CONCEPT MAP

PARTNERSHIP FORMATION

Law on Partners’ Interest= Accounting for

Partnership Equity Method A Partnership

Elements Right over Right over Recognition and Cash Method- only
Attributes Assets Profits measurement of: if expressed#

Kinds of Partners’ Equity Actual Bonus Method

Partnerships contributions May be implied+

Kinds of Partner, Partner, Compliance Asset Rev/Impairment

Partners Capital Drawing with Agreed May be implied*
capital

Articles of Co Contributions Statement of Statement of

Partnership Cash, Partners’ Financial
Formation property(fair Equity Position
Operation value),
Dissolution liabilities
and Permanent
Drawings

Profit or Loss share #actual cont =/= agreed

Regular Drawings +Total cont = total agreed but partner’s
such as salaries Cont is =/= his agreed
*total cont =/= total agreed

*Goodwill approach is similar to asset rev/impair approach

THIS IS WHAT SHOULD KEEP YOU GOING

POSITIVE ATTITUDE= DEPENDS ON YOUR OUTLOOK IN LIFE (YOUR LIFE)
THOMAS EDISION- 1,000 TIMES HE FAILED BEFORE HE WAS ABLE TO
INVENT THE INCANDESCENT LAMP.

PASSION OR DESIRE TO BECOME (DREAM BIG) THE SPARK THAT FUELS

THE FIRE WITHIN YOU (COMMITMENT) AND KEEPS YOU GOING. POWER
OF THE MIND (NOTHING IS IMPOSSIBLE, NOTHING IS UNREACHABLE)
CAREFUL: IF WHAT YOU ARE DOING DOES NOT MATCH YOUR SKILL, LIFE
BECOMES DIFFICULT
STUDY WITH A PURPOSE TO LEARN AND NOT JUST TO PASS THE
SUBJECT.

CONTRAST AS YOU MATURE YOU REALIZE MANY THINGS ARE NOT

ALWAYS WHAT YOU WANT IT TO BE
YOU HAVE TO EXPERIENCE: PAIN AND RELIEF (FEEL AMAZING)
SADNESS AND JOY
FAILURE AND SUCCESS
REALIZING THIS, YOU WILL BE ABLE TO EXPAND= DEVELOP
ABILITIES/SKILLS
MUSTER YOUR MOOD DON’T BE RULED BY EMOTIONS. (DISCIPLINE)
POWER OF THE HEAD TO RULE OVER YOUR HEART.
DON’T BE AFRAID OF THE CONTRAST COZ THAT IS HOW LIFE IS MEANT
TO BE

GREAT VISION LONG TERM PLANS , AND THESE MUST BE NOT SELF
SERVIING, THINK OF HOW YOU CAN SERVE OTHERS. EXAMPLE WALT
DISNEY

HUMILITY AND LOVE

ACKNOWLEDGE GOD YOUR CREATOR. HE IS IN CONTROL. HE KNOWS
WHAT IS BEST FOR US. IF YOU DEDICATE YOUR WORK TO HIM THE
BURDEN BECOMES LIGHTER.
BELIEVE, ASK, THANK GOD AND YOU WILL RECEIVE
SERVE WITH LOVE AND HUMILITY- YOUR LIFE SHOULD NOT REVOLVE
AROUND YOURSELF. REMEMBER GOD IS YOUR PARTNER, YOUR
CONSULTANT, YOUR SUPPORT.

THE SCHOOL IS A PLACE OF LEARNING, A PLACE OF JOY. TO LEARN

SOMETHING NEW IS FANTASTIC COZ EVERYTIME YOU LEARN
SOMETHING NEW YOU BECOME SOMETHING NEW.
LEARNING IS A BANQUET. WE INVITE YOU TO THE TABLE, YOU CHOOSE,
YOU PICK, YOU EAT. LEARNING IS INTERACTIVE.

