Advanced Financial Accounting and Reporting

Partnership Accounting

I. Theory of Accounts a. The industrial partner shall receive a share equivalent to

the least share of a capitalist partner while the capitalist
1. Which of the following statements concerning the formation of partners shall share based on capital contribution ratio.
partnership is correct? b. The industrial partner shall receive a just and equitable
a. Philippine Financial Reporting Standards (PFRS) allows share and the remainder shall be distributed to the
recognition of goodwill arising from the formation of capitalist partners on the basis of capital contribution
partnership. ratio.
b. The juridical personality of the partnership arises from the c. The profit shall be distributed on the basis of loss
issuance of certification of registration. contribution ratio which may have been agreed upon by
c. The parties may become partners only upon contribution the partners.
of money or property but not of industry or service. d. The profit shall be distributed equally to all partners
d. The capital to be credited to each partner upon formation including the industrial partner.
may not be amount actually contributed by each partner.
7. In the absence of agreement as to distribution of loss, how
2. Under the generally accepted accounting principles in the shall the partnership loss be distributed to the partners?
Philippines, what is the acceptable reason when the amount a. The loss shall be distributed equally to all partners
credited to a partner is greater than the amount actually including the industrial partner.
contributed by such partner during partnership formation? b. The industrial partner shall be exempted from partnership
a. Recognition of goodwill by virtue of special skills or loss while the capitalist partners shall share equally.
reputation of said partner. c. The industrial partner shall be exempted from partnership
b. Receipt or transfer of capital from other partner by virtue loss while the capitalist partners shall be distributed on
of partner’s agreement resulting to bonus to the said the basis of the capital contribution ratio.
partner. d. The industrial partner shall be exempted from partnership
c. Recognition of impairment loss on the property loss while the capitalist partners shall be distributed in
contributed by said partner. accordance with profit agreement ratio.
d. When there is bonus given by said partner to the
partners. 8. Which of the following will decrease the capital balance of a
partner?
3. He refers to a partner who contributed not only money and a. Share in partnership profit
property but also industry to the newly formed partnership. b. Receipt of share in revaluation surplus from a partnership
property, plant and equipment
a. Industrial partner c. Drawing made by a partner
b. Nominal partner d. Advances made by a partner to the partnership.
c. Capitalist-Industrial partner
d. Capitalist partner 9. Which of the following statements pertains to partnership
dissolution?
4. It refers to a type of partnership wherein all partners are liable a. It refers to the process of converting the non-cash assets
to the creditors’ pro-rata up to the extent of personal or of the partnership and distributing the total cash of the
separate assets after the partnership’s assets are exhausted. creditors and the remainder to the partners.
b. It refers to the change in the relation of the partners
a. General partnership caused by any partner ceasing to be associated in the
b. Partnership by estoppel carrying on of the partnership.
c. Limited partnership c. It refers to the extinguishment of the juridical personality
d. Particular partnership of the partnership.
d. It refers to the end of the life of the partnership.
5. Which of the following transactions shall not affect the capital
balance of a partner? 10. Which of the following will not result to the dissolution of a
a. Share of a partner in the partnership’s loss. partnership?
b. Receipt of bonus by a partner from another partner based a. Insolvency of the partnership
on the agreement. b. Admission of a new partner in an existing partnership
c. Advances made by the partnership to a partner. c. Assignment of an existing partner’s interest to a third
d. Additional investment by a partner to the partnership. person
d. Retirement of a partner
6. In the absence of agreement as to distribution of profit, how
shall the partnership profit be distributed to partners? 11. Which of the following statements is correct when a new
partner is admitted to an existing partnership by purchasing a
portion of a capital interest of an existing partnership?
 a. It will result to revaluation or impairment of existing assets a. P 875,000
of the partnership. b. P1,125,000
b. The partnership will recognize gain or loss in the transfer c. P2,125,000
of capital from one partner to another partner. d. P2,000,000
c. The partnership is not dissolved by the admission of a
new partner by purchase. 17. On July 1, 2016, Archie, Bobby and Carl formed a business
d. It will just result to credit to capital of newly admitted partnership to be operated as an advertising agency. Archie
partner with corresponding debit to capital of the selling contributed P10MM cash while Bobby shall have capital credit
partner. of P6MM upon receipt of bonus of P1MM from Archie based
on the provision in Articles of Co-Partnership. The terms of
