Choice Problem: (Admission by Additional Investment)

Problem I: Juliet and Kilo have capital balances of P 200,000 and P 220,000 respectively before admission of
Lima. Their profit and loss agreement was 35:65. Limas 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.
Problem I: Juliet and Kilo have capital balances of P 200,000 and P 220,000 respectively before admission of
Lima. Their profit and loss agreement was 35:65. Limas 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.

Capital Contribution Bonus Agreed Capital

Juliet (35%) 200,000 (21,000) 179,000
Kilo (65%) 220,000 (39,000) 181,000
Limas 180,000 60,000 240,000
Total 600,000 600,000

Agreed Capital (L) = 600,000 X 40%

Agreed Capital (L) = 240,000

Agreed Capital Profit/Loss Capital, end.

Juliet (40%) 179,000 52,000 231,000
Kilo (40%) 181,000 52,000 233,000
Limas (20%) 240,000 26,000 266,000
Total 600,000 130,000 730,000

How much is the capital balance of Kilo P 181,000

after admission of Lima?
How much is the capital balance of Juliet P 231,000
at the end of the year?

Capital Contribution Asset Revaluation Capital after A/Rev.

Juliet (35%) 200,000 (52,500) 147,500
Kilo (65%) 220,000 (97,500) 122,500
Limas 180,000 0 180,000
Total 600,000 (150,000) 450,000

Total Capital Contribution (after AR) = 180,000 ÷ 40%

Total Capital Contribution (after AR) = 450,000

Agreed Capital Profit/Loss Capital, end.

Juliet (40%) 147,500 52,000 199,500
Kilo (40%) 122,500 52,000 174,500
Limas (20%) 180,000 26,000 206,000
Total 450,000 130,000 580,000

Assuming there is an implied undervaluation or overvaluation of P 150,000, over

an asset, how much is the undervaluation or (overvaluation) of
the asset?
Assuming there is an implied undervaluation or overvaluation of P 174,500
an asset, how much is the capital balance of Kilo at the end of
the year?