Partnership Dissolution
- Changes in ownership interest
Admission or Withdrawal of a Partner
1. Admission by purchase of interest – no bonus – no changes in total capital/ total partnership
interest
• Case 1: Purchase of interest for one partner – B purchase 50,000 interest for 100,000
A, Capital xx 50k
B, Capital xx 50k
• Case 2: Purchase of interest from all partners - C purchase 20k interest of A and 30k interest of B
for 100,000
A, Capital xx 20k
B, Capital xx 30k
C, Capital xx 50k
2. Admission by investment – with bonus
A invested 50k PPE for 30k interest (bonus to existing partner)
PPE 50k
A, Capital 30k
B, Capital 20k – existing partner
A invested 50k PPE for 70k interest (bonus to new partner)
PPE 50k
B, Capital 20k
A, Capital 70k
Observe the following rules:
• Contributed capital (CC)
• Agreed capital (AC)
• Total contributed capital (TCC) – actual book value of Assets - Liab
• Total agreed capital (TAC) – Agreed value. If wala, Fair value
TCC=TAC - No Adjustment.
TCC>TAC - Overstatement of the asset or diminution in partner’s capital.
100 > 80
TCC<TAC - Unrecorded net assets or the required additional investment in partner’s capital.
80 < 100
Exercise 1: On December 31, 2023, the Statement of Financial Position of ABC Partnership provided the
following data with profit and loss ratio of [Link]
Current Assets 7,000,000 Total Liabilities 4,200,000
Noncurrent Assets 14,000,000 A, Capital 6,300,000
B, Capital 5,600,000 x 40% = D, Capital
C, Capital 4,900,000
On January 1, 2024, D was admitted to the partnership by purchasing 40% of the capital interest of B at a
price of P3,500,000.
1. What is the capital balance of B immediately after the admission of D?
B 5.6M x 60% = 3,360,000
Exercise 2: On December 31, 2023, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of [Link]
Current Assets 9,100,000 Total Liabilities 2,100,000
Noncurrent Assets 14,000,000 A, Capital 9,800,000 - 1
B, Capital 4,900,000 - 6
C, Capital 6,300,000 - 3
Investment of D 7,000,000
TCC 28,000,000 x 20% = 5.6M
On January 1, 2024, D was admitted to the partnership by investing P7,000,000 to the partnership for 20%
capital interest. TCC 28M x 20% = 5.6M ---- 1.4M bonus to existing partners ABC
1. If all the assets of the existing partnership are properly valued, what is the capital balance of C after the
admission of D?
C 6.3M + (1.4M x 30%) = 6,720,000
Cash 7,000,000
A, Capital 140,000
B, Capital 840,000
C, Capital 420,000
D, Capital 5,600,000
Exercise 3: On December 31, 2023, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of [Link]
Current Assets 10,500,000 Total Liabilities 3,500,000
Noncurrent Assets 14,000,000 A, Capital 7,700,000
B, Capital 8,400,000
C, Capital 4,900,000
On January 1, 2024, D was admitted to the partnership by investing P3,500,000 to the partnership for 10%
capital interest. The total agreed capitalization of the new partnership is P21,000,000.
1. What is the capital balance of D after his admission to the partnership?
21M x 10% = 2.1M
2. What is the capital balance of C after the admission of D to the partnership? 4,060,000
TCC TAC
5 A 7.7M
1 B 8.4M
4 C 4.9M - 840 = 4,060,000
D 3.5M 2.1M + 1.4M bonus
24.5M 21M (3.5M) revaluation downward = (2.1M) net decrease x 40% = (840)
Exercise 4: On December 31, 2023, ABC Partnership’s Statement of Financial Positions shows that A, B
and C have capital balances of P3,500,000, P2,100,000 and P1,400,000 with profit or loss ratio of [Link].
On January 1, 2024, C retired from the partnership and received P2,450,000. At the time of C’s retirement,
an asset of the partnership is undervalued. If this is not mentioned, it is assumed that bonus is given to
retiring partner.
1. What is the capital balance of A after the retirement of C?
Capital Balance
1 A 3.5M + (1,750 x 10%) = 3,675,000
3 B 2.1M
6 C 1.4M 2,450 received = increase by 1,050 / 60% = 1,750 undervaluation
2. On December 31, 2023, ABC Partnership’s Statement of Financial Positions shows that A, B and C have
capital balances of P3,500,000, P2,100,000 and P1,400,000 with profit or loss ratio of [Link].
On January 1, 2024, C retired from the partnership and received P2,450,000.
Capital Balance
1 A 3.5M - (1,050 x ¼) = 3,237,500
3 B 2.1M - (1,050 x ¾) = 1,312,500
6 C 1.4M 2,450 received = increase by 1,050
