Chapter 2

Partnership Operations

True or False
1. According to the law, if no profit or loss sharing ratio has been agreed upon, the partners shall
share equally. FALSE
2. Mr. A and Ms. B formed a partnership. Mr. A contributed Php 1M cash while Ms. B will
contribute her services. Mr. A is a capitalist partner while Ms. B is an industrial partner. TRUE
3. You and I are partners. We share in profits equally. Because I’ am the managing partner. I’am
entitled t0 a 20% bonus computed on profit before deducting the bonus. If our partnership
earns profit of Php 1M (before deducting my bonus) your share would be Php 500,000. TRUE
4. Use the above facts, if our partnership incurs loss of Php 1M, your share would be (Php 400,000)
TRUE
5. Normally, partners are entitled to salaries for the services they have rendered to the partnership
business only if the business earns profit. TRUE
6. He and she are partners with a 60% and 40% interests in the partnership profit, respectively. He
is entitled to Php 2M annual salary. If the partnership earns Php 12M profit before deducting
He’s salary, She’s share would be Php 4M. TRUE
7. Use the above facts, if the partnership incurs Php 8M loss before deducting He’s salary, She’s
share would be (Php 400,000) FALSE
8. A and B formed a partnership. The partnership agreement stipulates that (a) annual salary
allowances of Php 50 for A and Php 30 for B; (b) any remaining amount of profit or loss shall be
divided equally. During the period, the partnership earned profit of Php 100 before salary
allowances. A’s share in the partnership profit is Php 10. TRUE
9. Use the above facts, during the period, the partnership incurred loss of Php 100 before salary
allowances. A’s share in the partnership loss is (Php 40). TRUE
10. Mr. C, the managing partner in ABC, Co. is entitled to a 20% bonus on profit after partners’
salaries and bonus. ABC Co. reported a profit of Php 360 after deducting the partners’ salaries
but before deducting Mr. C’s bonus. Mr. c’s bonus is Php 80. FALSE

Multiple Choice
1. How should the partners in a business partnership share in the profits or losses of the
partnership
1. Equally
2. At whatever basis of allocation that the dominating partner deems reasonable
3. In accordance with the partnership agreement
4. Based on “rock, paper, scissors” winner takes all

2. According to the Philippine Civil Code, if only the share of each partner in the profits has been
agreed upon, the share of each in the losses shall be
a. In equal amounts
b. In equal amounts, but excluding the industrial partner
c. In proportion to the partner’s contribution
d. The same as the sharing in profits

3. According to the Philippine Civil Code, in the absence of a stipulation on the sharing of profits or
losses, partnership profits and losses shall be shared by the partners
a. Equally
b. In accordance with partnership agreement
c. In proportion to what the partners may have contributed
d. In proportion to what the partners may have contributed, but the industrial partner shall not be
liable for the losses

4. Which of the following is not a component of the formula used to distribute partnership profits
to the partners
a. Salary allocation to those partner’s working
b. After all other allocation, the remainder divided according to the profit or loss sharing ratio
c. Interest on the average capital investment
d. Interest to notes to partner

5. When allocating a partnership loss to the partners, which of the following items is provided
first?
a. Salaries
b. Bonuses to partners
c. Interest on the capital contribution of an industrial partner
d. All of these

Problem Solving
1. A and B’s partnership agreement provides for an annual salary allowance of Php 100,000 for A
and 10% interest in the weighted average capital balance of B. The remainder is shared on a
60:40 ratio, respectively. During the period, the partnership earned profit of Php 200,000. B’s
capital account had a beginning balance of Php 120,000. B made an additional investments of
Php 40,000 on April 1, Php 80,000 on September 30 and Php 20,000 on December 31 and made
drawings of Php 60,000 on July 31.

Required: Compute for the respective chares of the partners in the profit.
A B TOTALS
SALARIES 100,000.00 100,000.00
INTEREST 14,500.00 14,500.00
BALANCE= 60:40 51,300.00 34,200.00 85,500.00
TOTAL 151,300.00 48,700.00 200,000.00

2. A and B’s partnership started operations on July 1, 20 x1. The partnership agreement requires A
and B to maintain average capital balances of Php 200,000 and Php 300,000, respectively. A 10% annual
interest is to be computed on any excess or deficiency. Any remaining amount of profit or loss is to be
shared on a 60:40 ratio. The partnership incurred loss of Php 120,000 in 20x1. The average capital
balances in 20x1 were Php 240,000 for A and Php 220,000 for B.

Required: Compute for the respective shares of the partners in their loss
A B TOTALS
INTEREST 24,000.00 22,000.00 46,000.00
BALANCE=60:40 (99,600.00) (66,400.00) (166,000.00)
TOTAL (75,600.00) (44,400.00) (120,000.00)

3. A and B formed a partnership and began operations on March 1, 20x1. A invested cash of Php
200,000 while B invested equipment with a book value of Php 600,000 and a fair value of Php 360,000.
On August 31, 20x1, A invested additional cash of Php 40,000. The partnership agreement stipulates the
following:
a. Monthly salary allowances of Php 4,000 and Php 20,000 to A and B, respectively, recognized as
an expense.
b. 20% bonus on profit before salaries and interest but after bonus to B
c. 12% annual interest on the beginning capital of A
d. Balance equally
The monthly salaries are withdrawn by each partners at each month-end. The partnership
earned profit of Php 420,000 during the period before deductions for bonus and interest.

Required: Compute for the ending balances of each of the partner’s capital accounts.
A, Capitals
monthly salaries 4,000.00 1-Mar 200,000.00
20% bonus 42,000.00 1-Aug 40,000.00
annual interest 24,000.00
earned profit 156,000.00
totals 226,000.00 240,000.00

ending capital 14,000.00

B, Capitals
monthly salaries 20,000.00 equipment 360,000.00
20% bonus 42,000.00
earned profit 156,000.00
totals 218,000.00 360,000.00

ending capital 142,000.00

The End!