CHIANG KAI SHEK COLLEGE

ADVANCED FINANCIAL ACCOUNTING AND REPORTING AFAR001

PARTNERSHIP FORMATION

Theoretical
1. Which of the following statements concerning the formation of partnership business is correct?
a. The juridical personality of the partnership arises from the issuance of certificate of registration.
b. The parties may become partners only upon contribution of money or property.
c. Philippine Financial Reporting Standards (PFRS) allows recognition of goodwill arising from the
formation of partnership.
d. The capital to be credited to each partner upon formation may not be the amount contributed by
each partner.

2. Which of the following would not be considered a characteristic of a partnership?

a. Co-ownership of property c. Mutual agency
b. Unlimited liability d. Unlimited life

3. Which of the following would most likely be considered an advantage of forming a partnership?
a. Unlimited liability
b. Mutual agency
c. Relatively free from governmental regulations and restrictions
d. Partners having different principles may cause disagreements and conflicts

4. To be a partner, a member must contribute money, property or industry to the partnership. This
makes the partnership agreement,
a. Bilateral c. Nominate
b. Onerous d. Preparatory

Practical
Problem A. On January 1, 2023, Del, Belle and Tel decided to form a partnership. Del a sole proprietor
will transfer to the partnership his net assets, excluding cash. Belle will contribute cash amounting to one-
half of Del’s investment. Tel will contribute a piece of land with an original cost of P280,000 but with an
agreed value of P500,000. The statement of financial position of Del as of this date is presented below:

Assets Liabilities and Capital

Cash P850,000 Accounts payable P2,180,000

Accounts receivable 1,200,000 Del, capital 3,170,000

Allowance for doubtful accounts (300,000)

Inventories 2,500,000
Furniture and fixtures 1,700,000
Accumulated depreciation (600,000)
Total assets P5,350,000 Total liabilities and capital P5,350,000

The articles of co-partnership executed for the purpose contains the following adjustments:
• Only 90% of the outstanding accounts receivable is estimated to be collectible.
• 80% of the inventories can only be sold for P1,500,000 and the balance can be sold at book value.
• Furniture and fixtures must be 40% depreciated.
• The liabilities are to be assumed by the partnership.

How much is the balance of the partner’s capital accounts upon formation?
Del Belle Tel
A. P2,770,000 P1,385,000 P500,000
B. 2,770,000 860,000 280,000
C. 1,920,000 960,000 500,000
D. 1,720,000 1,385,000 280,000

How much is the total assets of the newly formed partnership?

A. P5,560,000 B. P3,380,000 C. P6,410,000 D. P6,945,000

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Problem B. On December 31, 2023, Chico and Gino decided to pool their resources and put up a
partnership. After the formation, the partners agreed to share in the profits and losses at the ratio of 75:25
for Chico and Gino, respectively. Their unadjusted trial balances on December 31 are as follows:

Chico Gino
Debit Credit Debit Credit
Cash P125,000 P310,000
Accounts receivable 1,500,000 800,000
Allowance for doubtful accounts P200,000 P70,000
Notes receivables 750,000 -
Inventories 1,800,000 1,750,000
Prepaid insurance - 45,000
Machineries 2,000,000 -
Accumulated depreciation – machineries 500,000 -
Furniture and fixtures - 700,000
Accumulated depreciation – furniture - 200,000
and fixtures
Accounts payable 1,050,000 1,625,000
Notes payable - 450,000
Sales 3,200,000 1,200,000
Cost of sales 1,900,000 900,000
Operating expenses 750,000 350,000
Capital 3,875,000 1,310,000
Total P8,825,000 P8,825,000 P4,855,000 P4,855,000

