PARTNERSHIP DISSOLUTION

Admission by Purchase of Interest

PROBLEM 1. CB and DM are partners with a profit and loss ratio of 80:20 and
with capital balances of P2,800,000 and P1,400,000, respectively. EZ is to be
admitted into the partnership by purchasing 30% interest in the capital, profits
and losses for P1,680,000. Assume that no assets revaluation is to be made.
Which of the following is TRUE in the books of the partnership upon the
admission of EZ?
A. Increase in asset account in the amount of P1,680,000.

B. Credit capital accounts of the selling partners with a total amount of

P1,260,000.

C. Decrease in the capital account of the acquiring partner in the amount of

P420,000.

D. The entry upon admission will not change the total capital of the partnership.

Solution:
CB, Capital 840,000
DM, Capital 420,000
EZ, Capital 1,260,000

Assuming this time, upon the admission of EZ, the equipment of the
partnership is undervalued, which of the following is FALSE?
A. Increase in the partnership’s assets of P1,400,000.

B. The capital account of CB will be credited by P1,120,000 for his share in the
undervaluation of the equipment.

C. The capital account of DM will be debited by P420,000 upon transfer of

capital to the new partner.

D. The capital account of CB will have a net decrease of P56,000 as a result of

the admission of EZ.
Solution:
1,680,000/30% = P5,600,000 Adjusted Capital of the Old Partners
P4,200,000 Contributed Capital of the Old Partners
P1,400,000 Revaluation upward

CB P2,800,000 + P1,120,000 = P3,920,000 *30% = P1,176,000

DM P1,400,000 + P 280,000 = P1,680,000 *30% = P504,000

(1)
Equipment 1,400,000
CB, Capital 1,120,000
DM, Capital 280,000
(2)
CB, Capital 1,176,000
DM, Capital 504,000
EZ, Capital 1,680,000

Admission by Investment

PROBLEM 2. On December 31, 2022, the Statement of Financial Position

of LEM Partnership shows the following data with profit or loss sharing of
1:3:6:

Cash P1,250,000 Total Liabilities P2,500,000

Non Cash Asset 3,750,000 L, Capital 1,250,000
E, Capital 750,000
M, Capital 500,000

On January 1, 2023, S is to be admitted to the new partnership by investing

P1,000,000 for 30% capital interest in the new partnership which has total
agreed capitalization of P5,000,000.
Compute the new capital balance of M upon admission of the new
partner
A. P1,100,000
B. P2,100,000
C. P1,400,000
D. P800,000

Solution:
TCC TAC
L P1,250,000
E 750,000
M 500,000
S 1,000,000 (30%) 1,500,000 P500,000 Bonus to S
__________ __________
P3,500,000 P5,000,000 P1,500,000 Revaluation

net increase of P1M x 60% to S

PROBLEM 3. On December 31, 2022, the Statement of Financial Position

of DEP Partnership shows the following data with profit or loss sharing of
5:3:2:

Cash P2,000,000 Total Liabilities P4,000,000

Non Cash Asset 8,000,000 D, Capital 2,000,000
E, Capital 3,000,000
P, Capital 1,000,000

On January 1, 2023, O was admitted to the new partnership by investing

P4,000,000 for 50% capital interest in the new partnership.
Compute the new capital balance of P after the admission of the new
partner
A. P1,200,000
B. P1,000,000
C. P800,000
D. P600,000
Solution:
TCC TAC
D P2,000,000
E 3,000,000
P 1,000,000
O 4,000,000 (50%) 5,000,000 P1M Bonus to O
__________ ___________
P10,000,000 P10,000,000 No Revaluation

PROBLEM 4. SB, AZ and TM are partners with capital balances of

P196,000, P682,500 and P297,500 respectively, sharing profits and losses in
the ratio of 3:2:1. DX is to be admitted as a new partner bringing with him
expertise and is to invest cash for a 25% interest in the partnership which
includes a credit of P183,750 for bonus upon his admission.
Compute the amount of cash DX should contribute
A. P330,750
B. P393,750
C. P525,000
D. P147,000

Solution:
TCC TAC
SB P196,000
AZ 682,500
TM 297,500
DX (25%) 330,750 P183,750 Bonus to D

196,000+682,500+297,500 = 1,176,000-183,750=992,250

992,250 = TAC of the old Partners 992,250/75%=1,323,000

1,323,000= TAC of the Partnership 1,323,000 x 25% = 330,750

PROBLEM 5. JS and PR, having capital balances of P490,000 and
P262,500 respectively, decided to admit CV into their partnership. CV is to
invest sufficient amounts of cash in order to have a 25% interest in the
partnership. If JS and PR share profit in a proportion of 3:1, respectively, and
PR’s capital balance after CV’s investment is P294,875.
Compute the amount of cash invested by CV.
A. P424,375
B. P423,500
C. P587,125
D. P294,000

Solution:
TCC TAC
JS P490,000
PR 262,500 294,875 P32,375 Bonus to PR
CV 423,500 (25%) 294,000 (129,500)

__________ __________

32,375 x 4 = P129,500 Bonus from CV

490,000 + 262,500 = 752,500 + 129,500 = 882,000 TAC of the old partners
882,000/75% = 1,176,000 TAC of the Partnership
1,176,000 x 25% =294,000

Retirement of a Partner

PROBLEM 6. CP, LK and TQ share profits in the ratio of 3:5:2. On June 30,
LK opted to retire from the partnership. The capital balances on this date show:
CP, P280,000; LK, P350,000 and TQ, P320,000.
Assuming LK sold his interest to TQ for P375,000, which of the following
statements is FALSE?
A. LK’s personal assets will increase by P375,000.

