PROBLEM 1.

The partnership of MB, NC, and OP was dissolved on May 31, 2013, and the account balances after all
noncash assets are converted to cash on July 1, 2013, along with residual P/L sharing ratios, are:

Cash P262,500 Accounts payable P630,000

NC, Capital (30%) 315,000 MB, Capital (30%) 472,500
OP, Capital (40%) 525,000

Personal assets and liabilities of the partners at July 1, 2013 are:

Personal Assets Personal Liabilities
MB P420,000 P472,500
NC 525,000 320,250
OP 997,500 420,000

If OP contributed P367,500 to the partnership to provide cash to pay the creditors, what amount of MB’s P472,500
partnership equity would appear to be recoverable:

A.P414, 750 C. P425, 250 B.P472,500 D. P 0

Remember A = L + E? Yep, most of my students thought the capital balances of NC and OP are positive and they just
happen to be on the left side of the given information. Nope, that actually meant the balances of NC and OP are negative or
deficit capital balances.
Assets Liabilities NC –30% OP –40% MB –30%

m
er as
Beginning balances 262,500 630,000 (315,000) (525,000) 472,500
Additional investment by OP, used to pay liabilities (367,500) 367,5000

co
262,500 262,500 (315,000) (157,500) 472,500

eH w
Pay liabilities using available cash (262,500) (262,500)
-0- -0- (315,00) (157,500) 472,500

o.
Additional investment of solvent partners 362,250 204,750 157,500

rs e
Insolvent partner’s deficit to be absorbed by solvent
362,250 -0- (110,250)
110,250
-0-
(52,500)
472,500
(57,750)
ou urc
partners, according to P/L
Additional investment of OP, still solvent 52,500 52,500
414,750 -0- -0- -0- 414,750
o

MB, despite being insolvent on his personal net assets, still has a positive capital balance, so he remains to absorb any
partner’s deficit, if applicable. A deficit (or negative balance) is to be eliminated as follows:
aC s

1.By additional investment, if partner is solvent.

vi y re

2.Absorbed by partners with positive capital balances, or those still solvent.

Personal assets and liabilities of the partners at July 1, 2013 are:

Personal Assets Personal Liabilities Personal net assets
MB P420,000 P472,500 insolvent
ed d

NC 525,000 320,250 204,750

OP 997,500 420,000 577,500
ar stu

Also note that NC’s additional investment is limited by his personal net assets amounting to P204,750.
ANSWER: A

PROBLEM 2.The partnership of DBM, TRA and MDS became insolvent on December 31, 2012 and is to be liquidated.
is

DBM, TRA and MDS has the following balances respectively, P455,000, (P210,000), (P28,000). After paying their personal
liabilities, DBM has still P70, 000 while TRA has P105,000 of their personal assets. However, MDS has still unpaid personal
Th

liabilities amounting to P280,000 and his personal assets amounted only to P210,000. The partners share profits and losses
equally. How much is the maximum amount that DBM can expect to receive from the partnership?
A.P217,000 C. P427,000 B.P245,000 D. P322,000

Another straight-forward problem. We start with their balances. Take note of their net personal assets, if they are still solvent.
sh

Any deficit of insolvent partner/s will be absorbed by the partner with positive capital balance or those who are still solvent.
DBM TRA MDS
Capital balances 455,000 (210,000) (28,000)
Additional investment of TRA, becomes insolvent after this 105,000
455,000 (105,000) (28,000)
TRA and MDS, both insolvent, deficit to be absorbed by DBM (133,000) 105,000 28,000
Capital balance 322,000 -0- -0-
DBM can expect to receive P322,000 from the partnership. ANSWER: D

This study source was downloaded by 100000831600463 from CourseHero.com on 10-16-2021 21:19:31 GMT -05:00

https://www.coursehero.com/file/39846092/PROBLEM-1docx/
 PROBLEM 3. The partnership of CD, AY, and GP decided to liquidate their partnership on May 31, 2013. Before liquidating
and sharing of net income, their capital balances are as follows: CD (30%) P875,000, AY (30%)
P630, 000, and GP (40%) P770,000. Net income from January 1 to May 31 is P420,000. Liabilities of the partnership
amounted to P735,000 and its total assets include cash amounting to P245,000. Unsettled liabilities are P385,000. CD
invested additional cash enough to settle their partnership’s indebtedness. AY is personally solvent, GP is personally
insolvent, and CD becomes insolvent after investing the cash needed by the partnership.

How much were the partnership’s non-cash sold for?

A.P157,500 C. P105,000 B.P3,080,000 D. P525,000

How much cash will AY invest in the partnership?

