CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
ADVANCED FINANCIAL ACCOUNTING GERMAN/LIM/VALIX/MARASIGAN
PARTNERSHIP OPERATIONS

Part I: Theory of Accounts

1. In the absence of agreement as to distribution of profit, how shall the partnership profit be
distributed to the partners?
a. The industrial partner shall receive a share equivalent to the least share of a capitalist partner
while the capitalist partners shall share based on capital contribution ratio.
b. The industrial partner shall receive a just and equitable share and the remainder shall be
distributed to the capitalist partners on the basis of capital contribution ratio.
c. The profit shall be distributed on the basis of loss contribution ratio which may have been
agreed upon by the partners.
d. The profit shall be distributed equally to all partners including the industrial partner.

2. In the absence of agreement as to distribution of loss, how shall the partnership loss be distributed
to the partners?
a. The loss shall be distributed equally to all partners including the industrial partner.
b. The industrial partner shall be exempted from partnership loss while the capitalist partners shall
share equally.
c. The industrial partner shall be exempted from partnership loss while the capitalist partners shall
be distributed on the basis of capital contribution ratio.
d. The industrial partner shall be exempted from partnership loss because it shall be distributed to
the capitalist partners only in accordance with profit agreement ratio.

3. Which of the following is not an expense of a partnership?

I. Salary of employees of the partnership
II. Salaries to partners of a partnership
III. Interest on loan from partners to the partnership
IV. Interest on partners’ capital account balances
V. Bonus given to employees
VI. Bonus allocation to partners as indicated in the P/L Sharing Agreement

a. I, III, and V only

b. I, IV, and V only
c. II, IV, and VI only
d. All of the items indicated

4. This allowance for profit allocation is given only if there is a profit:

a. Interest allowance
b. Salary allowance
c. Bonus allowance
d. All of the above

5. Which of the following will decrease the capital balance of a partner?

a. Share in partnership profit
b. Drawing made by a partner
c. Advances made by a partner to the partnership
d. Receipt of share in revaluation surplus from a partnership property, plant and equipment

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Part II: Problem Solving

Problem 1. On February 1, 2023, Senpai and Kohai formed a partnership. Senpai contributed
P2,000,000 cash and his services to the partnership, while Kohai contributed her equipment and her
services to the partnership. The equipment was originally bought at the beginning of the previous year
for P1,400,000 and had an estimated useful life of 10 years with no salvage value. The equipment has
been independently evaluated by an appraiser at P1,300,000. The equipment still has an attached loan
of P100,000, which will be assumed by the partnership. It is also agreed that Kohai will serve as a
managing partner who is responsible for handling the day-to-day operations of the partnership.

The following profit and loss sharing terms are agreed upon by the partners:
 Monthly salary for industrial partners amounting to P5,000 each.
 12% interest based on original capital balance of capitalist partners.
 20% bonus for the managing partner based on net income after interests, salaries and bonus.
 Remainder is to be shared in the ratio 60:40 for Senpai and Kohai, respectively.

During 2023, the partnership operations resulted to a net income of P1,110,000, and the partners
withdrew 10% of their original capital contributions.

1. How much is the share of Kohai in the net income of the partnership during 2023?
a. 523,960
b. 511,000
c. 446,200
d. 403,000

2. How much is the capital balance of Senpai at the end of the calendar year 2023?
a. 2,599,000
b. 2,399,000
c. 2,362,727
d. 2,339,100

Problem 2. During 2023, partners IC and RT had the following movements in their capital balances:

IC, Capital RT, Capital

2023
Debit Credit Debit Credit
Jan 1, bal. P110,000 100,000
Apr 1 40,000 50,000
Jul 1 70,000 50,000
Oct 1 40,000 20,000
Dec 1 60,000 18,000
Dec 31 10,000 10,000

The partners withdrew their allowed P10,000 at the end of the year in anticipation of their share in the
net income of the partnership. The following are the partnership’s profit and loss sharing agreement:
 10% interest based on average capital balances
 Quarterly salaries of P5,000 and P10,000 for IC and RT, respectively
 Bonus to IC amounting to 20% of net income after interests and salaries.
 Remainder is to be shared equally between the partners.

1. Assuming the partnership operations resulted to a net income of P200,000, how much is the
share of IC in the net income of the partnership?
a. 76,360
b. 87,700
c. 99,040
d. 108,112

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2. Assuming the partnership operations resulted to a net loss of P120,000, how much is the
share of RT in the net loss of the partnership?
a. 72,300
b. 60,000
c. 47,700
d. 27,040

3. Assuming the partnership operations resulted to a net income of P50,000, how much is the
capital balance of RT at the end of the year?
a. 199,300
b. 192,960
c. 189,300
d. 183,200

Problem 3. WYT and BWM are partners who agreed on the following profit-sharing arrangement:

WYT BWM
Annual salaries P261,000 P259,000
Interest on average balances 10% 5%
Bonus (based on NI after salaries and interest) 10% -
Remainder 25% 75%

During the year ended December 31, 2023, the partnership generated a profit of P570,000 before any
deductions. WYT’s and BWM’s average capital balances for the year are P600,000 and P400,000
respectively. Income is distributed only as far as it is available/ to the extent of earnings only.

How much is the share of BWM in the net income of the partnership?
a. 271,500
b. 265,500
c. 256,500
d. 249,500

Problem 4. Glo, McKinley, and CP formed a partnership on January 1, 2023 by contributing cash of
P750,000, P650,000, and P600,000, respectively.

The profit or loss agreement of the partners is as follows:

 P200,000, P150,000, P50,000 annual salary for Glo, McKinley, and CP, respectively
 10% interest on beginning capital balance of the partners
 Bonus to Glo based on 20% net income after interests and salaries.
 Remainder is to be divided in the ratio 25:35:40 for Glo, McKinley, and CP, respectively.

During 2023, Glo, McKinley, and CP made additional investments of P300,000, P400,000 and
P200,000, respectively. At the end of 2023, Glo, McKinley, and CP made drawings of P150,000,
P50,000, and P100,000 respectively. At the end of 2023, the capital balance of CP is reported at
P950,000.

1. How much is the net income of the partnership during 2023?

a. 950,000
b. 1,037,500
c. 1,140,000
d. 1,187,500

2. How much is the capital balance of Glo at the end of the year?
a. 1,500,000
b. 1,490,500
c. 1,452,500
d. 1,350,000 END
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