AFAR06-01 Partnership Accounting

No. 125 Brgy.
San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
AFAR06 – 01
PARTNERSHIP ACCOUNTING
Illustrative 1: Pepper and Bella formed a partnership and contributed the following assets
with their respective fair values:
Pepper Bella
Cash P 170,000
Land - P 220,000
Building - 300,000
Equipment 100,000 -
Per partnership agreement, the equipment is to be valued at P120,000. Bella’s land and
building are subject to a P100,000 real estate mortgage which is assumed by the
partnership. The mortgage has P10,000 interest accrued which is to be assumed by Bella.
Part of Pepper’s cash is highly liquid equity investments costing P40,000 but with a fair
value of P50,000.
Required:
1. Journalize the transactions and determine the capital balances of the
partners using the net investment method.
2. Assuming Pepper and Bella agreed to divide capital 40:60, respectively.
Determine the capital balance of Pepper and Bella assuming they agreed to
use:
a. Bonus method (Indirect Approach)
b. Bonus method (Bella will transfer capital to Pepper equal to 10% of her
initial capital credit)
c. Personal cash settlement
d. Settlement by cash investment
e. Settlement by cash withdrawal
1|Pa g e RFERRER/RSORIANO/ATANG/PDEJESUS
No. 125 Brgy. San Sebastian
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Illustrative 2: Pepper and Bella decided to combine their proprietorship business on

January 1, 2028. Shown below is a condensed balance sheet of the two proprietors on
December 31, 2027:
Pepper Bella
Cash P 424,000 P 412,000
Receivables, net of 2% allowance 1,176,000 588,000
Inventories 400,000 300,000
Property, plant and equipment, net 1,500,000 1,200,000
Total assets P 3,500,000 P 2,500,000
Accounts payables P 548,000 P 400,000

Notes payables 800,000
Capital 2,152,000 2,100,000
Total liabilities and capital P 3,500,000 P 2,500,000
The co-partnership agreement of Pepper and Bella provides for the following:
a. A 5% allowance is to be set-up on all receivables.
b. An item of equipment of Pepper is under-depreciated by P10,000.
c. Bella’s land should be revalued to a fair value of P200,000 from its P180,000 cost.
d. Both partners shall provide for 2% allowance for impairment for their inventories.
e. Bella has an unrecorded liability on account of P4,000. This will be assumed by
the partnership.
f. Pepper has an unrecorded liability of P12,000 which shall be assumed by him.
g. Profit or loss ratio is 40:60 respectively for Pepper and Bella while the Capital ratio
is 60:40 for Pepper and Bella, respectively.
Required: Determine the capital balances of the partners assuming:

1. Net investment method (disregard the capital ratio given)
2. Bonus Method
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Illustrative 3: The following information are given:

• Net income – P 200,000
• Total Salaries of the partners – P 50,000
• Total Interests of the partners – P 30,000
• Bonus to partner Rain – 20%
Required: Compute the bonus assuming:

1. Bonus is computed before salaries, interests, and the bonus
2. Bonus is computed after salaries and interests, but before the bonus
3. Bonus is computed before salaries and interests, but after the bonus
4. Bonus is computed after salaries, interests, and the bonus
Illustrative 4: The following summarizes the capital transactions of partners Pepper and
Bella which started operation during 2029:
Investments (Drawings) Pepper Bella

January 1 P 90,000 P 108,000
June 30 60,000 12,000
August 1 ( 16,800)
September 30 ( 18,000)
November 1 27,000
December 31 ( 30,000)
Profit sharing agreement:

Pepper Bella
Annual salary P 20,000 P 40,000
Interest of 10% weighted capital
Bonus after salaries and bonus 10%
Residual 40% 60%
Required:
1. Compute the profit sharing of Pepper and Bella assuming a profit of:
P93,000 profit P30,000 profit
Pepper __________ __________
Bella __________ __________
2. Compute the ending capital balance of Pepper assuming a profit of P 93,000.