A.P315,000 C. P294,000 B.P168,000 D. P70,000

How much will CD receive as a result of their liquidation?

A.P385,000 C. P315,000 B.0 D. P462,000

Cash Noncash Liabilities CD–30% AY–30% GP–40%

875,000 630,000 770,000
Net Income –420,000 126,000 126,000 168,000
Balances 245,000 3,185,000 735,000 1,001,000 756,000 938,000
Asset realization 105,000 (3,185,00) (924,000) (924,000) (1,232,00)
Payment of liabilities (350,000) (350,000)

m
Balances -0- -0- 385,000 77,000 (168,000) (294,000)

er as
Additional investment by CD to cover liabilities (385,000) 385,000

co
Balances -0- -0- -0- 462,000 (168,000) (294,000)

eH w
GP is insolvent, let the other partners absorb his (147,000) (147,000) 294,000
deficit
AY is solvent, makes additional investment 315,000

o.
Balances -0- -0- -0- 315,000 -0- -0-

rs e
ou urc
ANSWER ON FIRST QUESTION: C. Given that the payment to liabilities at that point is P350,000 and the cash balance
before payment is P245,000, that would mean the cash realized from sale of noncash assets is P105,000.

ANSWER ON SECOND QUESTION: A. Total investment of AY is P315,000 to cover his deficit of P168,000 and his share on
absorbing the deficit of GP amounting to P147,000.
o

ANSWER ON THIRD QUESTION: C. The amount to be received by CD is P315,000.

aC s

PROBLEM 4.On January 1, 2013, ACJ Partnership entered into liquidation. The partners’ capital balances on this date
vi y re

were as follows:
A (25%) P2,500,000; C (35%) P5,400,000; J (40%) P3,700,000.
The partnership has liabilities amounting to P4,400,000, including a loan from C P600,000. Cash on hand before the start of
liquidation is P800,000. With the information given, answer the following independent situations:
(1) Noncash assets amounting to P7,400,000 were sold at book value and the rest of the noncash assets were sold at
ed d

a loss of P4,200,000. How much cash will be distributed to the partners?

A.P8,000,000 C. P4,400,000 B.P7,400,000 D. P11,800,000
ar stu

(2) After exhausting the noncash assets of the partnership, assuming all partners has personal assets more than their
personal liabilities. How much cash must be invested by the partners to satisfy the claims of the outside creditors
and to pay the amount due to the partner/s?
A.P3,680,000 C. P4,480,000 B.P4,360,000 D. P3,800,000
is

(3) If C received P2,255,000, How much was the loss from the realization of the noncash assets?
A.P5,255,000 C. P10,700,000 B.P10,525,000 D. P9,945,000
Th

PROBLEM 4
ANSWER: (1) A (2) A (3) D
sh

This study source was downloaded by 100000831600463 from CourseHero.com on 10-16-2021 21:19:31 GMT -05:00

https://www.coursehero.com/file/39846092/PROBLEM-1docx/
 SITUATION 1:
Cash Noncash Liabilities A –25% C –35% J –40%
Balances 800,000 15,200,000 3,800,000 2,500,000 5,400,000 3,700,000

Loan from C 600,000

Asset realization 7,400,000 (7,400,000
)
Asset realization 3,600,000 (7,800,000 (1,050,000 (1,470,000 (1,680,000
) ) ) )
Payment of liabilities (3,800,000 (3,800,000
) )
Balances 8,000,000 -0- -0- 1,450,000 4,530,000 2,020,000

The remaining noncash (P15,200,000 – P7,400,000 = P7,800,000) were sold for a loss of P4,200,000. As such, the cash
received is P7,800,000 –P4,200,000 = P3,600,000.

SITUATION 2:
Cash Noncash Liabilities A –25% C –35% J –40%
Balances 800,00 3,800,00
15,200,000 2,500,000 5,400,000 3,700,000
0 0
Loan from C 600,000

m
Assumed loss (15,200,000 (3,800,000 (5,320,000
(6,080,000)

er as
) ) )
Balances 800,00 3,800,00 (1,300,000
-0- 680,000 (2,380,000)

co
0 0 )

eH w
Additional investment by solvent partners 1,300,000 2,380,000
Balances 800,00 3,800,00
-0- -0- 680,000 -0-

o.
0 0

rs e
ou urc
The partners will invest P1,300,000 + P2,380,000 = P3,680,000

SITUATION 3:

In Practical Accounting 2(now called AFAR), if not stated partners are insolvent In Law –in practice, partners are assumed to
o

be solvent With that said, here’s the format in computing for cash realization, in case we have to go backwards again:
aC s

