Partnership Dissolution: Admission of a New Partner – Purchase or
Investment
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63. Presented below is the condensed balance sheet of the partnership of KK, LL,
and MM who share profits and losses in the ratio of 6:3:1, respectively:
Cash: P 85,000
Other assets: 415,000
Total: P500,000
Liabilities: P 80,000
KK, capital: 252,000
LL, capital: 126,000
MM, capital: 42,000
Total: P500,000
The partners agree to sell NN 20% of their respective capital and profit and loss
interests for a total payment of P90,000. The payment by NN is to be made
directly to the individual partners. The capital balances of KK, LL, and MM,
respectively, after the admission of NN, are:
a. P198,000; P79,000; P33,000 b. P201,600; P100,800; P33,600
c. P216,000; P108,000; P36,000 d. P255,600; P127,800; P42,600
(AICPA)
64. Using the same information in the previous number, assuming that implied
goodwill (or revaluation of asset) is to be recorded prior to the acquisition by NN,
the capitals of KK, LL, and MM, respectively, after the admission of NN are:
a. P198,000; P99,000; P33,000 b. P201,600; P100,800; P33,600
c. P216,000; P108,000; P36,000 d. P255,600; P127,800; P42,600
65. XX, YY, and ZZ are partners who share profits and losses in the ratio of 5:3:2,
respectively. They agree to sell a 25% of their respective capital and profits and
losses ratio for a total payment directly to the partners in the amount of
P140,000. They agree that goodwill or revaluation of assets of P60,000 is to be
recorded prior to the admission of AA. The condensed balance sheet of the XYZ
partnership is as follows:
Cash: P 60,000
Non-cash assets: 540,000
Total: P600,000
Liabilities: P100,000
XX, Capital: 250,000
YY, Capital: 150,000
ZZ, Capital: 100,000
Total: P600,000
The capital of XX, YY, and ZZ respectively after the payment and admission of AA
are:
a. P187,500; P112,500; and P75,000 b. P210,000; P126,000; and
P84,000
c. P280,000; P168,000; and P112,000 d. P250,000; P150,000; and
P100,000
66. On June 30, 20x5, the balance sheet of Western Marketing, a partnership, is
summarized as follows:
Sundry assets: P150,000
West, capital: P90,000
Tern, capital: P60,000
West and Tern share profit and losses at a 60:40 ratio, respectively. They agreed
to take in Cuba as a new partner, who purchases 1/8 interest of West and Tern for
P25,000. What is the amount of Cuba’s capital to be taken up in the partnership
books if the book value method is used?
a. P12,500 b. P18,750
c. P25,000 d. P31,250
67. PP contributed P24,000 and CC contributed P48,000 to form a partnership,
and they agreed to share profits in the ratio of their original capital contributions.
During the first year of operations, they made a profit of P16,290; PP withdrew
P5,050 and CC P8,000. At the start of the following year, they agreed to admit
GG into the partnership. He was to receive a one-fourth interest in the capital
and profits upon payment of P30,000 to PP and CC, whose capital accounts were
to be reduced by transfers to GG’s capital account of amounts sufficient to bring
them back to their original capital ratio.
How should the P30,000 paid by GG be divided between PP and CC?
a. PP, P9,825; CC, P20,175 b. PP, P15,000; CC, P15,000
c. PP, P10,000; CC, P20,000 d. PP, P9,300; CC, P20,700
68. The capital accounts of the partnership of NN, VV, and JJ on June 1, 20x5 are
presented below with their respective profit and loss ratios:
NN: P139,200 (1/2)
VV: P208,800 (1/3)
JJ: P96,000 (1/6)
On June 1, 20x5, LL is admitted to the partnership when LL purchased, for
P132,000, a proportionate interest from NN and JJ in the net assets and profits of
the partnership. As a result of this transaction, LL acquired a one-fifth interest in
the net assets and profits of the firm. What is the combined gain realized by NN
and JJ upon the sale of a portion of their interest in the partnership to LL?
a. P0 b. P43,200
c. P62,400 d. P82,000
69. Sam and Ray are partners with capital accounts of P150,000 and P225,000,
respectively. They are considering allowing Richard to purchase 30 percent of
Ray’s equity. At the date of the proposed transaction, Sam and Ray want to
revalue the partnership’s assets and allocate any differences based on their
40/60 profit-sharing agreement. Assume that the net market versus book value
differences is P100,000. What amount would Richard pay for the 30 percent
interest?
a. P67,500 b. P76,500
c. P97,500 d. The amount cannot be determined from the information
provided
70. On January 31, 20x5, partners of Lon, Mac, & Nan, LLP had the following loan
and capital account balances (after closing entries for January):
Loan receivable from Lon: P20,000
Loan payable to Nan: P60,000 cr
Lon, capital: P30,000 cr
Mac, capital: P120,000 cr
Nan, capital: P70,000 cr
The partnership’s income-sharing ratio was Lon, 50%; Mac, 20%; and Nan, 30%.
