AFAR-PARTNERSHIP FORMATION (BAGAYAO)
SOLUTION
PROBLEM A:
1. C – Adjusted capital prior to Nora’s admission
Account Title Adjusted Amount
Cash P 2,600
Accounts Receivable 12,000
Allowance for BD (12K x2%) (240)
Merchandise Inventory 20,200
Prepaid Expense 350
Accrued Expense (400)
Accounts Payable (6,200)
Adjusted Capital prior to admission P 28,310
2. A – contribution to be made by Nora
Partner/Capital ratio Contributed Capital Agreed Capital Difference
Melai (2/3) 28,310 28,310 0
Nora (1/3) 14,155 14,155 0
Total P 42,465 P 42,465 0
Please be reminded that the problem is silent- TAC = TCC, (Net Investment Method, the partner’s contributed
capital is equivalent to his agreed capital. Hence, Melai’s CC (Contributed Capital) = AC (Agreed Capital).
In computing the Total Agreed Capital, it is suggested to use Melai’s Capital as base. Hence, P 28, 310 x 3/2 = P
42,465.
3. A – cash to be contributed by Nora.
Partner/Capital ratio Contributed Capital Agreed Capital Difference
Melai (4/5) 28,310 28,310 0
Nora (1/5) 7,077.50 7,077.50 0
Total P 35,387.5 P 35,387.5 0
Please be reminded that the problem is silent- TAC = TCC, (Net Investment Method, the partner’s contributed
capital is equivalent to his agreed capital. Hence, Melai’s CC (Contributed Capital) = AC (Agreed Capital).
In computing the Total Agreed Capital, it is suggested to use Melai’s Capital as base. Hence, P 28, 310 x 5/4 = P
35,387.5
Nora’s Capital consists of:
Cash P 2,577.50
Equipment 4,500.00
Total Contribution P 7,077.50
PROBLEM B.
Item 1:
Joe Pete
Unadjusted Capital P 620,000 P 800,000
Write-off AR (20,000) (40,000)
Write down - Inventory (6,000) (7,000)
Write-off other assets (2,000) (3,000)
Adjusted Capital P 592,000 P 750,000
For item 2: P 55,200 bonus from Joe or P 55,200 Bonus to Joe
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For item 3: P 536,800
Contributed Agreed Capital Difference
Capital
Joe (40%) 592,000 536,800 55,200
Pete (60%) 750,000 805,200 (55,200)
Total P 1,342,000 P 1,342,000 0
For item 4: P 150,000 bonus to Joe or P 150,000 bonus from Pete
For item 5: P 600,000
Contributed Agreed Capital Difference
Capital
Joe (60%) 592,000 900,000 308,000
Pete (40%) 750,000 600,000 (150,000)
Total P 1,342,000 P 1,500,000 158,000
For item 6: P 92,000 withdrawal
For item 7: Joe – P 500,000
Pete – P 750,000
Contributed Agreed Capital Difference
Capital
Joe (40%) 592,000 500,000 (92,000)
Pete (60%) 750,000 750,000
Total P 1,342,000 P 1,250,000 (92,000)
TAC = 750,000 / 60% = P 1,250,000
Consider this scenario as under investment method because a partner is required to either invest of withdraw in
order to equate to the agreed capital percentage. The other partner/s shall be considered as the basis in
computing for the implied or gross up TAC. In this case, Pete shall be the basis because Joe is required to invest
or withdraw in order to have a capital credit equivalent to 40% of TAC.
For item 8: P 592,000 Joe Capital
For item 9: P 888,000 Pete Capital
Contributed Agreed Capital Difference
Capital
Joe (40%) 592,000 592,000
Pete (60%) 750,000 888,000 138,000
Total P 1,342,000 P 1,480,000 138,000
Under revaluation method if the problem is silent, it is undervalued.
Option 1: TAC = 750,000/60% = 1,250,000 - over valued
Option 2: TAC = 592,000/40% = 1,480,000; Hence this one must be followed – under valued
For item 10: Joe Capital = P 500,000
For item 11: Pete Capital = P 750,000
Contributed Agreed Capital Difference
Capital
Joe (40%) 592,000 500,000 92,000
Pete (60%) 750,000 750,000
Total P 1,342,000 P 1,250,000 92,000
These items are requiring to revalue down the asset, meaning, assets are over - valued.
Option 1: TAC = 750,000/60% = 1,250,000 – over-valued
Option 2: TAC = 592,000/40% = 1,480,000; Hence this one must be followed – under valued
PROBLEM C.
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Capital contribution:
Aldrin – 50,000 + 25,000 (second hand value = P 75,000
Benny – P 80,000
Carlo – P 25,000 + P 60,000 (at market value) = P 85,000
PROBLEM D:
Ivan Yannick
Unadjusted 59,625 33,500
Write-off AR (555) (405)
Under-depreciated - (900)
Adjusted capital P 59,070 P 32,195
PROBLEM E:
Contributed Agreed Capital Difference
Capital
Roque (50%) 150,000 138,000 12,000
Manalo (50%) 126,000 138,000 (12,000)
Total P 276,000 P 276,000 -
PROBLEM F:
Contribution Kathy Nathan
Cash P 116,000 P 56,000
Office Equipment 84,000 -
Land - 36,000
Building - 300,000
Mortgage – building - (232,000)
Total Capital P 200,000 P 160,000
Note that the mortgage is assumed by the partnership, hence, it should be deducted from the value of the building
which it was attached. If the problem is silent as to the treatment of the said mortgage, the same shall be deducted
unless the partner contributing the said asset personally assumes the mortgage.
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