The partnership is to take over business assets and assume business liabilities. Capitals are to be based on
net assets transferred after the following adjustments:
• 10% of the accounts receivables of Chico and Gino are estimated to be doubtful of collections.
• A 60-day 12% notes was received by Chico last November 15, 2023. No interest is has been accrued
yet. Interest is computed on a monthly basis.
• The inventory of Chico should be valued at P1,200,000 while 10% of Gino’s inventory is to be
considered worthless.
• Only 20% of the prepaid insurance is still unexpired.
• The machineries should be depreciated by P20,000 more.
• The furniture and fixtures should be 40% depreciated.
• Interest at 10% on notes payable dated September 30, 2023 should be accrued.
• Accrued rent expense of P25,000 is to be recognized in the books of Chico.
After formation, the new capital of the partnership must be based on the adjusted capital balance of Chico,
so that Gino may either withdraw or invest additional cash to make the partners’ capital balance in
proportionate to their profits and losses ratio.

How much is the additional cash to be invested/received by Gino to make his capital balance proportionate
to their profit ad loss ratio?
A. P332,667 B. P149,333 C. P2,893,500 D. P12,563

Problem C. Jaime decided to admit Ted as co-owner in his business by forming a partnership. The selected
accounts of Jaime on May 31, 2023 prior to the admission of Ted are as follows:

Debit Credit
Cash P?
Accounts receivable 96,000
Merchandise inventory 183,300
Accounts payable P49,600
Jaime, capital ?

It is agreed that the following adjustments should be made:

• An allowance for doubtful accounts of 2% of accounts receivable is to be established.
• Merchandise inventory is to be valued at P160,000.
• Prepaid expenses of P5,200 and accrued expenses of P3,200 are to be recognized.

Ted invested cash of P113,640 to give him one-third interest in the partnership capital. What is the adjusted
capital balance of Jaime before the admission of Ted?
A. P250,500 B. P211,200 C. P230,120 D. P227,280

How much is the cash balance of the sole proprietorship?

A. P2,420 B. P38,080 C. P20,800 D. P19,200

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Quizzer: On December 1, 2023 Gelli, the sole proprietor of the Vaseline Company, expands the company
and establish a partnership with Althea and Bettina. The partners plan to share profits and losses as follows:
Gelli, 40%; Althea, 35% and Bettina, 25%.

Gelli asked Althea to join the partnership because his image and reputation are expected to be valuable
during the formation. Althea is also contributing P105,000 cash and a building that was acquired for
P1,010,000, with carrying amount of P870,000, and a fair market value of P490,000. The building is subject
to a P198,000 mortgage that the partnership did not assume.

Bettina is contributing P212,000 cash and marketable securities costing P336,000 to Bettina but are
currently worth P475,000. Gelli’s investment in the partnership is the Vaseline Company. The Statement
of Financial Position for the Vaseline Company follows:
Vaseline Company
Statement of Financial Position
December 31, 2023

Assets Liabilities and Capital

Cash P390,000 Accounts payable P437,000
Accounts receivable 456,000 Notes payable 592,000
Inventories 394,000 Gelli, capital 829,000
Equipment, net 618,000
Total assets P1,858,000 Total liabilities and capital P1,858,000

The partners agree that 35% of the inventory is considered worthless, the equipment is worth 75% of its
carrying amount, and 15% of the accounts receivable is uncollectible. Gelli plans to pay off the accounts
payable with his personal assets. The other partners have agreed that partnership will assume the notes
payable. The partners agreed that their capital balances upon formation will be in conformity with their
profit and loss ratio.

All the statements are true, except:

A. Assuming the partners will either invest or withdraw cash, using Bettina as the base, Gelli and Althea
will both invest cash with a total amount of P560,800.
B. If the transfer of capital method is used, the capital accounts of Gelli and Bettina will be debited in
the amount of P30,320 and P140,200, respectively.
C. Assuming the partners will either invest or withdraw cash, using Gelli as the base, Althea and Bettina
will both invest cash with a total amount of P75,800.
D. Assuming the partners will either invest or withdraw cash, using Althea as the base, Gelli and Bettina
will both withdraw cash with a total amount of P487,200.

