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Partnership Dissolution
Partnership (San Beda University)
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DEPARTMENT OF ACCOUNTANCY 1 st Semester A.Y. 2020-2021
Accounting for Special Transactions: Partnership Dissolution
Case 1
The following are the capital account balances and profit and loss ratios of the partners in AB
Partnership as of July 1, 2017:
P/L
Capital Accounts
Ratios
A, Capital P150,000 40%
B, Capital 250,000 60%
P400,000
On July 1, 2017, C was admitted to the partnership when he purchased 20% interest in the net assets
and profits of the firm from A (or one half- of A’s interest in the partnership) for P100,000. The net
assets of the firm as of this date approximate their fair values.
Required: Provide the journal entry to record the transaction.
Case 2
The following are the capital account balances and profit and loss ratios of the partners in AB
Partnership as of July 1, 2017:
P/L
Capital Accounts
Ratios
A, Capital P150,000 40%
B, Capital 250,000 60%
P400,000
On July 1, 2017, C was admitted to the partnership when he purchased a proportionate interest from
A and B representing 20% interest in the net assets and profits of the firm for P100,000. The net
assets of the firm as of this date approximate their fair values.
Requirements:
1. Provide the journal entry to record the transaction.
2. How much are the capital balances of the partners after the admission of C?
3. How much is the gain or loss to be recognized in the partnership books?
4. How much are the personal gains or losses recognized by A and B, respectively?
Case 3
On July 1, 2017, C was admitted to the partnership when he purchased a proportionate interest from
A and B representing 20% interest in the net assets and profits of the firm for P100,000. On this date,
the carrying amounts and fair values of the assets and liabilities of the partnership are as follows:
Carrying Fair
Amount Value
Cash P 20,000 P20,000
Equipment 340,000 390,000
Accounts payable 10,000 10,000
A, Capital (40%) 130,000 N/A
B, Capital (60%) 220,000 N/A
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Requirements:
1. Provide the journal entries to be made on July 1, 2017.
2. How much are the capital balances of the partners after the admission of C?
Case 4
The following are the capital account balances and profit and loss ratios of the partners in AB
Partnership as of July 1, 2017:
P/L
Capital Accounts
Ratios
A, Capital P150,000 40%
B, Capital 250,000 60%
P400,000
On July 1, 2017, C was admitted to the partnership when he acquired 20% interest in the net assets
and profits of the firm for a P100,000 investment. The net assets of the firm as of this date
approximate their fair values. C’s Capital is credited at an amount equal to his contribution. What is
the journal entry to record the transaction?
Case 5
The following are the capital account balances and profit and loss ratios of the partners in AB
Partnership as of July 1, 2017:
P/L
Capital Accounts
Ratios
A, Capital P150,000 40%
B, Capital 250,000 60%
P400,000
On July 1, 2017, C was admitted to the partnership when he acquired 20% interest in the net assets
and profits of the firm for a P100,000 investment. The net assets of the firm as of this date
approximate their fair values. C’s Capital is credited for P80,000. What is the journal entry to record
the transaction?
Case 6
The following are the capital account balances and profit and loss ratios of the partners in AB
Partnership as of July 1, 2017:
P/L
Capital Accounts
Ratios
A, Capital P150,000 40%
B, Capital 250,000 60%
P400,000
On July 1, 2017, C was admitted to the partnership when he acquired 20% interest in the net assets
and profits of the firm for a P100,000 investment. The net assets of the firm as of this date
approximate their fair values. C’s Capital is credited for P130,000. What is the journal entry to record
the transaction?
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Case 7
The statement of financial position of AB Partnership shows the following information as of July 1,
2017:
Cash P 12,000
Receivable from A 8,000
Equipment 390,000
Total P410,000
Payable to B P 10,000
A, Capital (40%) 150,000
B, Capital (60%) 250,000
Total P410,000
On July 1, 2017, the partners decide to admit C as a new partner with a 20% interest. The net assets
of the firm as of this date approximate their fair values. If no bonus shall be allowed, how much
should C invest in the partnership?
Case 8
The following are the capital account balances and profit and loss ratios of the partners in AB
Partnership as of July 1, 2017:
P/L
Capital Accounts
Ratios
A, Capital P150,000 40%
B, Capital 250,000 60%
P400,000
On July 1, 2017, C was admitted to the partnership when he invested equipment with a historical cost
of P100,000 and fair value of P80,000 to the partnership for a 20% interest. The net assets of the firm
as of this date approximate their fair values.
Requirements:
1. If the bonus method is used to record the admission of C into the relationship, how much is the
credit to C’s capital account?
2. What are the capital balances of the partners after the admission of C?
3. What are the relative profit or loss ratios of the partners after the admission of C?
Case 9
The following are the capital account balances and profit and loss ratios of the partners in AB
Partnership as of January 1, 2017:
P/L
Capital Accounts
Ratios
A, Capital P150,000 40%
B, Capital 250,000 60%
P400,000
On January 1, 2017, C was admitted to the partnership when he acquired 20% interest in the net
assets and profits of the firm for a P100,000 investment. The net assets of the firm on this date
approximate their fair values.
