A,BandCi ntendstoput-

upabusi
nesst
hroughapar
tner
shi
p.Theyaskf
ory
ourassi
stancei
nthe
account
ingforpart
nershi
paf
fai
rs.

Par
t1:
For
mat
ion
I
tist
obenotedthatbothAandBhav
eexi
sti
ngsolepropri
etor
shi
pbusi
nessesi
nwhi
cht
heasset
sand
l
i
abil
i
tiest
her
eoftheyint
endt
obri
ngi
ntot
hepart
nership.

Belowisasummar
yofA’
sasset
sandl
i
abi
l
iti
esi
nhi
ssol
epr
opr
iet
orshi
pandt
hef
airmar
ketv
aluesof
each:

Bookv
alue Fai
rmar
ketv
alue

Cash 500,
000 500,
000

Account
srecei
vabl
e 280,
000 215,
000

Equi
pment
,netofdepr
eci
ati
on 430,
000 500,
000

Account
spay
abl
e 320,
000 380,
000

Not
espay
abl
e 250,
000 210,
000

Ont
heot
herhand,
bel
owi
sB’
sbal
ancesheetf
rom hi
ssol
epr
opr
iet
orshi
p:

ASSETS LI
ABI
LITI
ES

Cash 430,
000 Account
spay
abl
e 280,
000

Account
srecei
vabl
e 210,
000 Mor
tgagepay
abl
e 185,
000

Bui
l
ding,
netofdep. 345,
000 OWNER’
SEQUI
TY

Vehi
cles,
netofdep. 425,
000 B,
capi
tal 945,
000

TOTALASSETS 1,
410,
000 TOTALLI
AB.ANDEQUI
TY 1,
410,
000

Last
ly,
Cwi l
lbri
ngintot
hepartner
shi
pbothexpert
iseandcapi
tal
,thef
ormerremunerat
edas10%ofthe
part
nershi
pprofi
tsandi
nvest
ingP250,000cashandbri
ngi
nginaccountsr
eceiv
ablesofP500,
000.

Thepartnersal
lagreedtobri
nginthei
rrespect
iverecei
vabl
esinthepar
tnershi
pat80%onl
y.Equi
pment
andothernon-cur
rentasset
saretobev al
uedat90%.Liabil
i
ties,
ontheotherhand,
wil
lbev
aluedatf
air
marketvalueorbookv al
ue,
intheabsenceoftheformer.
ANSWERKEYFORPART1
Takenot eoft
hepar t
nershi
pagreementt hatal
lrecei
vabl
esbr oughtbypar tnersi
nthepartnershipshal
lbe
val
uedat80%whi l
enon-curr
entassetsat90%.Thi sshal
lmeant hatthei
rrespecti
vebookv aluesmustbe
multipl
i
edbyt hegi
venrates.Li
abil
i
ties,
ont heotherhand,shallbev al
uedatf ai
rmarketvalue,becausean
agreementregardi
ngthoseisabsent.

I
temsbroughtint
he
A,
capi
tal B,
capi
tal C,
capi
tal
par
tnershi
p

Cash 500,
000 430,
000 250,
000

Account
srecei
vabl
e 280,
000x80% 210,
000x80% 500,
000x80%
=224,000 =168,
000 =400,
000

Equi
pment 430,
000x90%
=387,
000

Bui
l
ding 345,
000x90%
=310,
500

Vehi
cle 425,
000x90%
=382,
500

Account
spay
abl
e (
380,
000) (
280,
000)

Not
espay
abl
e (
210,
000)

Mor
tgagepay
abl
e (
185,
000)

Tot
alcapi
tal
credi
t 521,
000(
Q#1) 826,
000(
Q#2) 650,
000(
Q#3)

Atf
ormat
ion,
ABCPar
tner
shi
pshal
lhav
eabal
ancesheett
hatwoul
dlookl
i
ket
his:

ASSETS LI
ABI
LITI
ES

Cash 1,
180,
000 Account
spay
abl
e 660,
000

Account
srecei
vabl
e 792,
000 Not
espay
abl
e 210,
000

Equi
pment 387,
000 Mor
tgagepay
abl
e 185,
000

Bui
l
ding 310,
500 Tot
all
i
abi
l
iti
es 1,
055,
000(
Q#5)

Vehi
cle 382,
500

PARTNERS’
CAPI
TAL

A,
capi
tal 521,
000

B,
capi
tal 826,
000

C,
capi
tal 650,
000

Tot
alasset
s 3,
052,
000(
Q#4) Tot
all
i
ab.andequi
ty 3,
052,
000
Par
t2:
Oper
ati
ons
Thr
oughoutt
heyear
,ABCPartner
shi
pearnedneti
ncomeofP650,
000.Accor
dingt
othei
rar
ti
clesof
par
tner
shi
p,t
hepart
ner
sagreedonthefol
lowi
ngterms:

 Sal
ari
esshoul
dbegivent
oeachpart
ner,wit
hAr ecei
vi
ngaquart
erl
ysal
aryofP25,
000,
B,a
monthl
ysal
aryofP5,
000andC,anannualsal
aryofP180,
000.