PARTNERSHIP OPERATIONS

Theoretical
1. Which of the following shall decrease the capital balance of a partner?
a. Share in partnership profit
b. Receipt of share in upward revaluation from a partnership property, plant and equipment
c. Advances made to a partner by the partnership
d. Drawing made by a partner

2. In the absence of agreement as to profit distribution, the share of each partner in the profits shall
be divided
a. Equally including the industrial partners
b. In accordance with loss contribution ratio which may have been agreed upon by the partners
c. In accordance with the capital balances contained in the articles of co-partnership except for the
industrial partner who shall receive an amount equal to the share of the capitalist partner with
the least share
d. In accordance with the capital balances contained in the articles of co-partnership after excluding
the industrial partner’s just and equitable share

3. In the absence of agreement as to loss distribution, the share of each partner in the losses shall be
divided
a. Equally including the industrial partners
b. In accordance with the capital balances contained in the articles of co-partnership while the
industrial partner shall receive an amount equal to the share of the capitalist partner with the
least share.
c. In accordance with profit contribution ratio which may have been agreed upon by the partners
except for the industrial partner who is exempted from partnership loss
d. in accordance with their ending capital balances

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4. In a partnership, partners’ salaries are considered as

a. A liability c. A loss
b. An allocation of profits and losses d. An expense of the business

Practical
Problem A. Kara and Tara are partners with the following capital transactions for the year 2023:

Kara Tara
January 1 P120,000 P180,000
April 1 (30,000)
July 31 36,000
November 30 12,000
December 1 (6,000)

Assume that the income summary account has a credit balance of P420,000. Also, the partners will receive
10% interest on average capital balances; annual salary allowances of P120,000 and P180,000 to Kara and
Tara; 20% bonus to Kara based on net income after bonus; and the remainder, if any, in the ratio of their
beginning capital balances. How much is the share of each partner in the net income?
Kara Tara Kara Tara
A. P211,730 P208,270 C. P169,730 P250,270
B. 252,000 168,000 D. 208,730 211,270

Assuming that the income summary has a credit balance of P210,000. Also the partners will receive 10%
interest on ending capital balances; monthly salary of P10,000 each for the partners; 15% bonus to Kara
based on the net income after salaries and interests; and the remainder if any, in the ratio of 2:2.
Kara Tara Kara Tara
A. P105,000 P105,000 C. P104,400 P105,600
B. 74,400 135,600 D. 114,400 95,600

Assuming that the income summary has a debit balance of P50,000. Also the partners will receive 20%
interest on beginning capital balances; monthly salary of P12,000 and P18,000 the partners respectively;
30% bonus on net income to Kara; and the remainder if any, in the ratio of 7:3.
Kara Tara Kara Tara
A. (P168,000) P218,000 C. (P148,000) (P200,000)
B. (105,000) 155,000 D. (161,000) 111,000

Problem B. JKL’s partnership provided for the following distribution of profits and losses:
i. J to receive 10% of the net income up to P1,000,000 and 20% of the amount in excess thereof.
ii. K and L each, are to receive 5% of the remaining income in excess of P1,500,000 after J’s share as
per above.
iii. Balance to be divided equally among the partners.
For the year ended, the partnership realized a net income of P2,500,000 before distribution to partners.
How much is the share of J?
A. P1,300,000 B. P1,000,000 C. P1,080,000 D. P1,100,000

Problem C. Allie and Belinda formed a partnership with a capital contribution of P80,000 and P40,000
respectively. According to the partnership agreement, all profits will be distributed as follows:
• Allie will be allowed a monthly salary of P8,000 with P4,000 assigned to Belinda.
• The partners will be allowed with interest equal to 10% of the capital balance as of the first day of
the year.
• Allie will be allowed a bonus of 10% of the net income after bonus.
• The remainder will be divided on the basis of the beginning capital for the first year and equally for
the second year.
• Each partner is allowed to withdraw up to P4,000 a year.
Assume that the net loss for the first year of operations is P6,000, the net income for the second year is
P22,000 and that each partner withdraws the maximum amount from the business each period, what is the
capital balance of Allie at the end of the second year?
A. P73,900 B. P72,000 C. P105,900 D. P83,900

