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Partnership Formation SY2223
Partnership Formation SY2223
Partnership Formation SY2223
Problem 1
On July 1, 2019, XX and YY decided to form a partnership. The firm is to take over
business assets and assume liabilities, and capitals are to be based on net assets
transferred after the following adjustments:
Balance sheets for XX and YY on July 1 before adjustments are given below:
XX YY
Cash Php 31,000 Php 50,000
Accounts Receivable 26,000 20,000
Inventory 32,000 24,000
Office Supplies 5,000
Equipment 20,000 24,000
Accumulated Depreciation - Equipment (9,000) (3,000)
Total Assets Php 100,000 Php 120,000
Determine:
1. The net adjustments – capital in the books of XX and YY:
a. XX, P7,000 net debit; YY, P2,000 net credit
b. XX, P5,000 net debit; YY, P7,000 net credit
c. XX, P7,000 net credit; YY, P2,000 net debit
d. XX, P5,000 net credit; YY, P7,000 net debit
Problem 2
On December 1, 2019, AA and BB formed a partnership with contributing the following
assets at fair market values:
AA BB
The land and building are subject to a mortgage loan of P54,000 that the partnership
will assume. The partnership agreement provides that AA and BB share profits and
losses, 40% and 60%, respectively and partners agreed to bring their capital balances in
proportion to the profit and loss ratio and using the capital balance of BB as the basis.
The additional cash investment made by AA should be:
a. P18,000.00 c. P134,000.00
b. P85,500.00 d. P166,250.00
Problem 3
Baser and Michelle have just formed a partnership. Baser contributed cash of P920,000
and office equipment that costs P422,000. The equipment had been used in his sole
proprietorship and had been 70% depreciated. The current value of the equipment is
P295,000. Baser also contributed a note payable of P87,000 to be assumed by the
partnership. The partners agreed on a profit and loss ratio of 50% each. Baser is to have
a 70% interest in the partnership. Michelle contributed only a merchandise inventory
from her sole proprietorship carried at P550,000 on a first-in- first-out basis. The current
fair value of the merchandise is P525,000.
A. P224,000 C. P97,000
B. P(30,000) D. P(80,000)
Problem 4
In 2018, Norma and Celso agreed to form a new partnership under the following general
agreements:
Partners’ contributions will be on a 5:4 ratio; (2) Profit and loss, 5:5, and (3) Capital
credits 57:43 ratio, respectively to Norma and Celso. Their respective contributions will
come from old proprietorships they owned.
Celso contributed the following items at their carrying amounts in the proprietorship
records:
All the non-cash contributions are not properly valued. The two partners have agreed
that (a) P7,680 of the accounts receivable are uncollectible; (b) the inventories are
overstated by P19,200; (c) the furniture and fixtures are understated by P11,520; and
the intangibles include a patent with a carrying value of P13,440, which must now be
derecognized upon a court order. The rest of the intangible items are fairly valued.
1. How much is the total depreciable fixed asset recorded by the partnership?
a. P1,060,080 c. P1,116,480
b. P403,200 d. P1,041,480
2. What is the capital balance of Celso after the formation of the partnership?
a. 1,036,541 c. 1,325,808
b. 1,339, 225 d. 1,071,360
Problem 5
A, B and C formed the ABC Partnership on July 1, 2018, with the following assets,
measured at book values in their respective records, contributed by each partner:
A B C
A part of A’s contribution, P25,000, comes from his personal borrowings. Also, the PPE
of A and B are mortgaged with the bank for P160,000 and P16,500, respectively. The
partnership is to assume responsibility for these PPE mortgages. The fair value of the
accounts receivable contributed by C is P43,000 and her PPE at this date has a fair value
P365,000. All the other assets contributed are fairly valued. The partners have agreed to
share profits and losses on a 5:3:2 ratio, to A, B and C, respectively.
How much is the contribution of each partner? Calculate their contribution ratio.
Problem 6
On May 1, 2018, the business assets and liabilities of Nathan and Janice were as follows:
Nathan Janice
Cash 8,000.00 62,000.00
Receivables 200,000.00 600,000.00
Inventories 120,000.00 200,000.00
Land, Building and Equipment 650,000.00 535,000.00
Other Assets 2,000.00 3,000.00
Accounts Payable (180,000.00) (250,000.00)
Nathan and Janice agreed to from a partnership by contributing their net assets, subject
to the following adjustments:
James admits Dani as a partner in business. Accounts in the ledger of James on June 1,
2018, just before the admission of Dani, show the following balances:
It is agreed that for purposes of establishing James’s interest, the following adjustments
should be made:
Dani is to invest sufficient funds in order to receive a 1/3 interest in the partnership.
Problem 8
Harold and Cherry are partners sharing profits 60:40. A balance sheet prepared for the
partnership on April 1, 2018 shows the following:
On this date, the partners agree to admit Lucas as a partner. The terms of the
agreement is that assets and liabilities are to be restated as follows:
Harold, Cherry, and Lucas will divide profits in the ratio of 5:3:2. Capital balances for the
new partners are to be in this ratio with Harold and Cherry making cash settlement
outside of the partnership for the required capital adjustment between themselves and
Lucas investing cash in the partnership for his interest.
Questions:
Problem 9
1. Calculate the peso amount of inequity that will result if the initial noncash
contributions of the partners are recorded at cost rather than fair market value.