KNOW YOURSELF, CONCENTRATE MORE ON YOUR STRENGTHS, IMPROVE

ON YOUR WEAKNESSES, UNDERSTAND WHAT YOU ARE DOING, LOVE
YOUR BOOKS AND YOUR WORK. LOVE YOURSELF. LOVE YOUR
TEACHERS.
 CHAPTER 1 EXERCISES

1. The following balances were picked up from the general ledger of TIMARE Partnership on December 31, 2017:
Tinio, Capital Mayo, Capital Reyes, Capital
1/1 200,000 1/1 250,000 3/1 50,000 1/1 300,000
7/1 50,000
Tinio, Drawing Mayo, Drawing Reyes, Drawing
11/25 15,000 12/31 ? 12/31 ? 6/15 5,000 12/31 ?

Loan Payable, Reyes Income and Expense S

6/15 50,000 12/31 225,000

Required: a. How much was the share of each partner on the profit earned for the year 2017?
b. Determine the partners’ equity as of December 31, 2017.
c. The articles of Co-Partnership provides that profit share may be withdrawn anytime or be made part of permanent
capital. Prepare the necessary journal entry to effect this provision if both Tinio and Reyes elected to make 50% of
their profit share as part of their permanent capital.
d. Refer to c. How much will be the partners’ equity at the end of 2017? Compare your answer with b) above and explain
why it is still the same..

2. a) From the following transactions, construct the partners' equity by making general ledger postings:
Jan 2 Ignacio and Mallari, CPA's, invested cash of P50,000 and P100,000, respectively, to start a consultancy office.
10 Ignacio made an additional investment in the form of furniture and equipment with book value of P42,000 which was
30% net of depreciation. Current market value is half of its original cost. They decided that Ignacio make additional cash
or withdraw cash to arrive at an agreed equity equal to Mallari’s equity.
Mar 1 Mallari extended an 18% one year P30,000 loan to the partnership to be able to fully furnish the office.
June 30 Partnership collected and retained a personal receivable of Ignacio amounting to P45,000 with a promise to return this
before the end of the year.
Aug 1 Mallari made a permanent cash withdrawal of P20,000 which Ignacio approved as a personal emergency measure.

Oct 1 1 The partnership paid Ignacio half of the amount collected on June 30 plus interest and promised to pay the balance next
January.
Dec 31 Partnership operation achieved a revenue of P190,000 and operating expenses of P100,000 excluding accruals. Partners
agreed to divide profits based on net capital contributions. Partners further agreed that no profit withdrawals be made for
the first five years to augment the resources of the business.
b) Prepare a statement of changes in partners' equity.
c) Ignore the agreement on Dec. 31 of a) above. Assume that the cash withdrawal on October 1 is in anticipation of share in net
income and partners agree that this can be withdrawn anytime. Change ledger postings for Mallari for October 1 and
December 31. How much will the capital accounts be in the partners' equity section of the statement of financial position as at
December 31?

d) List all the concepts used in this exercise.

3. Lacson and Lim formed a partnership on March 31, with the following investments:
Lacson Lim
Cash P 10,000 P 35,000
Land (with a P25,000 mortgage) 105,000
Furniture & Equipment (acquired Oct 1) 150,000
The partners agreed on each having a 50% interest in the partnership after revaluing the land to P150,000 and depreciating
the furniture and fixtures by 10%. The mortgage is to be assumed by the partnership and has an unrecorded 12% interest. Last
interest payment was Jan. 1. Furniture & Equipment were acquired on Oct 1.
Required: Prepare supporting tables whenever necessary in answer of the following cases:

a) What are the adjusted capital contributions of the partners? Assuming the partners agreed to use the cash method, who should put
in additional cash in order that the equity agreement of 50% for each partner will be complied with? Give two investment entries
in the partnership books.
b) Suppose in a) above there was no expressed agreement that a partner will make additional investment for deficient contribution,
what would be the implication? Explain and give two investment entries in the partnership book.
c) Assume, instead, that the sharing ratio is 40% for Lacson and 60% for Lim and both agreed that an upward adjustment on non-
cash asset should be made. How much would be the adjustment and who should be credited for this? Give the investment entry of
this partner in the books of the partnership.

