Reduction of partner by retirement/withdrawal/death – Assessment

1. On June 30, 20CY, the condensed balance sheet for the partnership of Eddy,
Fox, and Grimm together with their respective profit and loss sharing
percentage, was as follows:

Assets, net of
liabilities 320,000

Eddy, capital (50%) 160,000

Fox, capital (30%) 96,000
Grimm, capital (20%) 64,000
320,000

Eddy decided to retire from the partnership and by annual mutual agreement is
to be paid 180,000 out of partnership funds for his interest. Total goodwill
implicit in the agreement is to be recorded. After Eddy’s retirement, what are
the capital balances of the other partners?

__Fox__ __Grimm__
108,000 72,000

Goodwill to be paid to Eddy (P180,000 -

160,000) P20,000

Divide by Eddy's P & L 50%

Total goodwill P40,000

Fox Grimm

Capital balance before goodwill P 96,000 P64,000

Goodwill: (40,000 x 30%) 12,000

(40,000 x 20%) 8,000

 Capital balance after goodwill P108,00 P72,000

Since the problem identified that total goodwill implicit in the agreement is
to be recorded, the excess of the amount received by Eddy over his capital
balance represent his share in the total goodwill to be recognized.
Accordingly, Fox and Grimm will share in the total goodwill based on their
respective profit and loss percentage.

2. Cen, Deng and Lala are partners with capital balances on 31 December
20CY of 300,000, 300,000 and 200,000 respectively. Profits are shared
equally. Lala wishes to withdraw and it is agreed that she is to take certain
furniture and fixture with second hand value of 50,000 and a note for the
balance of her interests. The furniture and fixtures are carried in the books
at 65,000. Brand new, the furniture and fixtures may cost 80,000. Lala’s
acquisition of the second-hand furniture will result to:

Reduction in capital of 5, 000 each for Cen, Deng and Lala

Book value of the furniture and fixtures

P65, 000

Second hand value

50, 000

Loss (reduction) to be shared by Cen, Deng, Lala, equally

P15, 000

3. On December 31, 20CY the condensed statement of financial position of ABC

Partnership is presented below:
180,
Total assets
000
 Amy loan 10, 000
Amy capital 45, 000
Bea capital 40, 000
Cat capital 85, 000
180,
Total
000

Amy, Bea and Cat share profits and losses in the ratio of 3:2:1, respectively. It
was agreed among the partners that Amy retires from the partnership and the
partnership’s assets to be adjusted to their fair value of 210,000. The partner’s
further agreed to pay Amy 64,000 cash for the total interests in the partnership.

What is the capital balance of Cat after the retirement of Amy?

92, 000

Cat's capital balance before Amy's retirement P85, 00

Share in adjustment of assets (P30, 000 x 1/6) 5, 000
Share in the bonus from Amy [(P55, 000 + P15, 000) -
2, 000
P64, 000] x 1/3
Cat's capital balance after Amy's retirement P92, 000

4. In May 20CY, Imelda, a partner of an accounting firm, decided to withdraw

when the partners’ capital balances were: Mikee, 600,000; Raul, 600,000;
and Imelda. 400,000. It was agreed that Imelda is to take the partnership’s
fully depreciated computer with a second hand value of 24,000 that cost the
partnership 36,000. If profits and losses are shared equally, what would be
the capital balances of the remaining partners after the retirement of
Imelda?
__Mikee_
_ __Raul__
608,000 608,000
Mikee Raul
Capital balances before withdrawal 600,000 600,000
Distribution of gain or realization
(24,000/3) 8,000 8,000
 Capital balances after withdrawal 608,000 608,000

When a partner withdraws, he may receives an amount equal, more than or

less than his interest. The interest of the withdrawing partner is measured
by his capital balances adjusted by the distribution of profit or loss from
operations, and changes in valuation of all assets and liabilities. Thus, their
capital balances will be increased by their respective share in the realization
of noncash asset with a fair value different from its book value at the date of
withdrawal.

5. Davis has decided to retire from the partnership of Davis, Eiser, and
Foreman. The partnership will pay Davis P200,000. Goodwill is to be
recorded in the transaction as implied by the excess payment to Davis. A
summary balance sheet for the Davis, Eiser, and Foreman partnership
appears below. Davis, Eiser, and Foreman share profits and losses in a ratio
of 1:1:3, respectively.

Assets
Cash 75,000
Inventory 82,000
Marketable securities 38,000
Land 150,000
Building-net 255,000
Total assets 600,000

Equities
Davis, capital 160,000
Eiser, capital 140,000
Foreman, capital 300,000
Total equities 600,000
What partnership capital will Foreman have after Davis retires?

360,000