Refresher Partnership Dissolution

AFAR
Partnership Dissolution Notes
Dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying on of the partnership as a distinguished from the winding up of the business of the
partnership (Civil code of the Philippines, Art. 1828)
On dissolution, the partnership is not terminated, but continues until the winding up of partnership affairs is
completed (Art. 1829).
This may be caused by the following:
1. Admission of a new partner

2. Retirement or withdrawal of a partner
3. Death or Incapacity of a partner
4. Incorporation of the partnership
 Admission of a new partner

o By Purchase of Interest from existing partners
o By Investment in the partnership
Purchase of interest Investment in the partnership

The incoming partner's contribution is not recorded in The incoming partner's contribution is recorded in the
the partnership books. partnership books.
Partnership capital remains the same before and after the Partnership capital is increased by the incoming partner's
admission of the incoming partner. contribution.
No gain or loss is recognized in
No gain or loss is recognized in the partnership books the partnership books. ( Bonus is
but rather it will be a personal gain/loss of the partners recognized as either an
who sell their share/interest. increase/decrease of the partners
capital)
 Retirement or Withdrawal
The interest of the withdrawing, retiring or deceased partner is adjusted for the following:

o his share of any profit or loss during the period up to the date of his withdrawal,
retirement or death; and
o his share of any revaluation gains or losses as the date of his withdrawal, retirement,
or death.
When settlement do not equal with net interest, capital re-alignment issue arises:

o Settlement > Net Interest
o Settlement < Net Interest
 Death/Incapacity
The death and incapacity of a partner results in automatic dissolution of the partner at the point of death. The
capital balances of the partners must be updated upon death and the adjusted capital of the deceased partner
shall be transferred to a liability account.
 Incorporation
The partners capital accounts are transferred to the shares of stock account. Excess of the aggregate capital
accounts over the par value or stated value of shares issued to partners is treated as a share premium. Stock
issue cost are deductions against share premium.
Problem 1
A is to be admitted by contributing P100,000 for a 20% interest in the partnership of B ad C with pre-
existing capital of P120,000 and P180,000, respectively. B and C shares profit 40:60, respectively.
Determine the following:
a. Capital balances after the admission of A.
b. The new profit sharing ratio.
Problem 2
The Capital accounts of MJ partnership on September 30,2019 were:
Marvin Capital (75% profit ratio) 140,000.00
Jayson Capital (25% profit ratio) 60,000.00
200,000.00
The partnership assets and liabilities have book values equal to their fair values. On October 1, 2019,
Christian was admitted to a 40% interest in the partnership, when he purchased 40% of each existing
partner’s capital for P120,000, paid directly to Marvin and Jayson.
Compute the capital balances of the partners after the admission of Christian.
Problem 3
A, B, C are partners with capital balances of P100,000, P150,000 and P250,000 and shares profit 30:40:30,
respectively. Determine the capital balances of the continuing partners assuming that A withdrew and was
given the following settlement:
a. If settlement is P 121,000
b. If settlement is P86,000
Problem 4
A statement of financial position at December 31,2019 for the PKJ partnership is summarized as follows:
Assets 80,000.00 Liabilities 20,000.00
Loan to J 10,000.00 P Capital (50%) 30,000.00
K Capital (40%) 30,000.00
J Capital (10%) 10,000.00

90,000.00 90,000.00
K is retiring from the partnership. The partners agree that assets, excluding K’s loan should be adjusted to
their fair value of P100,000 and that K should receive P31,000 for her capital balance net of the P10,000
loan. No goodwill is to be recorded. Determine the capital balances of P and J immediately after the
retirement of K.
Problem 5
A, B and C are partners sharing profit 20:30:50 and have capital balances of P80,000, P160,000 and P60,000
respectively. A died on July 1, 2019. The partnership reported profits of P30,000 for the first half of the year
and P40,000 for the second half of the year before considering the 10% stipulated interest on the estate of A.
As of 7/1/2019 As of 12/31/2019
B Capital
C Capital
Payable to the estate of A
Problem 6
Partners A, B, C, D and E decided to incorporate their partnership. Immediately before incorporation the
partnership had P1,000,000 total liabilities while the partners have capital balances of P2,200,000,
P2,000,000, P2,500,000, P1,500,000 and P1,800,000 respectively. The corporation was authorized to issue
1,000,000 P10 par value ordinary shares and 10,000 P100 par value preference shares. As agreed, the
preference shares are to be divided among the incorporating partners based on the ratio of their capital
balances. The ordinary shares are to be issued in the ratio of 15 ordinary shares for each P200 of share
capital of the partners. The remaining shares are to be issued to the public. Subsequently, 10,000 shares were
issued to the public at a total proceeds of P180,000. The partners incurred P120,000 for organization costs
(40,000 was on account) and P20,000 for registration of shares of stocks with SEC.
Required:
a. Compute the total assets of the corporation after incorporation.
b. Determine the number and class of shares given to each partner.
c. Prepare the stockholder's equity section of the corporation.

Refresher Partnership Dissolution

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AFAR

Partnership Dissolution Notes

1. Admission of a new partner

 Admission of a new partner

Purchase of interest Investment in the partnership

Marvin Capital (75% profit ratio) 140,000.00

Jayson Capital (25% profit ratio) 60,000.00

Assets 80,000.00 Liabilities 20,000.00

Loan to J 10,000.00 P Capital (50%) 30,000.00

K Capital (40%) 30,000.00

J Capital (10%) 10,000.00

Payable to the estate of A

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