3. Compute the ending capital balance of Bella assuming a profit of P 93,000.
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Illustrative 5: Given are the following:

Pepper Bella Ivana
Salaries P 20,000 P 10,000 -
Bonus after salaries and bonus 10% - -
Residual profit sharing 30% 30% 40%
Required: If Ivana received P20,000 profit sharing, compute the partnership net
income and Bella’s profit sharing, respectively.
Illustrative 6: Pepper and Bella are partners sharing profits and losses in the ratio of 60%
and 40%, respectively. The partnership balance sheet on April 30, 2028 follows:
Cash P 42,000 Accounts Payable P 223,000

Inventory 70,000 Pepper, Loan 20,000
Land 73,000 Pepper, capital 315,000
Buildings 523,000 Bella, capital 165,000
Bella, Loan 15,000
Total P 723,000 Total P723,000
The partners agreed to admit Ivana for a two-tenth interest for a P106,000 consideration.
At the time of admission, the fair market value of the land is appraised at P133,000 and
the market value of the inventory is P110,000.
Required:
1. Assume Ivana is admitted by the purchase of each of the original partners’
interest and paid the partners:
a. Prepare the journal entries on the revaluation of assets and the admission
of Ivana
b. Calculate the capital balances of the partners after the admission of
Ivana.
c. Calculate the amounts received by Pepper and by Bella for their
respective partnership interest transferred to Ivana
2. Now assume Ivana is admitted by investing the P106,000 to the partnership

for a 20% interest
a. Calculate the partners’ capital balances after the admission of Ivana.
b. Prepare the journal entry for the admission of Ivana.
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Illustrative 7: Pepper, Bella, and Ivana are partners dividing profits and losses in the ratio
of 2:3:3, respectively. Their capital balances on December 31, 2027 were:
Pepper P 90,000
Bella 70,000
Ivana 110,000
Ivana is retiring from the partnership as of April 30, 2028. After the retirement of Ivana,
Pepper and Bella will divide the profit or loss in the remaining original ratio. The
partnership reported a net income of P789,000 for the year 2028. Ivana is to be paid an
amount equal to 80% of his adjusted equity as of the date of his retirement.
Required: Assuming that the net income is considered as having been realized
evenly throughout the year, how much is the capital balance of Bella as of
December 31, 2028?
Illustrative 8: MM, Bella and Pepper are partners sharing profit 20:30:50 and have capital
balances of P80,000, P160,000 and P60,000, respectively. MM died on July 1, 2029. The
partnership reported profits of P30,000 for the first half of the year and P40,000 for the
second half of the year before considering the 10% stipulated interest on the estate of
MM.
Required: Assuming that the net income is considered as having been realized
evenly throughout the year:
1. How much is the capital balance of Bella as of December 31, 2029?
2. How much is the balance of the liability to the estate of MM as of December
31, 2029?
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Illustrative 9: Partners Bella and Pepper, who share profits and losses equally, have
decided to incorporate the partnership on December 31, 2026. The partnership net assets
after the following adjustments will be contributed in exchange for shares of stocks from
the corporation:
a. provision of allowance for doubtful accounts, P6,250.
b. adjustment of overstated equipment by 2,500
c. adjustment of understated inventory by P20,000
d. recognition of additional depreciation of P5,000.
The corporation’s ordinary shares are to have a par value of P312.50 each and the
partners are to be issued corresponding shares equivalent to 70% of their adjusted capital
balances.
The partnership balance sheet on December 31, 2026 follows:

Cash P 112,500 Liabilities P 107,500
Accounts receivable 62,500 Accumulated Depreciation 5,000
Inventory 87,500 Bella, capital 106,250
Equipment 50,000 Pepper, capital 93,750
Total P 312,500 Total P 312,500
Required:
1. Determine the total credit to share premium upon incorporation of the
partnership
2. Determine the number of ordinary shares issued to Partner Pepper
Illustrative 10: The partnership of Pepper, Bella and Ivana is being liquidated. The
summarized balance sheet below depicts their financial position before liquidation:
Cash P 30,000 Accounts payables P 280,000

Loans to Ivana 70,000 Pepper, loan 30,000
Other non-cash assets 600,000 Pepper, capital (40%) 90,000
Bella, capital (20%) 150,000
- Ivana, capital (40%) 150,000
Total assets P 700,000 Total liabilities and capital P 700,000
The personal assets and liabilities of each partner is shown as follows:
Personal Assets Personal Liabilities