B. TQ’s capital account in partnership will increase by P670,000.

C. The capital account of CP will not change.

D. The total capital of the partnership after the retirement of LK is P950,000.

Solution:

LK, Capital 350,000

TQ, Capital 350,000

Assuming LK is paid P315,000 by the partnership in full settlement of his

interest, which of the following statements is TRUE?
A. The capital account of TQ will be debited in the amount of P14,000.

B. The bonus from the retiring partner is P35,000.

C. The capital account of CP will be credited by P301,000.

D. The capital account of LK will be debited by P315,000.

Solution:

LK, Capital 350,000

CP, Capital 21,000
TQ, Capital 14,000
Cash 315,000

PROBLEM 7. As of December 30, 2021, the Statement of Financial

Position of DG Co. has the following balances: Total assets P2,250,000; VL
loan P125,000; VL capital P518,750; MD capital P481,250 and LV capital
P1,125,000. The partners share profits and losses in the ratio of 25% to VL,
25% to MD, and 50% to LV. It was agreed among the partners that VL
retires from the partnership and the partnership assets be adjusted to their fair
value of P2,550,000 as of December 31, 2021. The partnership also suffered
a net loss of P750,000. The partnership would pay VL the amount of
P542,500 cash for his total interest in the partnership.
Compute the total capital of MD after retirement of VL
A. P383,750
B. P368,750
C. P365,000
D. P380,000

Solution:
Capital + Loan to + Revaluation upward - Share in NL
VL 518,750 + 125,000 + 75,000 - 187,500 = P531,250
MD 481,250 + 75,000 - 187,500
LV 1,125,000 + 150,000 - 375,000

Total Interest of VL P531,250

Settlement of Partnership 542,500
Bonus to VL P 11,250 *25/75 = 3,750

PROBLEM 8. CK, a partner of AX and DG, decided to withdraw from the

ACD partnership. CK’s share in the profits and losses was 25%, while that
of AX and DG are 50% and 25% respectively. In the final settlement of his
interest, he was paid P95,000, although the capital balance before his
retirement was only P85,000. The P10,000 difference implied that the
equipment of the partnership was undervalued. Prior to recording CK’s
withdrawal, adjustment was made by the partnership to bring the equipment
to its fair value. The total of partners’ capitals before any adjustments and
before CK’s withdrawal was P340,000.

Compute the partnership’s net assets after the withdrawal of CK

A. P295,000
B. P285,000
C. P245,000
D. P325,000
Solution:

Interest of CK P85,000
Settlement to CK 95,000
Revaluation upward P10,000/ 25% = P40,000

Total Capital Before Adjustments and Withdrawals P340,000

Add: Revaluation 40,000
Less: (95,000)
P285,000
PROBLEM 9. DG and DV have capital balances of P1,200,000 and
P800,000 and share profits 3:2. DL is admitted as a partner and is given
a 25% interest in the firm by investing P500,000. Profits and losses are
now to be shared 4:3:2 by DG, DV and DL. After a couple of months, DK
subsequently entered the partnership by investing another P500,000 for a
capital credit of P455,000 and a 19% share on the firm’s profits. Former
partners share the balance of profits and losses in their original ratio.
Assuming there is no asset revaluation.
DG had difficulty getting along with DK and decided to withdraw from the
partnership. The remaining partners accepted his retirement and the
partnership paid him P1,241,000 for his interest.
What is the entry to record the admission of DL into the partnership?

A. Cash 625,000
DL, Capital 625,000

B. Cash 500,000
DG, Capital 75,000
DV, Capital 50,000
DL, Capital 625,000

C. Cash 500,000
DL, Capital 500,000
D. Cash 625,000
DG, Capital 75,000
DV, Capital 25,000
DL, Capital 500,000

What is the entry to record the admission of DK into the partnership?

A. Cash 500,000
DG, Capital 20,000 (45,000 *4/9)
DV, Capital 15,000
DL, Capital 10,000
DK, Capital 455,000

B. Cash 500,000
DG, Capital 20,000
DV, Capital 15,000
DL, Capital 10,000
DK, Capital 545,000

C. Cash 455,000
DK, Capital 455,000

D. Cash 500,000
DK, Capital 500,000

What is the entry to record the withdrawal of DG from the partnership?

A. DG, Capital 1,145,000 (1,200,000 -75,000 + 20,000)

DV, Capital 40,500 (27/64) 96,000
DL, Capital 27,000 (18/64)
DK, Capital 28,500 (19/64)
Cash 1,241,000

DG 4/9 x 81% = 36%

DV 3/9 x 81% = 27%
DL 2/9 x 81% = 18%
DK 19%

B. DG, Capital 1,241,000

Cash 1,241,000
C. DG, Capital 1,145,000
DV, Capital 40,500
DL, Capital 27,000
DK, Capital 28,500
Cash 1,049,000

D. DG, Capital 1,145,000

Cash 1,145,000

Compute the capital balances of (1) DV (2) DL and (3) DK, respectively
after DV’s withdrawal

A. (1) P805,500; (2) P662,000; (3) P483,500

B. (1) P765,000; (2) P635,000; (3) P455,000
C. (1) P739,500; (2) P 618,000; (3) P471,500
D. (1) P724,500; (2) P608,000; (3) P426,500