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Quizzer:
Ella and Veronica are partners engaged in a manufacturing business. Transactions affecting the partners’
capital accounts in 2023 are as follows:
Ella Veronica
Debit Credit Debit Credit
Beg. Balance P 50,000 P 70,000
April 1 30,000 P 20,000
June 30 P 25,000 50,000
Sept. 1 45,000 60,000
Oct. 1 70,000 40,000
At the end of the year, the income summary account has a debit balance of P45,000. The results of
operations will be divided as follows:
• Interest on average capital at 8%.
• Salaries of P25,000 and P35,000 are given to Ella and Veronica, respectively.
• Bonus to Veronica at 25% of net income after deducting interest and salaries but before deducting
bonus.
• Balance is to be divided equally.
How much is the net increase/decrease in Veronica’ capital account during 2023?
A. P(6,400) B. P(16,400) C. P33,600 D. 1,400

PARTNERSHIP DISSOLUTION - ADMISSION

Theoretical
1. Which of the following statements pertains to the partnership dissolution?
a. It refers to the process of converting non-cash assets into cash and distributing the total cash to
the partnership creditors and the remainder to the partners
b. It refers to the extinguishment of the juridical personality of the partnership
c. It refers to the end of the life of the partnership
d. It refers to the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying on of the partnership or additional partners were admitted to
partnership

2. Which of the following would not result to partnership dissolution?

a. Insolvency of the partnership c. Admission of a new partner
b. Death of a partner d. Marriage of a partner

3. Which of the following is correct when a new partner is admitted through purchase of interest from
an existing partner?
a. There will be a bonus as a result of transfer of capital from one partner to another
b. There will be revaluation or impairment of existing assets of the partnership
c. The partnership will not be dissolved by the purchase of interest
d. The difference of the amount paid and amount credited to new partner, if any, will be accounted
for as a personal gain or loss of either of the partners

4. Which of the following is not valid for a person to be a member of the partnership?
a. Making a loan to the partnership
b. Investing in the partnership with a bonus to the old partners
c. Investing in the partnership with a bonus to the new partner
d. Purchasing a portion from each partner’s interest

Practical
Problem A. Rhian and Mary are partners with profit and loss ratio of 75:25 and capital balances of P175,000
and P87,500 respectively. Gale is to be admitted into the partnership by purchasing a 20% interest in the
capital, profits and losses for P105,000.

Assuming that no asset revaluation is to be made, the capital balances of Rhian and Mary, respectively,
after admission of Gale are:
Rhian Mary Rhian Mary
A. P140,000 P70,000 C. P210,000 P105,000
B. 196,000 66,500 D. 175,000 87,500

Assuming that equipment of the partnership is undervalued, the capital balances of Rhian, Mary and Gale,
respectively, after the admission are:
Rhian Mary Gale Rhian Mary Gale
A. P175,000 P87,500 P105,000 C. P336,875 P135,625 P52,500
B. 140,000 70,000 52,500 D. 297,500 122,500 105,000

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Problem B. Pia, Sandy and Morrie are partners sharing profits and losses of 5:3:2, respectively. As of
December 31, 2023, their capital balances were P498,750; P420,000; and P315,000 respectively. On
January 1, 2024, the partners admitted Adriano as a new partner and according to their agreement Adriano
will contribute P420,000 in cash to the partnership and also pay P52,500 for 15% of Sandy’s share. Adriano
will be given a 20% share in profits, while the original partners’ share will be proportionately the same as
before. After admission of Adriano, the total capital will be P1,732,500 and Adriano’s capital will be
P367,500.

How much is the amount of asset revaluation?

A. P78,750 B. P36,750 C. P115,500 D. P194,250

How much is the bonus in the admission of Adriano?