 I
nter
estshal
lbegi
venbasedont
hei
rbegi
nni
ngcapi
tal
,at5%.

 Bonusof15%shoul
dbegi
vent
oB,
asmanagi
ngpar
tner
,af
tersal
ari
esandi
nter
estbutbef
oret
he
bonusi
tsel
f.

 10%ofneti
ncomet
oC,
asani
ndust
ri
alpar
tner
.

 Ther
emai
nderdi
str
ibut
edt
hrought
hef
oll
owi
ngr
ati
o:35%t
oA,
45%t
oB,
and20%t
oC.
 ANSWERKEYFORPART2
Thei mpor t
antthingtonoteherei
sthatC,asani ndustri
alpart
ner,wouldhavetorecei
ve10%oft he
partnershipnetincome.Lethimrecei
vehisshareasi ndustr
ialpar
tnerbeforey
oudi st
ri
butether
emainder
.
Also,takenoteoft heter
msusedi nthesalar
ies.Lastl
y,thecapit
alcomput edi
nthepreviouspar
tshal
lbe
thebegi nni
ngcapi t
alper
tainedi
ntheint
erestagreement .

Pr
ofi
tDist
ri
but
ionSchedul
e
ABCPart
nershi
p

Neti
ncome=P650,
000

Par
ti
cul
ars A B C Tot
als

Sal
ari
es (
25,000x4quart
ers) (
5,000x12months) 180,
000 340,
000
=100,
000(Q#6) =60,
000(Q#7) (
Q#8#9)

I
nter
est (
521,000x5%) (
826,000x5%) (
650,000x5%) 99,
850
=26,050(
Q#10) =41,300(
Q#11) =32,500(
Q#12)

Bonus (
650,000–340,000 31,
523
–99,850)x15%
=31,523(Q#13)

Indust
ri
alpar
tner (
650,000x10%) 65,
000
share =65,000

Remai nder (
113,627x35%) (
113,627x45%) (
113,627x20%) 113,
627
(650,000–340,000– =39,769 =51,132 =22,726
99,850–31, 523–
65,000)
=113, 627

Neti
ncomedi
str
ibut
ed 165,
819(
Q#14) 183,
955(
Q#15) 300,
226(
Q#16) 650,
000
t
opartner
s

Att
heendoft
hey
ear
,thepar
tner
sshal
lhav
enewbal
ancesof
:

A,
capi
tal B,
capi
tal C,
capi
tal

Begi
nni
ngbal
ances 521,
000 826,
000 650,
000

Neti
ncome 165,
819 183,
955 300,
226

New/
Endi
ngbal
ances 686,
819 1,
009,
955 950,
226
Par
t3:
Dissol
uti
on
Atthebegi
nni
ngofthenextbusi
nessy
ear
,al
lthepar
tner
sdeci
dedt
oadmi
tDi
ntot
hepar
tner
shi
pby
i
nvesti
ngcashi
nthepart
nershi
p.

Dint
endstoi
nvestP500,
000cashf
ora25%i
nter
esti
nthepar
tner
shi
p,wi
thanewt
otal
agr
eedcapi
tal
of
P2,
500,
000.
 ANSWERKEYFORPART3
Thecapi taltobeusedher ei
stheendingcapi talf
rom thepr ev
iouspart,
thati
s,thebeginningcapi
talf
rom
Part1i ncreasedbythenetincomereceiv
edf rom Part2.Those,toget
herwiththenewi nvestmentofD,
shallform partofthenewpartner
shi
pcapi tal.Si
ncecont r
ibutedcapit
alofD,500,000,i
sequal tohi
s
agreedcapi tal,
¼oft ot
alagr
eedcapit
alof2, 000,000,thi
sisanassetr eval
uati
on.Thisassetreval
uati
on
shallbedi st
ributedt
otheoldpart
nersthrought heirP/Lrates.

Tot
alcontri
but
ed Assetr
eval
uat
ion Bonus Tot
alagr
eedcapi
tal
capi
tal

A(
35%) 686,
819 (
647,
000x35%) (
125,
000x35%) (686,
819–226,
450-43,
750)
=(
226,
450)(
Q#18) =(43,
750) =416,619(
Q#20)

B(
45%) 1,
009,
955 (
647,
000x45%) (
125,
000x45%) (1,
009,
955–291,150–56,
250)
=(
291,
150)(
Q#19) =(56,
250) =662,
555(Q#21,#22)

C(
20%) 950,
226 (
647,
000x20%) (
125,
000x20%) (950,
226–129,
400–25,
000)
=(
129,
400) =(25,
000) =795,826(
Q#23)

D 500,
000 - 125,
000 625,
000(
Q#24)

Tot
al 3,
147,
000 (
647,
000) - 2,
500,
000

Si
nceDi
nvest
edcashofP500,
000,
addt
hisnewassett
othepr
evi
oust
otal
assetamount
:

Tot
alnewasset
s=3,
052,
000+500,
000=3,
552,
000(
Q#25)