4. On July 1, 2015, Velasquez and Carlos decided to pool their assets and form a partnership. The firm is to take over business assets
and assume business liabilities, and capitals are to be based on net assets transferred after making the following adjustments:
a) Carlos' inventory is understated by P2,000.
b) An allowance for doubtful accounts of 25% is to be established on the accounts receivable of each party after a write off of
P2,000 from the accounts of Velasquez. Accounts are presented below at an 80% realizable value in both books.
c) Accrued liability of P800 is to be recognized on Velasquez’ books.
d) Equipment should be 50% depreciated.
e) Carlos is to invest additional cash so his interest will be 60% in the firm.

Financial position for Velasquez and Carlos on July 1 before the above adjustments are given next page:
 Velasquez Carlos
Cash P 7,500 P 4,500
Accounts Receivable (80%, net of doubtful 18,000 15,000
accounts)
Inventory 16,000 12,000
Equipment 10,000 12,000
Accumulated Depreciation ( 4,500) ( 1,500)
P47,000 P42,000

Accounts Payable P13,800 P10,000

Capital 33,200 32,000
P47,000 P42,000
Required: Prepare supporting tables whenever necessary.
a) Compute for the partners’ adjusted contributions in parallel column.
b) Two investment entries in the partnership books.
c) Ignore agreement e). Assume instead, that goodwill be recognized with equity ratio for Velasquez at 40%. Give the investment
entry to be made for the partner with goodwill to be recognized.

5. On July 1, Bautista, Olano and Gatdula decided to form a partnership. The financial position of their business showed the
following:
Bautista Olano Gatdula
Cash P25,000 P 7,800 P20,000
Accounts Receivable 23,500 34,000 10,600
Merchandise Inventory 36,000 54,500 15,900
Furniture and Equipment 25,500 6,700 13,500
Total P110,000 P103,000 P60,000

Accounts Payable P 38,000 P 45,000 P12,700

Capital 72,000 58,000 47,300
Total P110,000 P103,000 P60,000

The partnership was to be called BOG's Health Spa. They also agreed to the following:
a) That the furniture and equipment was overstated by P700 in Olano's books.
b) Obsolete merchandise be written off in Bautista's book amounting to P6,000.
c) That a 3% provision for doubtful accounts be set up in all books.
d) Bautista will invest only P15,000 out of the cash of P25,000 and all the other assets and liabilities.
e) That total partner's equity shall be P186,000. All partners shall have equal interest and share in the profit. Gatdula’s
merchandise shall receive an adjustment in compliance with this agreement.
Required: Prepare supporting tables whenever necessary.
1. Determine the adjusted capital contributions of the partners.
2. Compare the total agreed equity against total contributed capital. Likewise compare the agreed capital credit for each partner
against their contributed capital.
3. Determine the proper treatment for the differences.
4. Investment entry for each partner in the books of the partnership. .
6. On December 31, the financial position of Robert Ang’s business appears below:
ASSETS LIABILITIES & CAPITAL
Cash P 34,500 6% Notes Payable (Oct 1) P12,500
Accounts Receivable 55,000 Accounts Payable 40,000
Notes Receivable 21,000 Wages Payable 1,500
Inventories 57,500 Ang, Capital 171,000
Machinery P 80,000
Less Accumulated Depreciation 56,000 24,000
Building 45,000
Less Accumulated Depreciation 32,000 13,000
Land 20,000 ______
P 225,000 P225,000
Ang agreed to the following terms before taking Bobby Roxas as a partner:
a) Ang's assets, except for the cash, will be taken over and the liabilities be assumed by the partnership subject to the following
adjustments:
1. Accounts receivable has a net realizable value of P50,000.
2. Inventories should be revalued by 10% because of spoilage.
3. Accrued interest of P500 on customers' notes should be set up and on supplier’s note.
b) Roxas will invest cash of P120,000 which represents 2/5 of the partnership interest.
Required: a) How much is the net tangible asset contribution of Ang?
b) To conform with the agreement, the land should be revalued. How much should be the revalued amount of the
land?

7. Using the data in exercise 6 but assume instead that Roxas will invest enough cash to make total partners’ equity P300,000.
Required: Make the entry to record Roxas’ contribution including adjustment to effect the 40% interest.