Quiz on Partnership Dissolution

Straight Problems:
1. A condensed balance sheet for the AA, BB and CC partnership at December 31, 2022,
and their profit and loss sharing percentages on that date are as follows:
Cash P15,000 Liabilities P50,000
Other assets 185,000 AA, Capital (50%) 75,000
BB, Capital (30%) 50,000
CC, Capital (20%) 25,000
Total P200,000 Total P200,000

On January 1, 2023, the partners decided to bring DD into the partnership under the
following independent assumptions:
a. Assuming that DD would purchase ½ of AA’s capital and right to future profits
directly from AA for P60,000, how much capital is to be credited to DD?
b. Assuming that DD would purchase ¼ of each of the partner’s capital and rights to
future profits by paying a total of P45,000 directly to the partners, the partnership
net assets are to be revalued. How much will be the capital balance of BB after DD’s
admission?
c. Assuming that DD would invest P55,000 cash in the partnership for a 25% interest in
capital. Future profits would be divided 33 ½%, 22 ½%, 15% and 25% for AA, BB, CC
and DD, respectively. Partnership net assets are not to be revalued. How much
capital is to be credited to DD?

2. A, B, and C have capital balances of P112,000, P130,000 and P58,000, respectively, and
share profits in the ratio 3:2:1. D invest cash in the partnership for a ¼ interest.
a. D receives a ¼ interest in the assets of the partnership, which includes credit for
P25,000 bonus. How much cash did D invest?
b. D receives a ¼ interest in the assets of the partnership and B is credited with
P15,000 of the bonus from D, how much cash D invest?

Multiple Choice Problems:

1. The Samuel Partnership shows the following profit and loss ratios and capital balances:
Andrew (60%), P252,000; Mila (30%) P126,000; and Philip (10%), P42,000. The partners
decide to sell to Violet 20% of their respective capital and profit and loss interests for a
total payment of P90,000. Violet will pay the money directly to the other partners. What
are the capital balances of the partners after Violet’s admission to the partnership?
Andrew Mila Philip Violet
A 198,000 99,000 33,000 90,000
B 201,600 100,800 33,600 84,000
C 216,000 108,000 36,000 90,000
D 255,699 127,800 42,600 84,000
2. Ruth and Jethro are partners who share income and loss in the ratio 2:3, respectively.
The partners agree to admit Samuel as a partner upon investing P150,000 cash for a 1/5
interest. Assets of the partnership are fairly valued except for a parcel of land that is
overvalued by P150,000. Net assets of the partnership are to be revalued, and Samuel is
to be admitted. The capital accounts of Ruth and Jethro are P450,000 and P300,000,
respectively. Determine the capital to be credited to Samuel.
A. P150,000
B. P180,000
C. P210,000
D. P120,000

Questions 3 to 6 are based on the following:

Riley and Smith are partners with present capital balances of P500,000 and P400,000,
respectively. The partners share profit and losses according to the following
percentages: 60% for Riley and 40% for Smith. Tyler is to join the original partnership
upon contribution of P250,000 to the partnership in exchange for 20% interest in capital
and 15% interest in the profits and loss. Tyler’s contribution consists of P170,000 of cash
and equipment having a fair value of P80,000 and book value of Php50,000. The assets
of the partnership have a book value equal to their fair value except that the land has a
book value of P15,000 and fair value of P55,000.
3. Calculate the capital balance of Tyler in the new partnership, assuming use of the bonus
method.
a. P238,000
b. P250,000
c. P230,000
d. P178,500
4. Give all the necessary journal entry under bonus method

5. Calculate the capital balance of Tyler in the new partnership, assuming use of the asset
revaluation method.
a. P238,000
b. P250,000
c. P230,000
d. P178,500
6. Give all the necessary journal entry under asset revaluation method.

7. Dick and Nick are partners who have capital balances of P900,000 and P720,000,
respectively, and share profits and losses in the ratio of 3:2, respectively. Rick is
admitted as a partner upon investing P750,000 for a 20% interest in the firm, profits are
to be shared 3:3:2, to Dick, Nick and Rick, respectively. Given the choice between asset
revaluation and bonus method, Rick will:
A. Prefer asset revaluation due to Rick’s gain of P276,000
B. Prefer bonus method due to Rick’s gain of P69,000
C. Prefer asset revaluation due to Rick’s gain of P157,500
 D. Be indifferent between 2 methods.
8. A and B have capital balances of P65,000 and P35,000 and share profits 3:2. C is
admitted as a partner and is given a 25% interest in the firm upon investing P40,000
cash. Profits are to be shared 5:3:2 by A, B, and C. D subsequently enters the
partnership by investing P25,000 for a 20% interest in assets and a 20% share of the
firm’s profits. Former partners share the balance of profits in their original ratio. A has
difficulty getting along with D and withdraws from the partnership. The partnership pays
P73,000 cash for A’s interest. How much are the capital balance of B, C, and D,
respectively after A’s withdrawal under the bonus method?
a. P31,000; P31,000; P30,000
b. P34,600; P33,400; P33,000
c. P40,600; P38,400; P38,000
d. P43,000; P40,000; P40,000
9. In relation to the above, how much are the capital balances of B, C and D after A’s
withdrawal under the asset revaluation method?
a. P31,000; P31,000; P30,000
b. P34,600; P33,400; P33,000
c. P40,600; P38,400; P38,000
d. P43,000; P40,000; P40,000

Questions 10 to 11 are based on the following:

The following balances as of the of 2022 for the partnership of X, Y, and Z, together with
their respective profits and loss percentages, were as follows:
Assets P360,000 X, Loan P18,000
X, Capital (20%) 84,000
Y, Capital (20%) 78,000
Z, Capital (60%) 180,000
Total P360,000 Total P360,000

X decided to retire from the partnership. Parties agreed to adjust the assets to their fair
market value of P432,000 as of December 31, 2022. X will be paid P122,400 for X’s
partnership interest inclusive of X loan which is to be repaid in full. No asset revaluation
is to be recorded. After X’s retirement.
10. What will be the balance of Y’s capital account?
a. P78,000
b. P72,900
c. P92,400
d. P90,900
11. Assuming that the P122,400 payment to X exclude his loan, what will be the balance of
Y’s capital account, after X’s retirement?
a. P78,000
b. P92,400
c. P90,900
d. P86,400
Theories: True or False
1. The withdrawal of an existing partner dissolves the partnership, but the admission of a
new partner does not.
2. The retirement of one of the partners automatically dissolves the partnership.
3. The sale of interest of the retiring partner to a new partner will require the recognition
of a gain or loss on the partnership books.
4. If dissolution does not recognize any bonus, then automatically, there is an asset
revaluation.
5. Loans made by the partnership to the partner, as recorded on the partnership book is to
be consider in computing its capital during admission by purchase.
6. Retiring of a new partner entitles him to assign his capital to any individual, regardless of
whether the remaining partner agrees or not.
7. A partner may withdraw his interest from the partnership without any considerations.
8. Asset revaluation may be recorded upon the admission of a new partner whether by
purchase or by investment.
9. Both asset revaluation and bonus affect total assets and total capital of the partnership.