ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 41 Ÿ May 2021 CPA Licensure Examination Ÿ Weeks 2-4

ADVANCED FINANCIAL ACCOUNTING & REPORTING A. Dayag Ÿ G. Caiga Ÿ M. Ngina

AFAR-02: PARTNERSHIP DISSOLUTION & LIQUIDATION

Admission of a New Partner
I – Admission By Purchase / Admission By Investment
A partnership had the following condensed balance sheet:
Assets Liabilities and Capital
Cash……………………………….....P 2,500 Liabilities……………………………….............P 7,500
Noncash assets…………………..... 32,500 XX, capital 80%)……………………............... 20,000
XX, loan…………………………....... 2,500 YY, capital(20%)..……………………............. 10,000
Total……………………………….....P37,500 Total……………………………………............P37,500
The percentages in parentheses after the partner’s capital balances represent their respective
interests in profits and losses. The partners agree to admit ZZ as a member of the firm.
Situation 1: ZZ purchases a ¼ interest in the firm. One-fourth of each partner’s capital is to be
transferred to the new partner. ZZ pays the partners P7,500 which is divided between them in
proportion to the equities given up. The capital balances of XX, YY, and ZZ after should be:
XX YY ZZ XX YY ZZ
a. P15,000 P 7,500 P 9,375 c. P15,000 P7,500 P7,500
b. 12,500 12,500 12,500 d. 10,000 10,000 10,000
Situation 2: ZZ invests P10,000 in cash for ¼ ownership interest. The money goes to the original
partners
1. The capital balances of XX, YY, ZZ after the admission assuming if book value method is used
should be:
XX YY ZZ XX YY ZZ
a. P15,000 P 7,500 P 9,375 c. P15,000 P7,500 P7,500
b. 12,500 12,500 12,500 d. 10,000 10,000 10,000
2. The partnership gain (or gain to be recognized in partnership books).
a. P 0 c. P 2,500
b. P625 d. P10,000
3. The gain to be recognized by XX and YY
a. P 0 c. P 2,500
b. P625 d. P10,000
4. If revaluation/adjustments in assets are recognized, the capital balances of XX, YY and ZZ after
the admission should be:
XX YY ZZ XX YY ZZ
a. P15,000 P7,500 P 9,375 c. P15,000 P7,500 P 7,500
b. P19,500 P8,625 P10,000 d. P21,000 P9,000 P10,000
Situation 3: ZZ purchases a ¼ interest in the firm. One fourth of each partner’s capital is to be
transferred to the new partner. ZZ pays the partners P6,000, which is divided between them in
proportion to the equities given up.
1. The capital balances of XX, YY, and ZZ after the admission if book value method (no
adjustments/no revaluation) method is used should be:
XX YY ZZ XX YY ZZ
a. P15,000 P 7,500 P 9,375 c. P15,000 P 7,500 P 7,500
b. P12,500 P12,500 P12,500 d. P10,000 P10,000 P10,000
2. The partnership loss (or loss to be recognized in partnership books).
a. P 0 c. P3,375
b. P1,500 d. P6,000
3. The loss to be recognized by XX and YY
a. P 0 c. P3,375
b. P1,500 d. P6,000
4. If revaluation/adjustments in assets are recognized, the capital balances of XX, YY, and ZZ after
the admission should be:
XX YY ZZ XX YY ZZ
a. P15,000 P7,500 P9,375 c. P15,000 P 7,500 P7,500
b. 11,400 6,600 6,000 d. 21,000 9,000 10,000

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***Every man is the architect of his own character.***
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Weeks 2-4: PARTNERSHIP DISSOLUTION & LIQUIDATION