A. P115,500 B. P57,750 C. P63,000 D. P34,650

Problem C. Patrice, Bella and Timmy were partners with capital balances on January 2, 2023 of P175,000;
P262,500 and P350,000, respectively. Their profit ratio is 5:3:2 while their capital interest ratio is 4:4:2.
On July 1, 2023, Jade was admitted by the partnership for 20% interest in capital and 25% in profits by
contributing P43,750 cash, and the old partners agree to bring their interest to their old capital and profit
interest sharing ratio. The partnership had net income of P105,000 before admission of Jade and the
partners agree to revalue its overvalued equipment by P17,500. How much is the he capital balance of
Patrice after admission of Jade?
A. P148,750 B. P294,000 C. P177,100 D. P235,200

Quizzer:
Lalaine, Erin and Gia are partners with capital balances of P336,000, P540,000 and P190,000 respectively,
sharing profits and losses in the ratio of 2:5:1. Selena is admitted as a new partner bringing with him
expertise and is to invest cash for a 15% interest in the partnership considering the transfer of capital from
him of P90,000 upon his admission.

Upon admission of Selena, which of the following statements is wrong?

A. The capital balance of Erin amount to P596,250.
B. Cash will be debited in the amount of P204,000.
C. The capital account of Gia will be credited in the amount of P11,250.
D. The total agreed capital of the old partners is P90,000 greater than there contributed capital.

PARTNERSHIP DISSOLUTION – RETIREMENT

Theoretical
1. When a partner withdraws from the business,
a. A new partner is admitted to the partnership
b. A new partnership is automatically formed
c. The original partnership continues
d. The partnership operation ceases

2. If a retiring partner receives more than his capital balance before retirement which also resulted to
increase in the capital balance of the remaining partners, which is correct?
a. The retiring partner gives bonus to the remaining partners
b. The remaining partners give bonus to the retiring partner
c. There is an impairment loss recognized before retirement
d. There is a revaluation surplus recognized before retirement

3. A partner may withdraw or retire from the partnership by

a. Payment of interest from partnership funds
b. Selling his interest to one or more of the remaining partners
c. Selling his interest to an outsider
d. Any of the above

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Practical
Problem A. Hazel, Nina and Rhea share profits in the ratio of 2:3:5. On January 20, Rhea opted to retire
from the partnership. The capital balances on this date follow:
Hazel P43,750
Nina P70,000
Rhea P61,250

How much will be the capital of Nina, assuming Rhea sold his interest to Nina for P17,500?
A. P87,500 B. P43,750 C. P131,250 D. P70,000

How much is to be debited from Hazel, assuming Rhea is paid P68,250 in full settlement of his interest?
A. P4,200 B. P5,250 C. P7,000 D. P2,800

Problem B. On December 30, 2023, the statement of financial position of Magnolia Co. has the following
balances: Total assets P1,125,000; Bianca loan P62,500; Bianca capital P259,375; Mela capital P240,625
and Lia capital P562,500. The partners share profits and losses in the ratio of 25% to Bianca, 25% to Mela,
and 50% to Lia. It was agreed among the partners that Bianca retires from the partnership and the
partnership assets be adjusted to their fair value of P1,275,000 as of December 31, 2023. The partnership
also suffered net loss of P375,000. The partnership would pay Bianca P271,250 cash for her total interest
in the partnership.

What is the total capital of Mela after retirement of Bianca assuming the use of bonus method?
A. P182,500 B. 191,875 C. P184,375 D. P190,000

Problem C. The statement of financial position as of September 30, 2023, for the partnership of Danielle,
Elise and Francesca shows the following information:
Assets P126,000 Danielle, loan P7,000
Danielle, capital 29,050
Elise, capital 26,950
_______ Francesca, capital 63,000
Total P126,000 Total P 126,000
====== ======
It was agreed among the partners that Danielle retires from the partnership, and it was also further agreed
that the assets should be adjusted to their fair value of P120,750 as of September 30, 2023. Net loss prior
to the retirement of Danielle amount to P24,500. The partnership is to pay Danielle P21,700 cash for his
partnership interest. Danielle, Elise and Francesca share profit 40%, 15% and 45% respectively. After the
retirement of Danielle, how much is the capital balance of Francesca?
A. P23,100 B. P47,775 C. P51,450 D. P64,838