12. It refers to the process of converting the non-cash assets of the agreement provides that Archie and Booby shave have a
the partnership and distributing the total cash to the creditors combined 40% capital interest in the newly formed
and the remainder to the partners. partnership. What is the capital contribution made by Carl
a. Dissolution to the partnership?
b. Termination
c. Liquidation a. P24,000,000
d. Operation b. P22,500,000
c. P25,000,000
13. In the liquidation of general partnership, which of the following d. P32,000,000
credits shall be paid first?
a. Those owing to third persons. 18. On January 1, 2016, Ross, Josh and Nathan formed a
b. Those owing to partners other than capital and profits partnership with profit or loss sharing agreement of 2:3:5.
c. Those owing to partners for their capital contribution
d. Those owing to partners for their share in profits Ross contributed a land with assessed value from city
assessor in the amount of P1MM. The land is subject to a real
14. In the liquidation of limited partnership, which of the following estate mortgage which is annotated to the title of the land in
credits shall be paid last? the amount of P800,000 and will be assumed by the
a. Those owing to third persons. partnership. The appraised value of the land is P2.4MM. Josh
b. Those owing to limited partners contributed a building with a cost of P2MM and accumulated
c. Those owing to general partners for their share in profits. depreciation of P1.5MM. The fair value of the building is
d. Those owing to partners for their capital contribution. P800,000. Nathan contributed investment in trading securities
with historical cost of P6MM. The trading securities have
15. What is the nature of liability of general partners as to quoted price in active market of P3MM.
partnership debts or obligations?
a. They are liable equally up to the extent of their separate The partners decided to bring their capital balances in
assets after the partnership assets are exhausted. accordance with their profit or loss sharing agreement. The
b. They are liable pro-rata up to the extent of their separate total agreed capitalization of the new partnership is P10MM.
assets after the partnership assets are exhausted. Which of the following statement s is correct?
c. They are liable pro-rata up to the extent of their capital
contribution only. a. The agreed capital of Nathan is P500,000.
d. They are liable solidarily up to the extent of their separate b. Ross should contribute additional capital in the amount of
assets after the partnership assets are exhausted. P1.800,000.
c. Josh should contribute additional capital in the amount of
II. Problem Solving P1,000,000.
d. Nathan is entitled to withdraw in the amount of
16. On January 1, 2017, Aby, Shie and Hna form ASH & Co., a P1,000,000.
general professional partnership for the exercise of their
common profession. Aby contributed a building with cost of 19. Gordon and Fernando sole partnerships decided to form a
P5MM and accumulated depreciation of P4MM. Based on the partnership on June 1, 2016. The partnership will take over
city assessor’s records, the building has an assessed value of their assets and assume their liabilities. As of June 1, 2016,
P2MM. The building has an annotated mortgage payable the net assets of Gordon and Fernando are P220,000 and
amounting to P500,000 to be assumed by the partnership. P309,375, respectively. The partners agreed on a 25:75 profit
and loss ratio. Furthermore, the partners arrive on the
On the other hand, Shie contributed 10,000 shares of stocks following agreements to revalue their assets and liabilities:
with par value of P200/share and prevailing quoted price of
P300/share. On January 2, 2017, the building contributed by a. Gordon’s inventory is undervalued by P11,000
Aby was sold for P5.5MM. If Hna wants to have 20% capital b. An allowance for doubtful account is to be set up in the
interest in the newly formed partnership, how much cash books of Gordon and Fernando in the amount of P2,750
shall be contributed by her? and P4,125, respectively.
 c. Accrued expenses of P20,250 was not recognized in During 2017, the partnership reported net income of P2MM
Fernando’s books. with Aby and Basti withdrawing P500,000 and P300,000,
respectively. During 2018, the partnership reported net loss of
How much cash should Gordon invest (withdraw) so that P1MM with Basti and Renz withdrawing P200,000 and
their capital interest would be equal to their profit and P400,000, respectively.
loss ratio?
What is the capital balance of Basti on December 31,
a. P(133,250) 2018?
b. P(95,000)
c. P133,250 a. P2,600,000
d. P99,500 b. P2,300,000
c. P2,500,000
20. On January 1, 2017, Alvin, Mark and Kris decided to form a d. P2,400,000
business partnership to operate supermarket. Alvin and Mark
both owned a grocery business with the Statements of 22. On January 1, 2017, Renz, Mon and Pin formed a partnership
Financial Position as of December 31, 2016: with respective capital contribution of P2MM, P5MM and
P3MM. The articles of co-partnership provided that profit or
Alvin Mark loss shall be distributed accordingly:
Cash P10MM P20MM
Accounts Receivable 20MM 30MM  20% interest on original capital contribution
Inventories 70MM 40MM
PPE 50MM 10MM  P30,000 monthly salary for Renz and P50,000 monthly
Accounts Payable 40MM 20MM salary for Mon.
Notes Payable 30MM (10%) 50MM (5%)  The remainder shall be distributed on the basis of original
Capital 80MM 30MM capital contribution ratio.