Situation 4: ZZ invests P15,000 for a 1/3 interest in the firm. The total agreed capital is P45,000. The
capital balances of XX, YY and ZZ after the admission should be:
XX YY ZZ XX YY ZZ
a. P15,000 P7,500 P10,000 c. P15,000 P 7,500 P15,000
b. 21,500 10,375 10,000 d. 20,000 10,000 15,000
Situation 5: ZZ invests P12,500 for a ¼ interest in the firm. The total agreed capital is P42,500.
1. The capital balances of XX, YY, and ZZ after the admission should be:
XX YY ZZ XX YY ZZ
a. P15,000 P 7,500 P 9,375 c. P15,000 P 7,500 P 7,500
b. 21,500 10,375 10,625 d. 21,000 9,000 10,000
2. The new profit and loss of all partners after ZZ’s admission should be:
XX YY ZZ XX YY ZZ
a. 50% 25% 25% c. 33% 33% 34%
b. 80% 20% 25% d. 60% 15% 25%
Situation 6: New partner ZZ conveyed a tangible assets with a fair value of P16,250 with an
assumed mortgage of P2,500 in exchange for a 35% interest in capital, keeping in mind that ZZ
would be acquiring a ¼ interest in profits. The capital balances of XX, YY, and ZZ after the
admission if bonus method is used should be:
XX YY ZZ XX YY ZZ
a. P18,750 P9,687.50 P15,312.50 c. P15,000 P7,500 P7,500
b. 21,500 10,375 10,625 d. 21,000 9,000 10,000
Situation 7: New Partner ZZ conveyed non-cash assets with a fair value of P7,500 in exchange for
a 30% interest in capital and a 1/5 interest in profits. The total agreed capital after admission is
P40,000.
1. The capital balances of XX, YY, and ZZ after the admission should be:
XX YY ZZ XX YY ZZ
a. P18,400 P9,600 P12,000 c. P15,000 P7,500 P7,500
b. 21,500 10,375 10,625 d. 21,000 9,000 10,000
2. The new profit and loss of all partners after ZZ’s admission should be:
XX YY ZZ XX YY ZZ
a. 50% 25% 25% c. 33% 33% 34%
b. 60% 15% 25% d. 64% 16% 20%
Situation 8: ZZ invests P7,500 for a 40% interest in the firm:
1. If bonus method is recognized, the capital balances of XX. YY and ZZ after the admission should
be:
XX YY ZZ XX YY ZZ
a. P20,000 P10,000 P20,000 c. P14,000 P10,000 P15,000
b. 20,000 10,000 7,500 d. 14,000 8,500 15,000
2. If goodwill method is recognized, the capital balances of XX, YY and ZZ after the admission
should be:
XX YY ZZ XX YY ZZ
a. P20,000 P10,000 P20,000 c. P15,000 P 7,500 P 7,500
b. P20,000 P10,000 P 7,500 d. P14,000 P 8,500 P15,000
3. If goodwill/adjustment in assets method is recognized and the goodwill allotted to YY
amounted to P1,000, the capital balances of XX, YY and ZZ after the admission should be:
XX YY ZZ XX YY ZZ
a. P20,000 P10,000 P10,000 c. P20,000 P10,000 P 7,500
b. P24,000 P11,000 P 7,500 d. P14,000 P 8,500 P15,000
Situation 9: ZZ invests P20,000 in the firm, P5,000 is considered a bonus to Partners XX and YY.
XX YY ZZ XX YY ZZ
a. P16,000 P 9,000 P 7,500 c. P20,000 P10,000 P 7,500
b. 24,000 11,000 15,000 d. 14,000 8,500 15,000
Situation 10: ZZ invests P20,000 in the firm and is allowed a credit of P6,000 for goodwill upon
admission.
XX YY ZZ XX YY ZZ
a. P16,000 P9,000 P15,000 c. P20,000 P10,000 P26,000
b. 24,000 1,000 15,000 d. 24,000 11,000 26,000
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Situation 11: ZZ invests P15,000 for a 37.5% interest in the firm. The total firm capital is to be P40,000
and partners agree that their capital balances should be made to equal to their new profit and
loss ratio.
1. How do you account for the difference in total capital before and after admission and how
much?
a. Goodwill, P 0 c. Bonus, P5,000
b. Withdrawal, P5,000 d. Negative goodwill, P5,000
2. The capital balances of XX, YY, and ZZ after the admission should be:
XX YY ZZ XX YY ZZ
a. P18,400 P 9,600 P12,000 c. P16,000 P9,000 P15,000
b. P21,500 P10,375 P10,625 d. P20,000 P5,000 P15,000
3. The new profit and loss of all partners after ZZ’s admission should be:
XX YY ZZ XX YY ZZ
a. 50% 12.5% 37.5% c. 33% 33% 34%
b. 80% 20.0% - d. 64% 16% 20%
II – Admission By Purchase
WW desires to purchase a one-fourth capital and profit and loss interest in the partnership of EE,
GG, DD. The three partners agree to sell WW a one-fourth of their respective capital and profit
and loss interests in exchange for a total payment of P40,000. The capital accounts and the
respective percentage interests in profits and losses immediately before the sale to WW are:
EE, capital (60%)…………………………………………………. P 80,000
GG, capital (30%)………………………………………………… 40,000
DD, capital (10%)………………………………………………… 20,000
Total………………………………………………………………… P140,000
All other assets and liabilities are fairly valued, and with no asset adjustments (or book value) is to
be recorded prior to the acquisition by WW. Immediately after WW’s acquisition, what would be
the capital balances of EE, GG and DD respectively?
a. P60,000; P30,000; P15,000 c. P77,000; P38,500; P19,500
b. P69,000; P34,500; P16,500 d. P92,000; P46,000; P22,000
III – Admission by Purchase
LL and QQ are partners with capital balances of P25,000 and P35,000, respectively, and they
share profits and losses equally. The partners agree to take DD into the partnership for a 40%
interest in capital and profits, while LL and QQ each retain a 30% interest. DD pays P30,000 cash
directly to LL and QQ for his 40% interest, and total revaluation of asset (or goodwill implied) by
DD’s payment is recognized on the partnership books. If LL and QQ transfer equal amounts of
capital to DD, the capital balances after DD’s admittance will be:
a. LL, P17,500; QQ, P27,500; DD, P30,000 c. LL, P18,000; QQ, P18,000; DD, P24,000
b. LL, P22,500; QQ, P22,500; DD, P30,000 d. LL, P13,000; QQ, P23,000; DD, P24,000
IV – Admission By Investment
The following condensed balance sheet is presented for the partnership of AA and BB, who share
profits and losses in the ratio of 6:4, respectively:
Cash……………………………….……………………………............................ P 33,750
Other Assets………………………..…………………………….......................... 468,750
BB. loan…………………………………………………………............................ 22,500
P 525,000
Accounts payable……………………………………………........................... P 90,000
AA, capital………………………………………………………. ........................ 261,000
BB, capital………………………………………………………........................... 174,000
P 525,000
The assets and liabilities are fairly valued on the balance sheet. AA and BB decide to admit CC
as a new partner with 20% interest. No bonus or goodwill is to be recorded. What amount should
CC contribute or invest in cash or other assets?
a. P82,500 c. P105,000
b. 87,000 d. 108,750
V – Admission by Purchase and Investment
In the AD partnership, Allen’s capital is P70,000 and Daniel’s is P20,000 and they share income in a
3:1 ratio respectively. They decide to admit David to the partnership. Each of the following
questions is independent of the others.
1. David directly purchases a one-fifth interest by paying Allen P17,000 and Daniel P5,000. The
land account is increased before David is admitted. By what amount is the land account
increased?
a. P20,000 c. P10,000
b. P18,000 d. P 5,000

