CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING AND REPORTING GERMAN AND VALIX

PARTNERSHIP OPERATION

Part I: Theory of Accounts

1. This provision for profit or loss allocation may be given only if there is a remaining profit:
A. Interest allowance
B. Salary allowance
C. Bonus allowance
D. All of the above

2. Which of the following transactions shall not affect the capital balance of a partner?
A. Share of a partner in the partnership’s net loss.
B. Receipt of bonus by a partner from another partner based on the agreement.
C. Loans extended by the partnership to a partner.
D. Additional investment by a partner to the partnership.

3. Which of the following will increase the capital balance of a partner?

A. Additional non-cash investment
B. Share in the revaluation downward of a partnership property, plant and equipment
C. Temporary withdrawal made by a partner
D. Due from the partnership account

4. Which of the following statements is true?

A. Withdrawal in anticipation of his share in the net income made by a partner during the year is
treated as a permanent withdrawal.
B. All partners shall be given a salary to ensure a just and equitable distribution of net income or
net loss.
C. Only the managing partner shall be entitled to an interest based on his capital contribution in
the distribution of net income or net loss.
D. In the division of profit or loss, bonus may still be provided even if the total salary and interest
given to the partners already exceeded the amount of net income.

5. 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.
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Part II: Partnership Operation

1. On January 1, 2023, A, B and C formed ABC Partnership with original capital contribution of
P1,500,000, P2,500,000 and P1,000,000. A was appointed as managing partner.

During 2023, A, B and C made additional investments of P2,500,000, P1,000,000 and P1,500,000,
respectively. At the end of 2023, A, B and C made permanent withdrawals of P1,000,000,
P500,000 and P2,000,000, respectively. Also at the end of the current year, the capital balance of
C was reported at P320,000. The profit or loss agreement of the partners were as follows:

 10% interest on original capital contribution of the partners.

 Quarterly salary of P40,000 and P10,000 for A and B, respectively.
 Bonus to A equivalent to 20% of Net Income after interest and salary to all partners
 Remainder is to be distributed equally among the partners.

1. What is the partnership profit for the year ended December 31, 2023?
A. 4,500,000
B. 5,100,000
C. 5,250,000
D. 4,800,000

2. What is A’s share in partnership profit for 2023?

A. 950,000
B. 1,700,000
C. 2,160,000
D. 1,000,000

3. What is B’s share in partnership profit for 2023?

A. 1,000,000
B. 1,450,000
C. 250,000
D. 450,000

2. On January 1, 2023, K and S formed KS Partnership and the articles of co-partnership provides that
profit or loss shall be distributed accordingly:
 10% interest on average capital balance.
 P250,000 and P500,000 quarterly salary for K and S, respectively.
 The remainder shall be distributed in the ratio of 3:2 for K and S, respectively.
The following transactions regarding the capital balance of the partners for year 2023 are provided:
K, Capital S, Capital
January 1, 2023 investment P5,000,000 P2,500,000
March 31, 2023 investment 500,000
July 1, 2023 withdrawal (1,000,000)
September 30, 2023 withdrawal (1,000,000)
October 1, 2023 investment 3,500,000
The chief accountant of the partnership reported net income of P5,000,000 for the year 2023.
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What is the capital balance of K on December 31, 2023?

A. 9,757,500
B. 7,257,500
C. 10,757,500
D. 6,257,500

3. On July 1, 2023, D and J formed DJ Partnership with initial investment of P5M and P10M,
respectively. D is appointed as the managing partner.
The articles of co-partnership provide that profit or loss shall be distributed accordingly:
 30% interest on original capital contribution ratio.
 Monthly salary of P100,000 and P50,000 respectively for D and J.
 D shall be entitled to a bonus equivalent to 20% of net income after interest, salary and bonus.
 The remainder shall be distributed in a ratio of 3:2 for D and J respectively.
For the year ended December 31, 2023, the partnership reported net income of P3,750,000.
1. What is the share in net income of D for the year ended December 31, 2023?
A. 2,000,000
B. 1,250,000
C. 1,750,000
D. 2,500,000

2. Using the same data, what is the share in net income of J assuming the bonus is equivalent
to 20% of net income after interest and salary but before bonus for the year ended
December 31, 2023?
A. 1,758,000
B. 1,992,000
C. 1,750,000
D. 2,500,000

4. Partners SB and DK have profit and loss agreement with the following provisions: salaries of
P450,000 and P675,000 for SB and DK, respectively: a bonus to SB of 10% of net income after
salaries; and interest of 10% on average capital balances of P300,000 and P525,000 for SB and
DK, respectively. One-third of any remaining profits will be allocated to SB and the balance to
DK.
If the partnership had net income of P330,000, how much should be allocated to Partner SB,
assuming that the provisions of the profit and loss agreement are ranked in order of priority
starting with 1) salaries, 2) interest, 3) bonus and are provided to the extent of the earnings
only?
A. 198,000
B. 187,500
C. 180,000
D. 132,000

END