PARTNERSHIP DISSOLUTION- QUIZ 3

INSTRUCTION: Write your answers for Part A questions 1 to 14 on the date and particular
column of your worksheet.
PART A. On January 1, 2015, the partners Connie, Denny, and Esty, who share profits and
losses in the ratio of 5:3:2, respectively, decided to dissolve their partnership. On
this date, part of the partnership condensed financial position appeared as follows:
Liabilities and Partner's Equity
Liabilities
P 60,000
Connie, Loan
20,000
Connie, Capital
60,000
Denny, Capital
90,000
Esty, Capital
70,000
You are given the following independent cases a) to h):
a) On Jan 5, 2015, the partners decided to dissolve the business by admitting Jay under
the following conditions:
1/3 of Dennys interest was to be purchased by Jay for P50,000, Jay makes additional
contribution so that her total capital credit and profit share will be 20%. No goodwill
or bonus is to be recognized.
Question 1: How much should Jay invest?
Question 2: Assuming no profit ratio was agreed upon, determine the revised ratio to
be used.
b) The new partner Jay will be admitted to the partnership.
Question 3: How much should Jay invest for a 30% interest aside from a P10,000
bonus given to him?
c) Jay is admitted for a 20% interest in the partnership by paying Denny and Esty
P54,000. Interest is transferred in proportion to their capital balances. Partners agreed
to revalue partnership assets.
Question 4: What are the revised equity of original partners after admission?
Question 5: What are the partners profit share if on June 30 net profit earned was
P120,000 with original partners agreeing to a bonus profit of 5% each after salaries
are paid quarterly of P10,000 to Connie, Denny, Esty and Jay.
d) Jay wishes to invest cash for a 20% interest based on old partners' equity. It was
further agreed that goodwill of P10,000 be recognized for Jay.
Question 6: How much is Jays investment?
e) Jay, a new partner, paid P50,000 to Connie for half of her interest and plans to increase
her interest to 25% with an additional contribution of P30,000 to the partnership.
Question 7: Is there a possibility to record an implied revaluation of assets? If yes,
how much will it be (indicate if it is an upward or downward adjustment)?
Question 8: How much will the revised equity of Connie be after admission?
f) Mid-year, Connie informed her desire to retire from the partnership. The partnership
agreement provides that the books of accounts need not be closed upon the retirement
of a partner. Net income is estimated and is to be considered as having been realized
proportionately during the period.
The partnerships estimated net income for 2015 was P88,000. Prior to retirement,
Connie paid personal expenses of P5,000 from the partnership funds. The partnership,
on the other hand, collected P15,000 on personal receivables of Connie which was
deposited for the account of the partnership.
The partnership assets have just been recently revalued. Issue date of the one year
loan is October 1, 2014 and accrues interest at 9% and is not yet included in the
liabilities. The remaining partners agreed on a value of P120,000 for all her interests.
Question 9: What is the total amount of interest for settlement?
Question 10: What are the revised equity of the partners just after retirement if
payment comes from the partnership?
Question 12: What are the revised equity of the partners just after retirement if
payment comes from the partners?

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g)

Partner Esty died on Sept. 1, 2015. It was agreed that the estate will be paid six
months after date of death plus accrued interest of 15%. Profit for 2015 was P180,000.
Question 12: What will be the total cash payment for Estys estate?

h) The partners wish to incorporate on January 3, 2015. The accountant updated the
balance sheet based on the following information:
a) Assets are 30% current including a loan receivable from Esty, P5,000. It was
agreed that this amount be offset against her capital account.
b) Non current assets should be revalued by 20%.
c) All liabilities are current and include accruals. Connie Loan will be absorbed by
the corporation.
Question 13: How much is the adjusted net assets to be recorded in the books of the
corporation.
Question 14: How many shares (par value P100) will be issued to Connie?
PART B. Answers before the number. If true, write the word True before the number. If false,
write the correct answer of the the underlined word(s) or figure(s) before the
number.
1. When a partner leaves a partnership, the present partnership ends.
2. Louie, Melanie and Norly are partners sharing profit and loss in the ratio of 3:3:2
respectively. Oskie is admitted as a new partner who invested for a 1/4 share in the
profits. The new profit ratio of Melanie is 22.5%.
3 and 4 are based on the following:
D, E and F are partners with capital balances of P80,000 each. G bought of D's
share for P50,000 and H invested P80,000 for a 25% capital credit. The accountant
made only two entries:
3. D, Capital
G, Capital

40,000

4. Cash

80,000
H, Capital

40,000
80,000

5. Partner E in the END partnership died on August 15, 2015. Articles of Co Partnership
provides that in case of death of one of the partners, the remaining partners may
continue the firm with settlement of estate six months from date of death. The firm
uses the calendar accounting period. Partner Es estate should be paid for total
interest including profit share for six months and accrued interest for another six
months.
6. When the current value of a partnership is greater than the recorded amounts of
equity, the current partners usually require any new partner to pay a bonus for the
privilege of joining.
7. Partners in a general professional partnership who receive salary allowance of
P60,000 each as part of profit distribution but P50,000 of which have been withdrawn
are required to pay tax based only on the amount withdrawn of P50,000.
8. To buy an interest in an existing partnership, the new partner must contribute to the
partnership.
9. When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if
the recorded equity is overstated.
10. In a partnership agreement, if the partners agreed to an interest allowance of 10%
annually on each partner's investment, the interest allowance legally becomes a profit
share of the general partner.