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2. Allen and Daniel agree that some of the inventory is obsolete. The inventory account is
decreased before David is admitted. David invests P20,000 for a one-fifth interest. What is the
amount of inventory written down?
a. P2,000 c. P7,500
b. P5,000 d. P10,000
VI – Admission by Purchase and Investment
The following are the capital account balances and the profits and loss ratio of the partners in
Motorola Company on December 31, 2019:
Capital account balances Profit and loss ratio
MM……………………………… …………. P 60,000 25%
TT………………………………… …………. 80,000 50%
RR……………………………….. …………. 200,000 25%
On January 1, 2020, LL is admitted to the partnership under the following agreement:
a. LL is to share 1/3 in the profits and loss while the other partners continue to participate
in profits and loss ratio in their original ratio.
b. LL is to pay TT, P24,000 for a ¼ interest f the latter’s equity in the partnership net assets and is
to invest P140,000 cash in the partnership.
c. LL’s capital account after the admission is to show P150,000 and the total capital is
P520,000.
1. The capital account balances of the partners after LL’s admission are:
a. MM, P73,500; TT, P83,000; RR, P213,500; LL, P150,000
b. MM, P62,500; TT, P65,000; RR, P202,500; LL, P150,000
c. MM, P69,183; TT, P78,372; RR, P209,168; LL, P150,000
d. MM, P72,500; TT, P85,000; RR, P212,500; LL, P150,000
2. The new profit and loss ratio of all partners after LL’s admission:
a. MM, 25.00%; TT, 50.00%; RR, 25.00%; LL, 33.33%
b. MM, 18.75%; TT, 37.50%; RR, 18.75%; LL, 25.00%
c. MM, 25.00%; TT, 25.00%; RR, 25.00%; LL, 25.00%
d. MM, 16.67%; TT, 33.33%; RR, 16.67%; LL, 33.33%
VII – Admission By Investment Comparing Bonus and Goodwill
XX and YY are partners who have capital of P300,000 and P240,000 sharing profits in the ratio of
3:2. ZZ is admitted as a partner upon investing P250,000 for 25% interests in the firm, profits are to
be allocated equally. Given the choice between goodwill and bonus method, ZZ will:
a. Prefer bonus method due to ZZ’s gain of P17,500
b. Prefer bonus method due to ZZ’s gain of P70,000
c. Prefer goodwill method due to ZZ’s gain of P70,000
d. Be indifferent for the goodwill and bonus methods are the same
Answer - a
Bonus Method: Goodwill Method
CC AC Bonus CC AC Goodwill
XX 300,000 331,500 31,500 3/5 XX 300,000 426,000 126,000
YY 240,000 261,000 21,000 2/5 YY 240,000 324,000 84,000
540,000 592,500 52,500 540,000 750,000 210,000
ZZ 250,000 197,500 (52,500) ZZ 250,000 250,000 -0-
790,000 790,000 -0- 790,000 1,000,000 210,000

For purposes of comparing bonus and goodwill, goodwill is assumed not realized and it should be
written-off outright as a loss, therefore:
XX YY ZZ
Capital balances if Goodwill Method is used P426,000 P 324,000 P 250,000
Less: Write-off of Goodwill (equally) __70,000 __70,000 __70,000
Capital balance after write-off of goodwill P356,000 P 254,000 P180,000
Capital balance if Bonus Method is used 331,500 261,000 _197,500
Gain (loss) if Bonus Method is used P 24,500 P( 7,000) P 17,500

VIII – Admission by Investment Comparing Bonus and Goodwill

XX and YY are partners who have capital of P300,000 and P240,000 sharing profits in the ratio of
3:2. ZZ is admitted as a partner upon investing P250,000 for 25% interests in the firm, white the other
partners continue to participate profits and losses in their original ratio. Given the choice between
goodwill and bonus method, ZZ will:
a. Prefer bonus method due to ZZ’s gain of P17,500
b. Prefer bonus method due to ZZ’s gain of P70,000
c. Prefer goodwill method due to ZZ’s gain of P70,000
d. Be indifferent for the goodwill and bonus methods are the same.
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Answer - d
Bonus Method: Goodwill Method:
CC AC Bonus CC AC Goodwill
XX 300,000 331,500 31,500 3/5 XX 300,000 426,000 126,000
YY 240,000 261,000 21,000 2/5 YY 240,000 _324,000 __84,000
540,000 592,500 52,500 590,000 750,000 210,000
ZZ 250,000 197,500 (52,500) ZZ 250,000 _250,000 ______-0-
790,000 790,000 -0- 790,000 1,000,000 210,000