Quizzer:
Farrah, Denise and Gwen are partners dividing profits and losses in the ratio of 2:3:1 respectively. Their
capital balances on December 31, 2023 were P374,500, P574,000, and P339,500, respectively. Gwen is
retiring from the partnership as of April 30, 2024. Assume net income is considered as having been realized
evenly throughout the year during the year of a partner’s retirement. After retirement of a partner,
remaining partners would divide profits and losses in the remaining original ratio. The partnership reported
net income of P472,500 for the year 2024. Gwen is to be paid an amount, which is 130 percent of his
adjusted equity as of the date of his retirement.

Which of the following statements is false?

A. Upon retirement of Gwen, the balance of the capital account of Farrah amount to P383,110.
B. At the end of 2024, the balance of the capital account of Denise is P266,805 higher than the capital
account balance of Farrah.
C. The capital account of Farrah has a net increase of P134,610 from beginning to end of 2024.
D. Upon retirement of Gwen, the capital account of Denise will have a net increase of P12,915 as a
result of the transfer of capital.

PARTNERSHIP LIQUIDATION – LUMP SUM

Theoretical
1. It refers to the process of converting non-cash assets into cash and distributing the total cash to
the partnership creditors and the remainder to the partners.
a. Dissolution c. Termination
b. Liquidation d. Operation

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2. What characteristics of a partnership justify the absorption by the other partners of the deficiency
that cannot be made good by an insolvent partner?
a. Limited life and mutual agency
b. Unlimited liability and co-ownership of property
c. Limited life and co-ownership
d. Unlimited liability and mutual agency

3. In the final liquidation transaction, the remaining cash is distributed to the partners according to
their:
a. Capital balances c. Cash balance
b. Profit-sharing ratios d. Withdrawals

4. Which of the following is the correct sequence of the partnership liquidation process?
a. Sell assets, pay outside creditors, distribute cash to partners
b. Sell assets distribute cash to partners, pay outside creditors
c. Distribute cash to partners, sell assets, pay outside creditors
d. Pay outside creditors, sell assets, distribute cash to partners

Practical
Problem A. The statement of financial position of HIJ Partnership is as follows:
HIJ Partnership
Statement of Financial Position
December 31, 2023
Assets Liabilities and Capital
Cash P180,000 Accounts payable P1,530,000
Receivable from Hail 180,000 Hail, capital 1,080,000
Other assets 3,780,000 Ivan, capital 810,000
Jake, capital 720,000
Total assets P4,140,000 Total liabilities and capital P4,140,000
The partner’s profit and loss ratio of Hail, Ivan and Jake is 5:3:2 respectively. On January 1 of next year,
the partners decide to liquidate the partnership. They agree that all cash should be distributed as it becomes
available.

If cash of P1,980,000 including the P180,000 cash on hand becomes available, how much should each
partner receive?
Hail Ivan Jake
A. P225,000 P135,000 P90,000
B. 0 162,000 288,000
C. 90,000 288,000 72,000
D. 0 234,000 216,000

If Hail received P250,000 in the final settlement, how much is the loss on realization?
A. P1,300,000 B. P1,120,000 C. 2,650,000 D. 1,550,000

Problem B. Dave, Elmo and Fred are partners who share profits and losses in the ratio of 10:6:4,
respectively. Their statement of financial position of their partnership is presented below:

Assets Liabilities and Capital

Cash P180,000 Accounts payable P250,000
Noncurrent assets 1,000,000 Advances from Elmo 20,000
Advances to Dave 50,000 Dave, capital 400,000
Elmo, capital 260,000
Fred, capital 300,000
Total assets P1,230,000 Total liabilities and capital P1,230,000

If Dave received P175,000, how much would have Elmo received by then?
A. P210,000 B. P175,000 C. P490,000 D. P230,000