The following additional notes are provided: On December 31, 2017, Renz and Mon made withdrawals of
P500,000 and P1MM, respectively. The statement of financial
a. Alvin and Mark will contribute all its assets and liabilities position of the partnership shows that Mon’s capital on
to the newly formed partnership. December 31, 2017 is P6.5MM.
b. The parties agree to provide 10% and 20% allowance for
bad debts to the accounts receivable of Alvin and Mark, What is the capital balance of Renz on December 31,
respectively. 2017?
c. The inventories of Alvin and Mark are reported at
historical cost and have net realizable value of P60MM a. P3,260,000
and P45MM, respectively. b. P2,100,000
d. The PPE of Alvin and Mark have not been depreciated c. P2,360,000
and should be depreciated by 40% and 30%, d. P2,860,000
respectively.
e. The interest payable on both notes payable were 23. On January 1, 2017, Robert and Rodel formed Aguhon
unrecorded and unpaid since the date of contract. Alvin’s Partnership organized to train prospective professional
notes payable is dated April 1, 2016 while Mark’s notes mountaineers. The articles of co-partnership provides that the
payable is dated June 30, 2016. profit or loss shall be distributed accordingly:
f. Kris shall have 20% interest in the partnership upon
contribution of sufficient cash.  10% interest on average capital balance
 P50,000 and P100,000 quarterly salary for Robert and
What is the amount of cash to be contributed by Kris on Rodel, respectively.
January 1, 2017?  The remainder shall be distributed in the ratio of 3:2 for
Robert and Rodel, respectively.
a. P16,375,000
 The following transactions regarding the capital balance
b. P17,625,000
of the balance of the partners for year 2017 are provided:
c. P15,825,000
d. P18,475,000
Robert Rodel
21. On January 1, 2017, Aby, Basti and Renz formed a 01.01.17 Investment P1,000,000 P500,000
partnership with original capital contribution ratio of 4:5:1 for 03.31.17 Investment 100,000
total agreed capitalization of P5MM. The profit or loss ratio 07.01.17 Withdrawal (200,000)
agreement provides that profits shall be distributed in the ratio 09.30.17 Withdrawal (200,000)
of 3:2:5, while losses shall be distributed in the ratio of 6:1:3. 10.01.17 Investment 700,000

 The chief accountant of partnership reported net income

of P1,000,000 for year 2017.
 a. Ellen will have capital credit of P200,000 after dissolution.
What is the capital balance of Robert on December 31, b. The old partnership will recognize gain of P200,000
2017? resulting from Ellen’s admission.
c. The new partnership will have total capital of
a. P1,951,500 P10,200,000
b. P1,451,500 d. Carla will have P4,000,000 capital balance after
c. P2,151,500 admission of Ellen.
d. P1,251,500
27. SP, AP and TS are partners with capital balances of
24. On July 1, 2016, Drei and Josh formed Free-Throw P748,000, P2,730,000 and P1,190,00, respectively, sharing
Partnership organized to train prospective professional profits and losses in the ratio of 3:2:1. DJ is admitted as a new
basketball players on how to shoot Charity Shoot without partner bringing with him expertise and is to invest cash for a
accuracy with initial investment of P1MM and P2MM, 25% interest in the partnership which includes a credit of
respectively. Drei is appointed as the managing partner. The P735,000 for bonus upon admission.
articles of co-partnership provides that profit or loss shall be
distributed accordingly: How much cash should DJ contribute?

 30% interest on original capital contribution ratio. a. P1,323,000

 Monthly salary of P20,000 and P10,000, respectively for b. P2,100,000
Drei and Josh. c. P1,575,000
 Drei shall be entitled to bonus equivalent to 20% of net d. P588,000
income after interest, salary and bonus.
 The remainder shall be distributed in ratio of 3:2 for Drei 28. On December 31, 2016, the Statement of Financial Position
and Josh, respectively. of OVE Partnership shows the following data with profit or loss
sharing of 5:3:2:
For the year ended December 31, 2016, the partnership
reported net income of P750,000. Cash P10MM Total Liabilities P20MM
Noncash Assests 40MM Ona 10MM
Vina 15MM
What is the share in the net income of Drei for year ended
Ena 5MM
December 31, 2016?
On January 1, 2017, Lina is admitted to the new partnership
a. P400,000 named LOVE by investing P20,000,000 for 50% capital
b. P250,000 interest in the new partnership.
c. P350,000
d. P500,000 What is the new capital balance of Ena after Lina’s
admission in LOVE Partnership?
25. Using the same data in number 8, what is the share in net
income of Josh assuming the bonus is equivalent to 20% a. P6,000,000
of the net income after interest and salary but before b. P5,000,000
bonus for the year ended December 31, 2016? c. P4,000,000
d. P3,000,000
a. P351,600
b. P398,400 29. On December 31, 2016, the Statement of Financial Position
c. P350,000 of UFC Partnership shows the following data with profit or loss
d. P500,000 sharing agreement of 2:3:5:

26. On December 31, 2017, the Statement of Financial Position Total Assets P100MM Total Liabilities P40MM
of CAR Partnership shows the following data with profit or loss Umber 10MM
sharing of 1:3:6 Fritz 20MM
Carol 30MM
Cash P 5MM Total Liabilities P10MM
Noncash Asset 15MM Carla 5MM On December 31, 2016 Umber decided to retire from the
Ara 3MM partnership. However, before the distribution of cash to
Renz 2MM Umber, the following data errors were discovered during the
preretirement audit:
On January 1, 2018, Ellen is admitted to the new partnership
name CARE by purchasing 20% capital interest of Carla in the  During 2016, the property, plant and equipment has not
amount of P1,200,000. Which of the following statements been subject to revaluation surplus by P15MM.
is correct?
 The 2016 net income is overstated by P5MM.
 After the adjustment, Umber received retirement pay of final settlement is made among partners on February 10,
P15MM for his capital interest. What is the capital balance 2016. In the final settlement:
of Fritz after the retirement of Umber?
a. NN should pay OO and PP, P1,400 each
a. P23,000,000 b. OO and PP should pay NN, P2,800 each
b. P21,000,000 c. OO should pay NN and PP, P2,800 each
c. P18,875,000 d. NN should pay OO, P1,400.
d. P21,875,000
34. JNA Partnership is entering into liquidation and as a liquidator
30. Before the retirement of Ana from ABC Partnership, Ana, Bea you are given the following account balances:
and Cara have capital balance of P1MM, P3MM and P6MM,
respectively. The pre-retirement capital profit or loss ratio of Cash P775K Liabilities P1.1MM
the partnership is 5:1:4, respectively. If the capital balance of Non Cash 6.75MM A, Loan 150K
Bea after Ana’s retirement becomes P3,120,000 and Assets
J, Cap 20% 1.275MM
particular partnership asset is undervalued.
N, Cap 20% 1.625MM
A, Cap 60% 3.375MM
How much did Ana receive at the time of her retirement? Total P7.525M Total P7.525M

a. P1,600,000 During June, noncash assets with book value of P1,875,000

b. P400,000 were sold for P1,600,000. JNA paid P175,000 for the
c. P880,000 liquidation expenses it incurred and it also paid its liabilities to
d. P520,000 outside creditors. However, creditors whose account
balances amount to P150,000 decided to condone JNA’s
31. Using the same data in number 15, except that the fact that liabilities. Three-fourths of the cash received from the sale of
all the assets of the partnership prior to retirement are properly noncash assets were distributed to the partners.
value, how much did Ana receive at the time of her
retirement? What is the cash withheld by the liquidator?

a. P1,600,000 a. P30,000
b. P400,000 b. P50,000
c. P880,000 c. P40,000
d. P520,000 d. P60,000

32. On June 11, 2016, Moly, Nora and Olga form a partnership 35. What is J’s share in the maximum possible loss?
investing cash of P15,000, P13,500 and P4,200, respectively.
The partners share profits 3:2:2 and on August 30, 2016, they a. P995,000
have cash of P1,000, and other assets of P47,500; liabilities b. P985,000
are P25,600. On this date they decide to go out of business c. P965,000
and sell all the assets for P30,000. Olga has personal assets d. P975,000
of P1,500 that may, if necessary, be used to meet partnership
obligations. How much should be distributed to Nora upon
liquidation of the partnership?

a. P4,000
b. P2,040
c. P4,860
d. P0

33. NN, OO, and PP form a partnership on July 1, 2015 each

investing cash of P25,000. On August 1, 2015, NN was
advanced P10,000 by the firm. On September 1, 2015, OO
made a P20,000 loan to the firm. Interest is to be charged on
advances to partners and credited on loans by partners at the
rate of 6%. Business is unsatisfactory and the partners decide
to liquidate the firm. PP is allowed special compensation of
P2,500 for managing the sale of assets and settlement with
creditors. On December 31, 2015, all assets have been sold,
outside creditors have been paid, and cash of P35,000 is
distributed to partners. All partners are personally solvent and