THAT IN ALL THINGS GOD MAY BE GLORIFIED

63

PARTNERSHIP DISSOLUTION
PROF Z VC MANUEL
Part A.
a)
PE
Addtl Invest
Connie 60,000
Denny 90,000-30,000
Esty
70,000
Jay
30,000
?
Total

Agreed
60,000
60,000
70,000
*
237,500
*

220,000

*190,000/.8= 237,500 x .2= capital credit for Jay 47,500

Transfer of interest (90,000 x 1/3)
30,000
1. additional cash Jay must invest
17,500

Connie
Denny
Esty
Jay
Total

P & L ratio
50
30 -10=20
20
10
100

Revised

20

Ratio of original partners will be 5:2:2 of 80%

2. Connie (5/9 x 80%)= 44.44% Denny (2/9 x 80%)= 17.78% Esty
(2/9 x 80%)= 17.78%
b) 3.
Connie
Denny
Esty
Jay
Total

PE
60,000
90,000
70,000

Addtl Invest

Bonus

Agreed

-10,000

210,000

+10,000

220,000

300,000
*

* Agreed equity for Jay (210,000/.7)= total agreed 300,000 x .3=

P90,000
Cash investment of Jay (90,000 P10,000 bonus)= P80,000
c) 4
PE after admission:
PE
AR
Connie 60,000 25,000
Denny 90,000 15,000
Esty
Jay
Total

70,000
220,00
0

10,000

Transfer
(30,649)
+
(23,351)
+
54,000

50,000

After Adm
85,000
74,351
56,649
54,000*
270,000*

Rev P & L
50%
18
12
20
100%

*Amount for revaluation is based on the new partners payment:

Agreed total capitalization based on what Jay wants to pay (P54,000 /.2) = P270,000
Asset revaluation (270,000- 220,000= P50,000
+54,000 allocated based on adjusted capital of Denny P105,000 and Esty P80,000
5.
Salary
Bonus
Remainder

64

Connie
20,000
2,000
17,000

Denny
20,000
2,000
6,120

Esty
20,000
2,000
4,080

Jay
20,000
6,800

Total
80,000
6,000
34,000

Total

39,000

28,120

26,080

26,800

120,000

Remainder based on revised P and L ration (last col of table in no. 4

d)

6. 220,000/.8= agreed equity of orig partners 275,000 x .2= total capital credit for Jay
55,000 10,000 goodwill = P45,000 cash investment.

e)

7.
PE
60,000
90,000
70,000

Connie
Denny
Esty
Jay
Total

Transfer
(30,000)

Invest

30,000

30,000
30,000

220,00
0

AR

(10,000)
*

Agreed

60,000
*240,000

*60,000/.25= total agreed P240,000 total contributed P250,000= P10,000 downward

adjustment.
8. Equity of Connie P60,000 30,000 transfer 5,000 downward adjust= P25,000
9. Connie Capital
P 60,000
Profit share (88,000 x x 50%)
22,000
Regular drawings
( 5,000)
Personal A/R collected
15,000
Updated capital
P 92,000
Connie, Loan
20,000
Accrued interest (20,000 x .09 x 9/12)
1,350
Total interest for settlement
P113,350
10. If cash settlement is P120,000, bonus of P6,650 will be given to Connie, revised
partners equity after retirement will be:
Denny (6,650 x 3/5)= 3,990 90,000= P86,010
Esty (6,650 3,990)= 2,660 70,000= P67,340
11. Use capital ratio to record transfer of interest, ignore payment:
Denny (90,000/160,000) x 113,350= 63,759 + 90,000= P153,759
Esty (113,350- 63,759 + 70,000 = P119,591
12. Esty, Capital on Sept 1
Profit Share from Jan 1 to Sept (180 x .2 x 8/12)
Accrued interest from Sept. 1 to Mar 1 (94,000 x .15 x 6/12)
Total interest for settlement
13.
Unadjusted capital
Loan Receivable
Asset revaluation*
Adjusted balances

Connie
P60,000

Denny
P 90,000

21,000
P81,000

12,600
P102,600

* 300,000 x .7= 210,000 x .2= P42,000

14. Connie will receive= 81,000 / 100= 810 shares.
PART B
True

1.

28.125%

2.

True

3.

True

4.

65

P 70,000
24,000
7,050
P103,050

Esty
P70,000
( 5,000)
8,400
P73,400

Total
P220,000
( 5,000)
42,000
P257,000

Profit for 7.5 mos 5.

True

6.

P60,000

7.

Pay the selling partner(s) 8.

understated

9.

Capitalist

10.

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