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For the year 2017, the partnership earned profit of P1,000,000. However, it was discovered that the
following items were omitted in the partnership books:
2016 2017
Accrued income P20,000 P25,000
Prepaid asset 35,000 50,000
Accrued expense 40,000 60,000
Unearned income 15,000 10,000
Requirement: How much is the share of A in the 2017 profit?
Case 10
The capital account balances of the partners in ABC Partnership on July 1, 2017 before any
necessary adjustments are as follows:
P/L
Capital Accounts
Ratios
A, Capital P150,000 20%
B, Capital 250,000 30%
C, Capital 100,000 50%
P500,000
The partnership reported profit of P900,000 for the six months ended July 1, 2017. On July 1, 2017, C
withdraws from the partnership when he was bought-out by his co-partners for P620,000 cash. The
net assets of the firm as of this date approximate their fair values. Provide the journal entries.
Case 11
The capital account balances of the partners in ABC Partnership on July 1, 2017 before any
necessary adjustments are as follows:
P/L
Capital Accounts
Ratios
A, Capital P150,000 20%
B, Capital 250,000 30%
C, Capital 100,000 50%
P500,000
The partnership reported profit of P900,000 for the six months ended July 1, 2017. C retires on July 1,
2017. It was agreed that C shall receive P620,000 cash from the partnership in settlement of his
interest. Provide the journal entries.
Case 12
The capital account balances of the partners in ABC Partnership on July 1, 2017 before any
necessary adjustments are as follows:
P/L
Capital Accounts
Ratios
A, Capital P150,000 20%
B, Capital 250,000 30%
C, Capital 100,000 50%
P500,000
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The partnership reported profit of P900,000 for the six months ended July 1, 2017. C retires on July 1,
2017. It was agreed that C shall receive cash of P500,000 and equipment with carrying amount of
P100,000 and fair value of P300,000 in settlement of his interest in the partnership. Provide the
journal entries.
Case 13
The capital account balances of the partners in ABC Partnership on July 1, 2017 before any
necessary adjustments are as follows:
P/L
Capital Accounts
Ratios
A, Capital P150,000 20%
B, Capital 250,000 30%
C, Capital 100,000 50%
P500,000
The partnership reported profit of P900,000 for the six months ended July 1, 2017. C dies on July 1,
2017. Provide the journal entries.
Case 14
The capital account balances of the partners in ABC Partnership on July 1, 2017 before any
necessary adjustments are as follows:
P/L
Capital Accounts
Ratios
A, Capital P150,000 20%
B, Capital 250,000 30%
C, Capital 100,000 50%
P500,000
The partnership reported profit of P900,000 for the six months ended July 1, 2017. C withdraws on
July 1, 2017. It was agreed that C shall receive cash of P500,000 and a fully depreciated equipment
with fair value of P300,000 in settlement of his interest in the partnership. Provide the entry to record
the withdrawal of C.
Case 15
The statement of financial position of ABC Co. as of December 31, 2017 shows the following
information:
Cash P112,000
Receivable from A 8,000
Equipment 390,000
Totals P510,000
Payable to C P 10,000
A, Capital (20%) 150,000
B, Capital (30%) 250,000
C, Capital (50%) 100,000
Totals P510,000
On December 31, 2017, C decided to retire from the partnership. The partnership net assets
approximate their fair values except for the equipment which has a fair value of P450,000. It was
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agreed that the partnership would pay C P140,000 cash for his partnership interest, including C’s loan
which is to be repaid in full. What are the balances of A and B’s capital accounts after the retirement
of C?
Case 16
The statement of financial position of ABC Co. as of December 31, 2017 shows the following
information:
Cash P112,000
Receivable from A 8,000
Equipment 390,000
Totals P510,000
Payable to C P 10,000
A, Capital (20%) 150,000
B, Capital (30%) 250,000
C, Capital (50%) 100,000
Totals P510,000
On December 31, 2017, C decided to retire from the partnership. The partnership net assets
approximate their fair values except for the equipment which has a fair value of P450,000. It was
agreed that the partnership would pay C P140,000 cash for his partnership interest, excluding C’s
loan which is to be repaid in full. What are the balances of A and B’s capital accounts after the
retirement of C?
Case 17
On January 1, 2017, the partners of ABC Partnership decide to admit other investors. As a result, the
partnership shall be converted to a corporation. The following information was determined:
Carrying Fair
Amounts Values
Cash P 20,000 P 20,000
Receivables 60,000 40,000
Inventory 80,000 70,000
Equipment 540,000 670,000
Payable 50,000 50,000
A, Capital (20%) 150,000
B, Capital (30%) 200,000
C, Capital (50%) 300,000
The corporation has an authorized capitalization of P2,000,000 divided into 200,000 ordinary shares
with par value of P10 per share. Assume that the adjusted capital balances of the partners are used
in determining the number of shares to be issued to each partner.
END OF TOPIC – PARTNERSHIP DISSOLUTION
ESV
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