AFAR- PARTNERSHIP FORMATION (BAGAYAO)

Problem A:
Melai admits Nora as a partner in business. Just before the partnership’s formation, Melai’s books showed the following:
Debit Credit
Cash 2,600
Accounts Receivable 12,000
Merchandise Inventory 18,000
Accounts Payable 6,200
Melai, Capital 26,400

It was agreed that, for purposes of establishing Melai’s investment in the firm, the following adjustments shall be reflected:

 Allowance for bad debts of 2% should be set up.

1. How much is the adjusted capital of Melai prior to admission of Nora?

2. How much cash should Nora invest to secure a one-third interest in the partnership?
a. 14,155 c. 28,310
b. 26,400 d. 28,410

3. If Nora contributed an equipment with carrying amount of P 4,000 and fair value of P 4,500, how much cash was
contributed for a one-fifth interest in the partnership?
a. 2,557.50 c. 14,155
b. 7,077.50 d. 35,587.50

PROBLEM B.
On May 1, 2018, the business assets and liabilities of Joe and Pete were as follows:
JOE PETE
Cash 28,000 62,000
Receivables 200,000 600,000
Inventories 120,000 200,000
Lands, Buildings, And Equipment 650,000 535,000
Other Assets 2,000 3,000
Accounts Payable (180,000) (250,000)
Notes Payable (200,000) (350,000)

Joe and Pete agreed to form a partnership by contributing their net assets, subject to the following adjustments:

 Receivables of P 20,000 in Joe’s books and P 40,000 in Pete’s books are uncollectible.
 Inventories of P 6,000 and P 7,000 in the respective books of Joe and Pete are worthless.
 Other assets in the books are to be written-off.

Questions:

1. Upon the partnership’s formation, the respective capital of partners Joe and Pete would be?
2. Under bonus method, if the partner agreed to have a capital ratio of 40:60 for Joe and Pete, respectively, how
much is the amount of bonus to or (from) Joe?
3. Under bonus method, if the partner agreed to have a capital ratio of 40:60 for Joe and Pete respectively, how
much is the adjusted capital of Joe?
4. Under bonus method, if the partner agreed to have a capital ratio of 60:40 for Joe and Pete respectively and they
further agreed to have a total capital of P 1,500,000, how much is the amount of bonus to or (from) Joe?
5. Under bonus method, if the partner agreed to have a capital ratio of 60:40 for Joe and Pete respectively, and they
further agreed to have a total capital of P 1,500,000, how much is the amount of adjusted capital of Pete?
6. If the partners agreed that Joe should withdraw or invest in order to have capital ratio of 40%, how much should
be the amount of additional investment or withdrawal?
7. If the partners agreed that Joe should withdraw or invest in order to have capital ratio of 40%, how much is the
adjusted capital of Joe and Pete?
8. If the partners agreed to revalue assets to maintain 40:60 capital ratio for Joe and Pete respectively, how much is
the adjusted capital of Joe?

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 9. If the partners agreed to revalue assets to maintain 40:60 capital ratio for Joe and Pete respectively, how much is
the adjusted capital of Pete?
10. If the partners agreed to effect revaluation down of assets to maintain 40:60 capital ratio for Joe and Pete
respectively, how much is the adjusted capital of Joe?
11. If the partners agreed to effect revaluation down of assets to maintain 40:60 capital ratio for Joe and Pete
respectively, how much is the adjusted capital of Pete?

PROBLEM C:
Aldrin, Benny, and Carlo, new CPAs, are to form a partnership. Aldrin will contribute cash of P 50,000, and his computer
that originally cost P 60,000 but with a second – hand value of P 25,000. Benny will contribute P 80,000 in cash. Carlo,
whose family sells computers, will contribute P 25,000 in cash and a brand-new computer with printer that cost his family’s
computer dealership P 50,000 but with a regular selling price of P 60,000. The three agree to share profits and losses
equally.
Upon formation, capital balances are: (RPCPA Adapted)

PROBLEM D:
On March 1, 2018, Ivan and Yannick decide to combine their businesses and form a partnership. The balance sheets of
Ivan and Yannick on March 3 before adjustments show the following:
Ivan Yannick
Cash 9,000 3,750
Accounts Receivable 18,500 13,500
Inventories 30,000 19,500
Furniture and Fixtures (net) 30,000 9,000
Office Equipment (net) 11,500 2,750
Prepaid Expenses 6,375 3,000
P 105,375 P 51,500

Accounts Payable 45,750 18,000

They agreed to provide 3% for doubtful accounts of their accounts receivable and found Yannick’ s furniture and fixtures
to be under-depreciated by P 900,000.

If each partner’s share in equity is to be equal to the net assets invested, the capital accounts of Ivan and Yannick could
be (RPCPA Adapted)
a. b. c. d.
Ivan P 58,170 P 58,320 P 59,070 P 104,820
Yannick P 33, 095 P 32,945 P 32,195 P 50,195

PROBLEM E.
Roque and Manalo formed a partnership and they agreed to share initial capital equally, although Roque contributed P
150,000 and Manalo contributed P 126,000 in identifiable assets.

Under bonus approach to adjust the capital accounts, Manalo’s unidentifiable assets should be debited for
a. P 0
b. P 12,000
c. P 20,000
d. P 59, 000

PROBLEM F.
Kathy and Nathan formed a partnership on January 1, 2018. To start the partnership, Kathy transferred cash totalling P
116,000 and office equipment with a book value of P 90,000 and a fair market value of P 84,000. Nathan transferred cash
of P 56,000; land valued at P 36,000, and a building valued at P 300,000. Nathan bought these at a lump sum price of P
250,000. In addition, the partnership assumed the mortgage of P 232,000 on the building.

The amount of capital to be credited to Kathy and Nathan, respectively, on January 1, 2018 should be:
a. P 206,000 and P 160,000
b. P 200,000 and P 74,000
c. P 200,000 and P 160,000
d. P 206,000 and P 392,000

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