For purposes of comparing bonus and goodwill, goodwill is assumed not realized and it should be written-off
outright as a loss, therefore:
XX YY ZZ
Capital balances if Goodwill Method is used P 426,000 P 324,000 P 250,000
Less: Write-off of Goodwill (45%:30%:25%) ___94,500 ___63,000 ___52,500
Capital balance after write-off of goodwill P 331,500 P 261,000 P 197,500
Capital balance if Bonus Method is used __331,500 __261,000 __197,500
Gain (loss) if Bonus Method is used P -0- P -0- P -0-
The revised new profit and loss ratio are as follows:
XX: (75% x 3/5)……………………………………………………… 45%
YY: (75% x 2/5)……………………………………………………… 30%
ZZ: ……………………………………………………………………… 25%
Note: For purposes of comparing bonus and goodwill, and the goodwill is assumed not realized and the old partners still
continue to use the original profit and loss ratio (revised new profit and loss ratio based on the original profit and loss ratio
of the old partners), the partner selecting the alternative may choose either bonus or goodwill method, anyway, it may
result to the same amount of capital balance (refer to Problem VIII). However, such is not the case, where partners used
an entirely new profit and loss ratio (refer to Problem VII).
Retirement or Withdrawal of Partner(s)
IX – Payment from Partnership Funds
DD, EE and FF are partners sharing profits and losses of 50%, 30% and 20%, respectively. The
December 31, 2019 balance sheet of the partnership before any profit allocation was
summarized as follows:
ASSETS LIABILITES AND CAPITAL
Cash………………………………………P 60,000 Accounts payable……………………………P 4,000
Inventories………………………………. 40,000 FF, loan………………………….………. …….. 3,000
Furn. & Fixt. (net)……………………….. 50,000 DD, capital…………………………………….. 70,000
Patent.……………………………………. 15,000 EE, capital……………………………………… 60,000
FF, capital……………………………………… 30,000
________ FF, drawings……………………………………( 2,000)
Total assets………………………………P 165,000 Total liabilities & capital……………………..P165,000
The partnership net income for the year amounted to P30,000. On January 1, 2020, FF has decided to retire
from the partnership and by mutual agreement among partners; the following have been arrived at:
a. Inventories amounting to P5,000 is considered obsolete and must be written-off.
b. Furniture and fixtures should be adjusted to their current value of P65,000.
c. Patents are considered worthless and must be written-off immediately before the retirement of FF.
It was agreed that the partnership will pay FF for his interest in the partnership inclusive of loan
balance.
1. The interest of FF immediately before his retirement amounted to:
a. P37,000 c. P35,000
b. P36,000 d. P24,000
2. FF retires by receiving P36,000 cash (payment at book value), the capital balances of DD and
EE after the retirement of FF:
a. DD, P82,500; EE, P67,500 c. DD, P67,500; EE, P58,500
b. DD, P85,000; EE, P69,000 d. DD, P57,500; EE, P52,500
3. FF retires by receiving P38,000 cash (payment at more than book value), using bonus method,
the capital balances of DD and EE after the retirement of FF:
a. DD, P81,250; EE, P66,750 c. DD, P81,875; EE, P67,125
b. DD, P83,750; EE, P68,250 d. DD, 82,500; EE, P67,500
4. FF retires by receiving P38,000 cash (payment at more than book value), using partial goodwill
method, the capital balances of DD and EE after the retirement of FF:
a. DD, P81,250; EE, P66,750 c. DD, P81,875; EE, P67,125
b. DD, P83,750; EE, P68,250 d. DD, 82,500; EE, P67,500
5. FF retires b receiving P38,000 cash (payment at more than book value), using total (implied)
goodwill method, the capital balances of DD and EE after the retirement of FF:
a. DD, P87,500; EE, P70,500 c. DD, 85,500; EE, P69,500
b. DD, P83,750; EE, P68,250 d. DD, 82,500; EE, P67,500

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6. FF retires by receiving P34,500 cash (payment at less than book value), using bonus method,
the capital balances of DD and EE after the retirement of FF:
a. DD, P82,812.50; EE, P67,687.50 c. DD, 83,437.50; EE, P68,062.50
b. DD, P84,062.50; EE, P68,437.50 d. DD, 82,500; EE, P67,500
7. FF retires by receiving P34,500 cash (payment at less than book value), using specific
adjustment in assets, the capital balances of DD and EE after the retirement of FF:
a. DD, P82,812.50; EE, P67,687.50 c. DD, P83,437.50; EE, P68,062.50
b. DD, P84,062.50; EE, P68,437.50 d. DD, P82,500; EE, P67,500
8. FF retires by receiving P34,500 cash (payment at less than book value), using assets write-down
traceable to the entire entity, the capital balances of DD and EE after the retirement of FF:
a. DD, P82,812.50; EE, P67,687.50 c. DD, P65,250; EE, P66,000
b. DD, P84,062.50; EE, P68,437.50 d. DD, P78,750; EE, P65,250
X
James Dixon, a partner in an accounting firm, decided to withdraw from the partnership. Dixon’s
share of the partnership profits and losses was 20%. Upon withdrawing from the partnership he
was paid P37,000 in final settlement for is partnership interest. The total of the partners’ capital
accounts before recognition of partnership goodwill prior to Dixon’s withdrawal was P105,000.
After his withdrawal, the remaining partners’ capital accounts, excluding their share of goodwill,
totaled P80,000. The total agreed-upon goodwill (revaluation of asset) of the firm was:
a. P 60,000 c. P 80,000
b. 70,000 d. 125,000