If Dave received P25,000, how much is the loss on realization of noncash assets?
A. P3,250,000 B. P650,000 C. P350,000 D. 700,000

If Elmo received P10,000, how much is the loss on realization of noncash assets?
A. P900,000 B. P620,000 C. P870,000 D. P800,000

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Problem C. The partnership of Charisse, Anne, and Glenn decided to liquidate their partnership on May
31, 2023. Before liquidating and sharing of net income, their capital balances are as follows: Charisse (30%)
P437,500, Anne (30%) P315,000, and Glenn (40%) P385,000. Net income from January 1 to May 31 is
P210,000. Liabilities of the partnership amounted to P367,500 and its total assets include cash amounting
to P122,500.

Unsettled liabilities are P192,500. Charisse invested additional cash enough to settle their partnership’s
indebtedness. Anne is personally solvent, Glenn is personally insolvent, and Charisse becomes insolvent
after investing the cash needed by the partnership.

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

A. P78,750 B. P1,540,000 C. P52,500 D. P262,500

How much cash will Anne invest in the partnership?

A. P157,500 B. P84,000 C. 147,000 D. 35,000

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

A. P192,500 B. 0 C. P157,500 D. P231,000

Quizzer:
Brilliant Partnership engaged in a steel manufacturing business had the following condensed financial
position prior to liquidation:
Assets Liabilities and Capital
Cash P147,000 Liabilities P82,000
Noncurrent assets 720,000 Advances from Nelly 45,000
Nelly, capital (25%) 194,000
Reese, capital (40%) 330,000
Irish, capital (35%) 216,000
Total assets P867,000 Total liabilities and capital P867,000

Assuming non-cash assets with a book value of P340,000 were sold for P415,000 and that all available cash
was distributed. Which of the following statements is false for Nelly to receive a total of P176,000 cash
after liquidation?
A. The proceeds from the sale of the remaining non-cash assets amount to P53,000.
B. The loss on realization on the sale of the remaining non-cash assets amount to P177,000.
C. Partner Reese will receive the amount of P208,000 on the first distribution of cash.
D. Partner Irish will receive a total of P127,800 cash after liquidation.

PARTNERSHIP LIQUIDATION – INSTALLMENT

Theoretical
1. In the preparation of schedule of safe payments to partners, cash withheld for future liquidation
expenses and unrecorded liabilities is treated as
a. Liabilities c. Loss on realization
b. Operating expenses d. Possible loss

2. Which of the following statements is correct regarding partnership installment liquidation?

a. Preparing schedule of safe payments to partners is more accurate than preparing cash priority
program as the latter is prepared in advance
b. Maximum possible loss found in the schedule of safe payments is composed of the book value of
the remaining non-cash assets and total cash withheld
c. Cash available for distribution to partners is computed by adding the cash beginning balance with
proceeds from the sale of assets and deducting all expenses actually paid only during the period
d. The partner with highest loss absorption potential may not receive any amount from the
partnership as a result of liquidation

3. In calculating safe payment, it is assumed that

a. Cash on hand can be fully distributed c. Partnership liabilities have been paid
b. All non-cash assets are worthless d. All liabilities will be paid

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Practical
Problem A. Allen, Ben and Carlo are partners in ABC Partnership who share profit and losses 5:3:2
respectively. The partners have agreed to liquidate the partnership. Prior to the liquidation, the following is
found in the partnership’s books:

Cash P13,200 Other liabilities 184,800

Noncash assets 297,600 Allen, capital 72,000
Advances from Carlo 38,400 Ben, capital (12,000)
Advances to Allen 12,000 Carlo, capital 39,600

Assuming the actual liquidation expense is P16,800 and that noncash assets with a book value of P240,000
were sold for P195,000, how much cash should Carlo receive?
A. P46,657 B. P6,600 C. P34,757 D. P0

Problem B. The following statement of financial position was prepared for the partnership of Elaine, Flor
and Gina as of March 31, 2023:

Assets Equities
Cash P25,000 Liabilities P52,000
Other assets 180,000 Elaine, capital 40,000
Flor, capital 65,000
Gina, capital 48,000

Total assets P205,000 Total equities P205,000

They share profits in the ratio of 4:4:2. The partnership is being liquidated and the first sale of noncash
assets having a book value of P90,000 realized P50,000.