On January 31, 20x5, Ole was admitted to the partnership for a 20% interest in
total capital of the partnership in exchange for an investment of P40,000 cash.
Prior to Ole’s admission, the existing partners agreed to increase the carrying
amount of the partnership’s inventories to current fair value, a P60,000 increase.
The capital account to be credited to Ole is:
a. P60,000 b. P40,000
c. P52,000 d. P46,000
71. MM and OO are partners with capital balances of P50,000 and P70,000,
respectively, and they share profits and losses equally. The partners agreed to
take PP into the partnership for a 40% interest in capital and profits while MM
and OO each retain a 30% interest. PP pays P60,000 cash directly to MM and OO
for his 40% interest, and goodwill implied by PP’s payment is recognized on the
partnership books. If MM and OO transfer equal amounts of capital to PP, the
capital balances after PP’s admittance will be:
a. MM, P35,000; OO, P55,000; PP, P60,000 b. MM, P45,000; OO,
P45,000; PP, P60,000
c. MM, P36,000; OO, P36,000; PP, P48,000 d. MM, P26,000; OO,
P46,000; PP, P48,000
72. Using the same information in the previous number, and the partners
decided to have a cash settlement among themselves right after the admission
of PP, i.e., the capital balance should be made in accordance with the new profit
and loss ratio, what would be the capital balances after such transaction?
a. MM, P35,000; OO, P55,000; PP, P60,000 b. MM, P45,000; OO,
P45,000; PP, P60,000
c. MM, P36,000; OO, P36,000; PP, P48,000 d. MM, P26,000; OO,
P46,000; PP, P48,000
76. OO and TT are partners with capital balances P60,000 and P20,000,
respectively. Profits and losses are divided in the ratio of 60:40. OO and TT
decided to form a new partnership with GG, who invested land valued at P15,000
for a 20% capital interest in the new partnership. GG’s cost of the land was
P12,000. The partnership elected to use the bonus method to record the
admission of GG into the partnership. GG’s capital account should be credited
for:
a. P12,000 b. P15,000
c. P16,000 d. P19,000
73. The following condensed balance sheet is presented for the partnership of
LL, PP, and QQ, who share profits and losses in the ratio of 4:3:3, respectively:
Cash: P90,000
Other assets: P830,000
LL, loan: P20,000
Total: P940,000
Accounts payable: P210,000
QQ, loan: P30,000
LL, capital: P310,000
PP, capital: P200,000
QQ, capital: P190,000
Total: P940,000
Assume that the assets and liabilities are fairly valued on the balance sheet and
that the partnership decides to admit FF as a new partner, with a 20% interest.
No goodwill or bonus is to be recorded. How much should FF contribute in cash or
other assets?
a. P140,000 b. P142,000
c. P175,000 d. P177,500
77. The partnership of Marissa and Olga is being dissolved, and the assets and
equities at book value and fair value and profit and loss ratios at January 1, 20x5
are as follows:
Book Value:
Cash: P20,000
Accounts receivable – net: P100,000
Inventories: P50,000
Plant assets – net: P100,000
Total: P270,000
Liabilities:
Accounts payable: P50,000
Equity:
Marissa, capital (50%): P120,000
Olga, capital (50%): P100,000
Fair Value:
Cash: P20,000
Accounts receivable – net: P100,000
Inventories: P100,000
Plant assets – net: P200,000
Total: P270,000
Liabilities:
Accounts payable: P50,000
Equity:
Marissa, capital (50%): P120,000
Olga, capital (50%): P100,000
Marissa and Olga agree to admit Trent into the partnership for a one-third
interest. Trent invests P95,000 cash and a building to be used in the business
with a book value to Trent of P100,000 and a fair value of P120,000. Compute the
capital balance of Olga after the admission, assuming that the assets are
revalued and goodwill is recognized:
a. P175,000 b. P155,000
c. P195,000 d. P205,000
86. MM and NN are partners who have capitals of P6,000 and P4,800 and share
profits in the ratio of 3:2. OO is admitted as a partner upon investing cash of
P5,000, with profits to be shared equally.
Assume that OO is allowed a 25% interest in the firm. (1) The capital balance of
MM after the admission of OO using the goodwill method, and (2) how much will
NN gain or lose by the use of the bonus method over the goodwill method:
a. (1) P7,120; (2) NN will lose P140 b. (1) P7,120; (2) NN will gain
P1,260
c. (1) P8,520; (2) NN will lose P1,260 d. (1) P8,520; (2) NN will gain P140
87. AA and BB are partners who have capital of P600,000 and P480,000 sharing
profits in the ratio of 3:2. CC is admitted as a partner upon investing P500,000
for a 25% interest in the firm, profits to be shared equally. Given the choice
between goodwill and bonus method, CC will:
a. Prefer bonus method due to CC’s gain of P35,000.
b. Prefer bonus method due to CC’s gain of P140,000.
c. Prefer goodwill method due to CC’s gain of P140,000.
d. Be indifferent for the goodwill and bonus methods are the same.