Partnership Liquidation
XI – Lump-sum
Jackie, Karla and Linda are partners with profit and loss ratio of 50%, 30%, and 20%, respectively.
The partners decided to liquidate the partnership effective January 1, 2020. The partnership trial
balances on December 31, 2019 were as follows:
Debit Credit
Cash…………………………………………………….. P 12,500
Non-cash assets………………………………………. 112,500
Liabilities to Creditors…………………………………. P 33,750
Loan payable – Linda…………………………………. 3,750
Jackie, capital…………………………………………… 45,000
Karla, capital……………………………………………… 30,000
Linda, capital……………………………………………… ____ 12,500
Totals………………………………………………………… P125,000 P125,000
Required: Prepare a statement of liquidation. The non-cash assets are sold for P28,125 and
liquidation expenses of P1,875 are paid. Linda is insolvent and is unable to repay the partnership
for the debit balance.
XII – Lump-sum
On December 31, 2019, the accounting records of MM, NN and OO Partnership (a general
partnership) included the following ledger account balances:
(Dr.) Cr.
MM, drawing…………………………………………. P (15,000.00)
OO, drawing…………………..……………………… ( 5,625.00)
NN, loan………………………………….……………. 18,750.00
MM, capital…………………………………………… 76,875.00
NN, capital……………………………………………. 62,812.50
OO, capital…………………………………………… 67,500.00
Total assets of the partnership amounted to P299,062.50, including P32,812.50 cash, and
partnership liabilities totaled, P93,750. The partnership was liquidated on December 31, 2019, and
OO received P52,031.25 cash pursuant to the liquidation. MM, NN and OO shared net income
and losses in a 5:3:2 ratio, respectively.
Determine:
1. The loss on realization:
a. P 9,843.75 c. P49,218.75
b. 15,468.75 d. P77,343.50
2. The amount realized from sale of non-cash assets?
a. P160,781.25 c. P217,031.25
b. 188,906.25 d. 266,250.00
3. The cash balance after payment of liabilities?
a. P156,093.75 c. P221,718.75
b. 193,593.75 d. 249,843.75

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XIII – Lump-sum
The AA, BB and CC partnership began the process of liquidation with the following balance
sheet:
Cash…………………………… P 8,000 Liabilities………………………………P 75,000
Noncash assets……………… 217,000 AA, capital…………………………… 40,000
BB, capital…………………………… 45,000
________ CC, capital…………………………. 65,000
Total Assets……………………..P225,000 Total liabilities & capital………….. P225,000
AA, BB and CC share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to
be P6,000. After the liquidation expenses of P6,000 had been paid and the non-cash assets sold,
CC had a deficit of P4,000. For what amount were the non-cash assets sold?
a. P 85,000 c. P 79,000
b. 132,000 d. 73,000
XIV
Silverio, Domingo, Reyes, and Pasko are partners sharing earnngs in the ratio of 3/32; 4/21; 6/21
and 8/21. The balances of their capital accounts on December 31,2019 are as follows:
Silverio…………………………………………………………………… P 500
Domingo………………………………………………………………… 12,500
Reyes……………………………………………………………………… 12,500
Pasko……………………………………………………………………… 4,500
The partners decided to liquidate, and they accordingly convert the non-cash assets into P11,600
of cash. After paying the liabilities amounting to P1,500, they have P11,100 to divide. Assume that
a debit balance of any partner’s capital is uncollectible.
Determine:
1. The book value of the non-cash assets amounted to:
a. P12,600 c. P30,500
b. P22,700 d. P31,500
2. The share of Silverio in the loss upon conversion of the non-cash assets into cash was:
a. P2,486.00 c. P2,700
b. P2,628.50 d. None
3. After the P11,100 was divided, the capital balance of Domingo was:
a. P1,600 c. P2,200
b. P1,960 d. P8,900
XV
Fleming, Durano, and Mart are partners in a wholesale business. On January 1, 2019 the total
capital was P30,000 and drawings presented as follows:
Capitals Drawings
Fleming……………………………………. P 6,250 P 3,750
Durano…..………………………………… 5,000 2,500
Mart……………………………………… 18,750 1,250
Partners agree that profit and loss ratio are shared equally. Because of the failure of some
debtors to pay their outstanding accounts, the partnership loses heavily and is compelled to
liquidate. After exhausting the partnership assets, including those arising from an operating profit
of P4,500 in 2019, they still owe P5,250 to creditors on December 31, 2019. Fleming has no personal
assets but the others are well off.
1. The partnership liquidation loss:
a. None c. P27,750
b. P10,000 d. P32,250
2. The amount to be received by Mart as a result of the liquidation:
a. P 818.75 c. P7,125.00
b. P4,875.00 d. P9,750.00
XVI - Installment
AA, BB, and CC are partners sharing profits and loss in the ratio of 4:3:3, respectively. On January
1, 2019, they decided to liquidate the partnership and the balance sheet were prepared as
follows:
ASSETS LIABILITIES and CAPITAL
Cash………………………………P 1,000 Liabilities……………………………… P 3,000
Other Assets……………………… 23,000 BB, loan………………………………… 2,500
CC,loan………………………………… 1,250
AA, capital…………………………… 7,225
BB, capital…………………………….. 6,275
CC, capital…………………………… 3,750
Total Assets…………………… P24,000 Total liab & capital…………………..P24,000

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR - 02
Weeks 2-4: PARTNERSHIP DISSOLUTION & LIQUIDATION

The following transactions as a result of liquidation were as follows:

Book value Payment of
of assets Proceeds Liquidation Payment Cash
sold from sale Expenses to Creditors Withheld
January P6,000 P5,250 P 250 P 3,000 P 1,000
February 3,500 3,000 375 500
March 7,500 5,000 500 1,250
April 6,000 2,500 2,500 -0-
Determine:
1. The amount to be received by Partner BB for the month of January?
a. P 0 c. P 2,000
b. P900 d. 2,500
2. The amount to be received by Partner CC for the month of February?
a. P 0 c. P 937.50
b. P237.50 d. P1,250.00
3. The amount to be received by Partner AA for the month of March?
a. P 0 c. P 4,400
b. P1,500 d. 7,225
4. The amount to be received by Partner BB for the month of April?
a. P 0 c. P 500
b. P375 d. P625
5. The partner most vulnerable to partnership losses on liquidation is:
a. AA c. CC
b. BB d. None
6. The second payment to any partner (s) under a program of priorities shall be made thus:
a. To BB, P3,356.25 c. To CC, P3,356.25
b. To AA,P 558.40 d. To AA, P558.40 and to BB, P418.80
XVII
Following is the balance sheet of DD, EE, and FF Partnership (a general partnership) on June 4,
2019, immediately prior to its liquidation:
Assets Liabilities and Capital
Cash……………………………..P 6,000 Liabilities…………………………….. P 20,000
Other Assets…………………… 94,000 EE, loan……………………………… 4,000
DD, capital…………………………. 27,000
EE, capital………………………...... 39,000
______ FF, capital…………………………… 10,000
Total..………………….…………P100,000 Total………………………….………..P100,000
The partners shared net income and losses as follows: DD, 40%; EE, 40%; and FF, 20%. On June 4,
2019, the other assets were realized at P30,700, and P20,500 had to be paid to liquidate the
liabilities because of an unrecorded trade accounts payable of P500. DD and EE were solvent,
but FF’s personal liabilities exceeded personal assets by P5,000. How much would each partner
receive?
a. DD, P1,680; EE, P17,680; FF, P -0 c. DD, P100; EE, P12,100; FF, P -0-
b. DD, P1,480; EE, P17,480; FF, P -0- d. DD, P100; EE, P16,100; FF, P -0-
XVIII
When Ray and Conniff, general partners of the Ray Conniff partnership who shared net income
and losses in a 4:6 ratio, were incapacitated in an accident, a liquidator was appointed to raise
up the partnership. The partnership’s balance sheet showed the following:
Assets Liabilities and Capital
Cash………………………… P 17,500 Liabilities…………………………………… P 10,000
Other Assets………………. 50,000 Ray, capital………….……….…………… 35,500
Goodwill…………………… 5,000 Conniff, capital….….…………………… 27,000
Total.…………………… …. P72,500 Total..………………….…………………… P 72,500
Because of the specialized nature of the non-cash assets, the liquidator anticipated that
considerable time would be required to dispose them. Liquidation expenses paid P2,500 for
advertising, rent, travel, etc. and in the process of liquidating the partnership an overlooked bill
for landscaping services of P1,000 is discovered and in addition, partners agree to keep a P1,500
contingent fund. Determine the amount of cash that should be paid to each partner:
Ray Conniff Ray Conniff
a. P 11,500 P 0 c. P 7,500 P 0
b. P 2,500 P 0 d. P 5,000 P 0
**The secret of life is not just to live, but to have something worthwhile to live for.**
**Great achievements are not done by strength but by perseverance**

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Weeks 2-4: PARTNERSHIP DISSOLUTION & LIQUIDATION

XIX
The partnership of JJ, KK, LL, and MM is preparing to liquidate. Profit and loss sharing ratios are
shown is the summarized balance sheet at December 31, 2019 as follows:
Assets Liabilities and Capital
Cash………………………………………P 100,000 Other Liabilities……………………. P 50,000
Inventories………..……………………… 100,000 JJ, loan………….……….………….. 50,000
Loan to KK……….……………………… 10,000 JJ, capital (40%)…………………… 100,000
Other Assets………………............…… 255,000 KK, capital (20%)………………..… 160,000
LL, capital (20%)…………………… 50,000
__ _ MM, capital (20%)………………… 55,000
Total..……………………………………..P 465,000 Total.………………………………… P 465,000
During January 2020, the inventories are sold for P42,500, the other liabilities are paid, and 25,000
is set-aside for contingencies. Compute the total cash payment to partners and the cash that
should receive by JJ and KK:
Payment Payment
to Partners JJ KK to Partners JJ KK
a. P 97,500 P11,666.50 P80,833.50 c. P72,500 P0 P72,500
b. P102,500 P15,000 P82,500 d. P67,500 P0 P67,500
XX
The ABC Partnership is being dissolved. All liabilities have being liquidated. The balance of assets
of hand is being realized gradually. The following are details of partners’ accounts.
Capital Account Current Account Loans to
(Original Investment) (undistributed earnings) Partnership P&L
A P 5,000 P 250 Cr. P 3,750 40%
B 6,250 500 Dr. - 40%
C 2,500 250 Cr. 1,250 20%
If A receives P4,000 at this point, how much will BB and CC receive?
BB CC BB CC
a. P5,750 P4,000 c. P 5,000 P 1,500
b. 750 1,500 d. 1,000 1,125
XXI
The balance sheet of the Partnership Duro, Kemp, and Ruth on December 31, 2019 before
liquidation shows the following:
Cash……………………………...P 60,000 Accounts payable..……………………P 75,000
Other Assets…………………… 280,000 Notes payable…………………………. 50,000
Loan to Ruth…………………… 10,000 Loan from Kemp…..…………………… 5,000
Duro, capital (50%)……………………. 85,000
Kemp, capital (30%)………………….. 85,000
_________ Ruth, capital (20%)……………………. 50,000
Total………………………………P 350,000 Total..……………………………………. P350,000
The partnership decided to liquidate as soon as possible after December 31, 2019, and all cash
on hand except for P5,000 contingency balance is to be distributed at the end of each month
until the liquidation is completed. If in the first month realization and distribution, the partnership
pays liquidation expenses of P2,500 and Kemp receives P30,000. Compute the cash proceeds
from the initial sale of other assets?
a. P80,000 c. P100,000
b. P90,000 d. P102,500
XXII
The following account balances were available for the PP, QQ, and RR partnership just before it
entered liquidation:
Cash………………………………P 45,000 Liabilities……………………………...P 85,000
Noncash assets……………….. 50,000 PP, capital…………………………… 35,000
QQ, capital…………………………. 25,000
________ RR, capital…………………………… 50,000
Total Assets………………….. P195,000 Total liab & capital………………...P 195,000
PP, QQ and RR had shared profits and losses in a ratio of 4:4:2. Liquidation expenses were
expected to be P4,000. All partners were solvent. What would be the minimum amount for which
the non-cash assets musts have been sold for, in order for QQ to receive some cash from the
liquidation?
a. Any amount in excess of P87,500.00 c. Any amount in excess of P91,500.00
b. Any amount in excess of P58,500.00 d. Any amount in excess of P99,333.50
**A person who sows seeds of kindness enjoys a perpetual harvest.**
**Achievement comes from the person who dares**
**Remember that nothing really important ever happens until someone takes a chance