The amount of cash each partner should receive in the first installment is:
Elaine Flor Gina
A. 0 5,000 18,000
B. 12,000 13,000 22,000
C. 27,000 5,000 18,000
D. 24,000 49,000 40,000

Assuming P3,000 cash is withheld for possible liquidation expenses, how much cash should Gina receive?
A. 3,000 B. 17,000 C. 21,000 D. 40,000

Problem C. Partners Alipio, Borromeo and Castro share profits and losses in the ratio of 5:3:2. At the
end of a very unprofitable year, they decided to liquidate the firm. The partner’s capital account balances
at this time are as follows: Alipio, P55,000; Boromeo, P62,250; Castro, P37,500.

The liabilities accumulate to P 75,000, including a loan of P 25,000 from Alipio. The cash balance is P15,000.
All the partners are personally solvent. The partners plan to sell the assets in installment. If Alipio received
a total of P50,000 as a result of liquidation, what was the total amount realized from the sale of the non-
cash assets?
A. P154,750 B. P184,750 C. P214,750 D. P60,000

If Castro received P15,500 on the first installment of cash, how much did Borromeo receive at that time?
A. P25,000 B. P12,500 C. P29,250 D. P15,500

Problem D. The following information is found in the books of the partnership of Rommel, Stephanie and
Tina on December 31, 2023:
Cash P50,000 Loan from Tina 20,000
Accounts receivable, net 100,000 Revenues 200,000
Noncash assets 800,000 Rommel, capital 300,000
Loan to Rommel 50,000 Stephanie, capital 450,000
Expenses 400,000 Tina, capital 350,000
Accounts payable 80,000
Additional information:
• Partnership profits are divided 20%, 40% and 40% respectively to Rommel, Stephanie and Tina.
Salary allowances of P25,000 each are also given to Rommel and Stephanie.
• Due to the disastrous results of 2023, the partners agreed to liquidate the business as soon as
possible after January 1, 2024 and to distribute available cash on a weekly basis.
• During the first week in January, P85,500 was collected on the accounts receivable and cash was
distributed on January 9, 2024.

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How much is the loss absorption balance of Rommel?

A. P1,500,000 B. P1,250,000 C. 1,125,000 D. 1,050,000

How much is the share of Rommel on the January 9, 2024 cash distribution?
A. P43,500 B. P12,000 C. P35,167 D. 20,333

Quizzer:
Vince, James, Albert and Kath are partners of a very successful auditing firm. However, due to
disagreements in managing the firm, they decided to liquidate. The statement of financial position just
before liquidation, reports the following balances:

Cash P50,000 Liabilities P375,000

Other assets 900,000 James, Loan 30,000
Kath, Loan 25,000
Vince, Capital(30%) 210,000
James, Capital(30%) 157,500
Albert, Capital(20%) 102,500
__ Kath, Capital(20%) 50,000
Total assets P950,000 Total Liabilities and Partners’ Equity P950,000

The following is the summary of the realization and liquidation proceedings:

Cash Book value Expenses Liabilities Cash withheld for

realized of asset paid paid future liquidation
realized expenses
January 115,000 200,000 5,000 160,000 -
February 276,500 400,000 3,500 215,000 8,000
March 92,000 150,000 7,000 - 5,000
April 80,000 150,000 - - -

1. What is the balance of the cash account as of January 31, 2023?

2. How much is the loss on realization absorbed by Kath for January?
3. How much is the cash withheld for future liquidation expenses and unrecorded liabilities
in the month of February?
4. How much cash did James receive as settlement of his interest in February?
5. How much is the maximum possible loss in the schedule of safe payment for the month
of March?
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