Saint Ferdinand College

College of Accountancy
Integrated Course in Advance Financial Accounting and Reporting

PARTNERSHIP OPERATIONS

I. PROBLEMS

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 the 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 P1,600,000. The profit or loss agreement of the partners were as follows:

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

 Quarterly salary of P200,000 and P50,000.
 Bonus to A equivalent to 20% of Net Income after Salaries and Interest to all partners.
 Remainder is to be distributed equally.

1. What is the partnership profit for the year ended December 31, 2023?
2. What is A’s share in partnership profit for 2023?
3. What is B’s share in partnership profit for 2023?

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.

 250,000 and 500,000 quarterly salaries 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 initial 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 5,000,000 for the year 2023. What is
the capital balance of K on December 31, 2023?

3. 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 ne t income after
salaries; and interest of 10% on average capital balances of 300,000 and 525,000 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 profit and loss agreement are ranked in order of priority starting with
1. Salaries 2. Interest and 3. Bonus and provided to the extent of earnings only?
II. Theories

1. This provision for profit or loss allocation may only be given if there is 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 net loss
b) Receipt of bonus by a partner from another partner based on 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 statement is true?

a) Withdrawal in anticipation of his share in the net income made by a partner during the year is
treated as 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 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 exceed the amount of net income.