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR - 02
Weeks 2-4: PARTNERSHIP DISSOLUTION & LIQUIDATION

XXIII
A balance sheet for the partnership of Tree, Nee, and Dad who share profits in the ratio of 2:1:1,
shows the following balances just before the liquidation:
Cash………………………………………………. P 6,000
Other assets……………………………………... 29,750
Liabilities………………………………………….. 10,000
Tree, Capital…………………………………….. 11,000
Nee, Capital…………………………………….. 7,750
Dad, Capital……………………………………. 7,000
On the first installment of the liquidation, certain assets are sold for P16,0000. Liquidation expenses
of P500 are paid, and additional liquidation expenses are anticipated. Liabilities are paid amount
to P2,700, and sufficient cash is retained to insure the payment to creditors before making
payment to partners. On the first payment to partners, Tree receives P3,125.
1. The total cash payment to partners in the first installment amounted to:
a. P12,500 c. P6,250
b. P10,000 d. P5,000
2. The amount of cash withheld for anticipated liquidation expenses and unpaid liabilities
amounted to:
a. P1,000 c. P8,300
b. P7,300 d. P8,800
XXIV
The partnership of Aiko, Barney and Clinton is winding its affairs. The following information has
been gathered. The trial balance of the partnership at June 30, 2019, is as follows:
Cash……………………………………… P 3,000 Accounts payable…………………P 8,500
Accounts receivable……………….. 11,000 Aiko, capital (50%)……………….. 33,500
Inventory………………………………. 7,000 Barney, capital (30%)……………. 22,500
Property, plant and Clinton, capital (20%)……………. 15,750
equipment (net)…………………….. 49,500
Aiko, loan……………………………… 6,000
Clinton, loan…………………………. 3,750 ______
Totals………………………………….. P 80,250 Totals…………………………………P 80,250
Cash is distributed to the partners at the end of each month. A summary of transactions follows:
July:
P8,250 – collected on accounts receivable; balance is uncollectible
P5,000 – received from the entire inventory
P 500 – liquidation expenses paid
P4,000 – cash retained in the business at the end of the month
August:
P 750 – liquidation expenses paid
- Clinton’s capital was reduced when Clinton accepted a piece of special equipment
that had a book value of P2,000. The partners agreed that a value of P5,000 should be
placed on the machine for liquidation purposes
P 1,250 - cash retained in the business at the end of the month
September:
P37,500 - received on sale of remaining plant assets
P 500 - liquidation expenses paid
- No cash was retained in the business
Determine the cash to be paid to Barney in:
July August September July August September
a. P -0-; P 2,000; P12,300 c. P 3,250; P 2,469; P11,700
b. P 3,250; P 2,000; P11,700 d. P 3,250; P 2,000; P13,200
XXV – Cash Priority Program
Partners Dalton, Edwards, and Finley have capital balances of P20,000, P45,000, and P15,000
respectively. Immediately prior to liquidation. Total remaining assets have a book value of P80,000
the liabilities having been paid. Among these remaining assets is a machine with a fair value of
P17,500. The partners split profits and losses equally, Edwards covets the machine and is willing to
accept it for P17,500 in lieu of cash. The other partners have no designs on specific assets, only
cash in liquidation. How much cash, in addition to the machine, would be first distributed to
Edwards, before any of the other partners received anything?
a. P7,500.00 c. P 83,333.50
b. P25,000.00 d. P150,000.00
**The greatest friend of truth is Time, her greatest enemy is Prejudice, and her constant companion is Humility.**
**Humility is nothing but truth, and pride is nothing but lying.**
**Because while they may know the odds, they do not know you.**

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR - 02
Weeks 2-4: PARTNERSHIP DISSOLUTION & LIQUIDATION

**The most difficult secret of a man to keep is the opinion he has of himself.**
XXVI
A cash distribution plan/payment priority program for MM, NN, and OO partnership appears below:
Priority Creditors MM NN OO
First P150,000 100%
Next P40,000 70% 30%
Next P35,000 3/7 4/7
Remainder 22% 34% 44%
If P275,000 is to be distributed, how much will be received by the priority creditors MM, NN and OO?
Priority Creditors MM NN OO
a. P 0 P 0 P 0 P 0
b. 0 60,500 93,500 121,000
c. 150,000 27,500 42,500 55,000
d. 150,000 54,000 29,000 42,000
XXVII – With solution
The partnership of Urich, Volks, and Wales was liquidated. The partners have shared profits and
losses in the ratio of 3:4:3. Prior to liquidation, the capital balances were the following:
Urich…………………………….. P(30,000)
Volks…………………………….. 60,000
Wales…………………………… ( 5,000)
Cash and other assets totaled P100,000 with liabilities amounting to P75,000. Liquidation left the
partnership with P60,000, not enough to pay liabilities. Each partner can contribute P10,000 (but
not more) from personal assets. Determine how much cash Urich receives or pays-in as a result of
the liquidation.
Receives (collects) Pays-in Receives (collects) Pays-in
a. P -0- P10,000 c. P 5,000 P -0-
b. -0- 42,000 d. 12,000 30,000
Answer – a
Urich Volks Wales Total
Balances before liquidation ( 30,000) 60,000 ( 5,000) 25,000
Loss on liquidation (P60,000 – P100,000) ( 12,000) ( 16,000) ( 12,000) ( 40,000)
Balances ( 42,000) 44,000 (17,000) ( 15,000)
Additional Investment 10,000 _______ 10,000 20,000
Balances ( 32,000) 44,000 ( 7,000) 5,000
Additional loss (P64,000 + P14,000) 32,000 ( 39,000) 7,000 -0-
Cash received 5,000 5,000