Beginning cash balance 800,000

vi y re

+ Additional investment -0-

+ Cash from asset realization ???
-Liquidation expenses -0-
-Payment of liabilities (3,800,000
-Payment of remaining liabilities -0-
ed d

-Cash withheld for foreseeable expenses -0-

ar stu

Ending cash balance 2,255,000

Using the above format, and working backwards to get the cash from asset realization, we will get P 5, 255,000.
And here’s the format for Total Loss, separated into Actual loss and Possible loss:
is

+ Gain on realization xxx Actual loss

-Loss on realization (xxx)
Th

-Liquidation expenses (xxx)

-Goodwill to be written off (xxx)
-Remaining noncash (xxx) Possible loss
-Cash withheld for expenses (xxx)
Total Loss xxx
sh

We’ve got this simple reminder:

Capital balances before realization xx xx xx Loss computed is loss on asset

Asset realization, resulting in loss (xx) (xx) (xx) realization
IF all positive xx xx xx

Capital balances before realization xx xx xx Loss computed minus negative

This study source was downloaded by 100000831600463 from CourseHero.com on 10-16-2021 21:19:31 GMT -05:00

https://www.coursehero.com/file/39846092/PROBLEM-1docx/
 Asset realization, resulting in loss (xx) (xx) (xx) balances equals loss on asset
IF with negative (xx) xx (xx) realization

Here’s one applied on the problem:

Capital balances before realization 2,500,000 6,000,000 3,700,000 Loss computed minus negative
Asset realization, resulting in loss (2,675,00 (3,745,000 (4,280,000 balances equals loss on asset
0 ) ) realization
IF with negative (175,000) 2,255,000 (580,000)

So, computed loss is P10,700,000 (the share of C divided by his P/L ratio:P3,745,000 / 35%)Thing is, this might include
absorbed loss due to another partner’s deficit. As such, it’s important to know whether the balances of the other partners are
positive or negative. If there’s a negative there that means it’s been absorbed by the partner.
As such, the loss on asset realization is: 10,700,000 –175,000 –580,000 = 9,945,000

I think this problem is also on P2 of Dayag, but it has a different answer. The above is what was taught to us in CPAR. So
really, when you choose a review school, trust them. There are some items/questions
in different subjects that have different answers on review schools. Well, they are “suggested answers “only, unless there are
official ones from PRC or BOA.
Please note that the above is only applicable on this type of problem: You’re given the amount received by a partner and

m
you’re being asked about the loss from realization of noncash assets.

er as
PROBLEM 5 YES Partnership had the following condensed financial position prior to liquidation:

co
Assets Liabilities and Capital

eH w
Cash P588,000 Liabilities P328,000

o.
Noncash assets 2,880,000 Loan payable to NY 180,000

rs e NY, Capital (25%) 776,000

ou urc
RB, Capital (40%) 1,320,000
IS, Capital (35%) 864,000
Total P3,468,00 Total P3,468,00
0 0
o

Assuming noncash assets with a book value of P1,360,000 were sold for P1,660,000 and that all available cash was
aC s

distributed. Which of the following statements is false for Partner NY to receive a total of P704,000 cash after liquidation?
vi y re

A. The proceeds from the sale of the remaining noncash assets amount to P212,000
B. The loss on realization on the sale of the remaining noncash assets amount to P708,000
C. Partner RB will receive the amount of P832,000 on the first distribution of cash
D. Partner IS will receive a total of P511,200 cash after liquidation

PROBLEM 5.
ed d

This one looks familiar. Do you remember this?

ar stu

Cash Noncash Liabilities NY –25% RB –40% IS–35%

Balances 588,000 2,880,000 328,000 776,000 1,320,00 864,000
0
Loan to partner 180,000
Balances 588,000 2,880,000 328,000 956,000 1,320,00 864,000
is

0
Asset realization 1,660,00 (1,360,000 75,000 120,000 105,000
Th

0 )
Payment of liabilities (328,000) (328,000
)
Balances 1,920,00 1,520,000 -0- 1,031,00 1,440,00 969,000
0 0 0
sh

Asset realization (worked back using NY’s 212,000 (1,520,000 (327,000) (523,200) (457,800
share on loss) ) )
Balances 2,132,00 -0- -0- 704,000 916,800 511,200
0

For Letter C:
RB –40%
Balances 1,320,000

This study source was downloaded by 100000831600463 from CourseHero.com on 10-16-2021 21:19:31 GMT -05:00

https://www.coursehero.com/file/39846092/PROBLEM-1docx/
 Loan to partner
Balances 1,320,000
Asset realization 120,000
Payment of liabilities
Balances 1,440,000
Share in assumed loss of P1,520,000 (608,000)
Amount to be received on first cash distribution 832,000

ANSWER: B (The loss amounts to P1,308,000. See lecture for discussion.)