Pepper P 620,000 P 600,000
Bella P 400,000 P 480,000
Ivana P 250,000 P 246,000
Required: Assuming that the other non-cash assets will be realized at P300,000,
how should the excess cash be distributed?
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Illustrative 10: Pepper, Bella, and Rain decided to dissolve their partnership on
November 30, 2027. The profit and loss ratio are as follows:
Capitals P/L Ratio
Pepper P 400,000 40%
Bella 480,000 30%
Rain 160,000 30%
The net income from January 1, 2027, to November 30, 2027, is P 352,000. On November
30, 2027, the cash balance is P 320,000, and that of liabilities is P 720,000.
Pepper is to receive P 441,600 in the settlement of her interest.
Required:
1. What is the loss on realization?
2. What is the amount to be realized from the sale of non-cash assets?
Illustrative 11: On December 31, 2027, the balance sheet of PBI Partnership is as
follows:
Assets Liabilities and Equity
Cash P 9,600 Account Payable 32,000
Noncash assets 169,600 Loan, Pepper 6,400
Loan to Ivana 6,400 Loan, Bella 12,800
Pepper, Capital 24,320
Bella, Capital 46,080
Ivana, Capital 64,000
Total P185,600 Total P 185,600
Profit and losses were shared as follows; Pepper, 30%; Bella, 30%; Ivana, 40%. It was
decided to liquidate the business. The following is a summary of the realization and
liquidation activities:
Book Value
Cash Expenses Liabilities Cash paid
of Assets
Collected Paid Paid to Partners
Sold
1st period P 83,200 P 51,200 P 2,560 P 32,000 P 26,240
2nd period 48,000 32,000 2,560 25,600
3rd period 32,000 19,200 1,120 21,760
4th period 6,000 3,200 160 3,200
Total P 169,200 P 105,600 P 6,400 P 32,000 P 76,800
Required:
1. Prepare a statement of Partnership Liquidation for each period.
2. Prepare a schedule of safe payment for each period.
3. Prepare a program to show how cash is to be distributed to partners.
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Illustrative 12: Following is the balance sheet of the PBGI Partnership at March 31, 2027,
when the partnership is to be liquidated:
Assets Liabilities and Capital

Cash P 6,000 Liabilities P 12,400
Other assets 126,000 Loan, Pepper 12,000
Loan, Bella 14,400
Loan, Ivana 9,600
Pepper, Capital 16,200
Bella, Capital 12,000
G, Capital 37,700
Ivana, Capital 17,700
Total P 132,000 Total P 132,000
During the month of April 2027, assets having a book value of P 18,000 are sold at a loss
of P 2,400. Liquidation expenses of P 600 are paid as well as P 12,000 of the liabilities.
Of the liabilities shown in the balance sheet, P 240 represents the salary payable to Ivana,
and P 160 represents the salary payable to G.
Required: On April 30, 2027, how much cash is distributed to Pepper, Bella, G, and
Ivana?
“Have I not commanded you? Be strong

and courageous. Do not be afraid; do
not be discouraged, for the Lord your
God will be with you wherever you go.”
-Joshua 1:9 (NIV)

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No. 125 Brgy.

Illustrative 2: Pepper and Bella decided to combine their proprietorship business on

Accounts payables P 548,000 P 400,000

Required: Determine the capital balances of the partners assuming:

Illustrative 3: The following information are given:

Required: Compute the bonus assuming:

Investments (Drawings) Pepper Bella

Profit sharing agreement:

2. Compute the ending capital balance of Pepper assuming a profit of P 93,000.

Illustrative 5: Given are the following:

Cash P 42,000 Accounts Payable P 223,000

2. Now assume Ivana is admitted by investing the P106,000 to the partnership

The partnership balance sheet on December 31, 2026 follows:

Cash P 30,000 Accounts payables P 280,000

The personal assets and liabilities of each partner is shown as follows:

Personal Assets Personal Liabilities

Pepper is to receive P 441,600 in the settlement of her interest.

Assets Liabilities and Capital

“Have I not commanded you? Be strong

-Joshua 1:9 (NIV)

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