XXVIII – With Solution

Gardo and Gordo formed a partnership on July 1, 2019 to operate two stores to be managed by
each of them. They invested P15,000 and P10,000 and agreed to share earnings 60% and
40%,respectively. All their transactions were for cash, and all their subsequent transactions were
handled through their respective bank accounts as summarized below:
Gardo Gordo
Cash receipts…………………………………………………… P39,550.00 P32,622.50
Cash disbursements…………………………………………… 31,137.50 35,347.50
On October 31, 2019 all remaining non-cash assets in the two stores were sold for cash of P30,000.
The partnership was dissolved, and cash settlement was effected. In the distribution of the
P30,000 cash, Gardo received:
a. P12,000 c. P17,000
b. P13,000 d. P18,000
Answer - b
Gardo (60%) Gordo (40%) Total
Initial Investments…………………………………………….... P15,000.00 P10,000.00 P 25,000.00
Investments (personal disbursement*)…………………….. 31,137.50 35,347.50 66,485.00
Withdrawals (Personal receipts)…………………………..... 39,550.00) ( 32,622.50) ( 72,172.50)
Balance before liquidation ……………………………….....P 6,587.50 P 12,725.00 P 19,312.50
Gain on realization (P30,000-P1,312.50)…………………. .. 6,587.50 4,275.00 687.50
Balances before payment to partners…………………..... P 13,000.00 P17,000.00 P 30,000.00
Payment to partner …………………………………………...( 13,000.00) ( 17,000.00) ( 30,000.00)

**Nothing great was ever achieved without determination.**

**Nothing great will ever be achieved without great mean, and men are great only if they are determined to
be so**
**Don’t be discouraged; everyone who got where he is, started where he was.**
**Be not afraid of life. Believe that life is worth living and your belief will help create the fact**
**Unless someone can look into the core of your heart, and see the degree of your passion, or look into the depths of
your soul and see the extent of your will, then they have no business telling you what you can or cannot achieve.**
**Faith may be defined briefly as an illogical belief in the occurrence of the impossible**

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AFAR - 02
Weeks 2-4: PARTNERSHIP DISSOLUTION & LIQUIDATION

Solution to Problem XVI for Requirement 5 and 6

Using CASH PRIORITY PROGRAM/Cash Pre-distribution Plan
Interests Payments
A B C A B C Total
Balances before
liquidation:
Loans 2,500 1,250
Capital ___7,225 ____6,275 ____3,750
Total Interest 7,225 8,775 5,000
Divided by (P&L)/
capitalized at ____40% ______30% _____30%
Loss absorption
abilities or Maximum
loss absorbable 18,062.50 29,250.00 16,666.67
Priority I ______-0- (11,187.50) _______-0- 3,356.25 3,356.25
18,062.50 18,062.50 16,666.67
Priority II (1,395.83) (1,395.83) _______-0- 558.33 418.75 ____ 977.08
16,666.67 16,666.67 16,666.67 558.33 3,775.00 -0- 4,333.33
Vulnerability Rankings: 1st (Most Vulnerable) – Partner C (first to suffer loss)
2nd – Partner A
3rd (Least Vulnerable) – Partner B
Schedule of Payment to Partners
January- Payment to Partners A B C
Cash Available 2,000.00
Less: Priority I 2,000.00 2,000.00
February-
Cash Available 3,125.00
Less: Priority I (3,356.25 – 2,000) 1,356.25 1,356.25
Balance 1,768.75
Less: Priority II 977.08 558.33 418.75
Balance 791.67
Less: P&L ratio (4:3:3) 791.67 316.67 237.50 237.50
875.00 2012.50 237.50

March (use P&L) 3,750.00 1,500 1,125 1,125

April (use P&L) 1,250.00 500 375 375

Solution to Problem XI – Lump-sum
Cash NCA Liab Loan-L J (5) K (3) L (2)
Balance before 12,500 112,500 33,750 3,750 45,000 30,000 12,500
Realization
Real. & dist of
Gain / Loss 28,125 (112,500) ______ _____ 42,187.50 25,312.50 16,875
Bal. after
Realization 40,625 33,750 3,750 2,812.50 4,687.50 (4,375)
Payment of
Expenses (1,875) ______ _____ (937.5) (562.5) (375)
Bal. after
payment of
expenses 38,750 33,750 3,750 1,875 4,125 (4,750)
Payment of
Liabilities 33,750 (33,750) _____ ______ ______ __________
Balance aft
payment of
liabilities 5,000 3,750 1,875 4,125 (4,750)
Offset loan
vs deficit _____- (3,750) _____ _____ 3,750.00
Balances
after
offsetting 5,000 1,875 4,125 (1,000)
Additional
loss for
possible
insolvency _____- (625) ( 375) 1,000
Balances
before
payment to
partners 5,000 1,250 3,750
Payment
To partners 5,000 (1,250) (3,750)
**GOD’S LOVE is like a river that keeps on flowing…**

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