PROBLEM 6 HM, CM and DM of The M3 Partnership has the following account balances before liquidation:

Cash P420,000 Liabilities P524,000

Noncash assets 3,880,000 Loan from DM 100,000
Loan to CM HM, Capital (25%) 1,120,000
Receivable from HM CM, Capital (15%) 1,624,000
Expenses DM, Capital (60%) 2,256,000
Revenues 1,468,000

m
er as
co
During June, some noncash assets were sold that resulted to a gain of 72,000. Liquidation expenses of P124,000 were paid

eH w
and additional expenses amounting to P96,000 were expected to be incurred through the following months of liquidating the
partnership. Liabilities to outsiders amounting to P316,000 were paid. For CM to receive P874,000 on the first distribution of

o.
cash, which of the following statements is correct?

rs e
A. The total maximum possible loss for the month of June amount to P2,704,000
B. The total amount of cash paid to partners in June amount to P1,144,000
ou urc
C. The proceeds from the sale of the noncash assets sold in June amount to P1,396,000
D. The amount of cash withheld considered in the computation of maximum possible loss amount to P304,000

Cash Noncash Liabilities HM –25% CM –15% DM –60%

o

Balances 420,000 3,880,000 524,000 1,120,00 1,624,00 2,256,00

0 0 0
aC s

Loan to DM/ CM (192,000) 100,000

vi y re

Receivable from HM (44,000)

Net Loss –1,088,000 (272,000) (163,200) (652,800)
Balances 420,000 3,880,000 524,000 804,000 1,268,80 1,703,20
0 0
Actual liquidation expenses (Actual loss) (124,000) (31,000) (18,600) (74,400)
ed d

Assumed liquidation expenses(Possible loss) (96,000) (24,000 (14,400) (57,600)

Balances 200,000 3,880,000 524,000 749,000 1,235,80 1,571,20
ar stu

0 0
Asset realization 1,468,00 (1,396,000 18,000 10,800 43,200
0 )
Payment of liabilities (524,000) (524,000
is

)
Balances 1,144,00 2,484,000 -0- 767,000 1,246,60 1,614,40
Th

0 0 0
Assumed loss, not yet realized (2,484,000 (621,000) (372,600) 1,490,40
) 0
Cash distribution 1,144,00 -0- -0- 146,000 874,000 124,000
0
sh

Net Loss is computed as: Revenue –Expenses

So, we have:P1,468,000 –2,556,000 = P1,088,000 to be distributed to partners according to their P/L ratio.
A is incorrect. If CM is to receive P874,000, that means he absorbed additional loss amounting to:

P1,246,600 –P874,000 = P372,600.

The total amount of this loss is P372,600 / 15% = P2,484,000(Another possible loss).

This study source was downloaded by 100000831600463 from CourseHero.com on 10-16-2021 21:19:31 GMT -05:00

https://www.coursehero.com/file/39846092/PROBLEM-1docx/
 Total possible loss is: P96,000 + P2,484,000 = P2,580,000

Actual vs. possible loss. Actual loss are those that have been actually incurred. This type of loss arise from transactions that
already happened. Done. Possible loss are assumed loss, given the circumstances. These are technically estimated future
losses. The transactions haven’t occurred yet. C is incorrect.

The amount received on asset realization is computed backwards. We have the total noncash of P3,880,000.
And then, the assumed loss for unsold noncash is P2,484,000. Using these, the book value of sold noncash is: P3,880,000
–P2,484,000 = P1,396,000.Since there is a gain of P72,000, the cash received is: P1,396,000 + P72,000 = P1,468,000.
D is also incorrect. Cash withheld for maximum possible loss is only P96,000.
ANSWER: B

m
er as
co
eH w
o.
rs e
ou urc
Euge Nuez Jeanalyn Templa Stephanie Gaile Gozo Catigan Justine Ericka Duya Kiann Lhale 
Frayco Ayesah Marie del Rosario Geraldyn Panes Palomar Apple Mae Parde
o
aC s
vi y re
ed d
ar stu
is
Th
sh

This study source was downloaded by 100000831600463 from CourseHero.com on 10-16-2021 21:19:31 GMT -05:00

https://www.coursehero.com/file/39846092/PROBLEM-1docx/
Powered by TCPDF (www.tcpdf.org)