PARTNERSHIP DISSOLUTION
STRAIGHT PROBLEMS
1. Red, White and Blue are partners with a profit and loss ratio of 2:4:4 and credit capital balances of P 60,
000, P 80, 000, and P 60, 000, respectively. Green is to be admitted into the partnership with an investment
of P 75, 000 for a 25%interest in the capital, profit, and losses of the firm.
Required:
a. Prepare journal entries to record the admission of Green, using:
1. Goodwill Method Approach
2. Bonus approach
b. Prepare journal entries to record the admission of Green if, instead of investing into the
partnership, he purchases his interest from the partners at the same P 75, 000, and:
1. Implicit goodwill is to be recorded
2. Bonus method is used
SOLUTIONS:
(a) 1. Goodwill Method:
Total agreed capital (P75,000 25%) .................................. . P300,000
Total contributed capital........................................................ . _275,000
Goodwill to old partners, P/L ratio........................................ . P 25,000
Entry
Goodwill ........................................................................... 25,000
Cash .................................................................................. 75,000
Red, capital ................................................................... 5,000
White, capital ................................................................ 10,000
Blue, capital .................................................................. 10,000
Green, capital ................................................................ 75,000
2. Bonus Method:
Contributed capital of Green ................................................. .. P 75,000
Agreed capital of Green (P275,000 x 25%) .......................... ... _68,750
Bonus to old partners, P/L ratio ............................................ .. P 6,250
Entry:
Cash .................................................................................. 75,000
Green, capital ................................................................ 68,750
Red, capital ................................................................... 1,250
White, capital ................................................................ 2,500
Blue, capital .................................................................. 2,500
(b) 1. Implicit Goodwill Method:
Total Implied Capital (P75,000 25) ................................... . P300,000
Total existing capital ............................................................. . _200,000
Implied Goodwill to old partners .......................................... . P100,000
Entries:
Goodwill ........................................................................... 100,000
Red, capital ................................................................... 20,000
White, capital ................................................................ 40,000
Blue, capital .................................................................. 40,000
Red, capital (25% x P80,000) ........................................... 20,000
White, capital (25% x p120,000) ...................................... 30,000
Blue, capital (25% x P100,000) ........................................ 25,000
Green, capital ................................................................ 75,000
2. Red, capital (25% x P10,000) ...................................................... 15,000
White, capital (25% x P80,000) ................................................... 20,000
Blue, capital (25% x P60,000) ..................................................... 15,000
Green, capital ........................................................................ 50,000
2. Bruno and Mario are partners with a profit and loss ratio of 6:2 and credit capital balances of P 200,
000 and P 300, 000, respectively. Tomas is to be admitted into the partnership by investing P 140, 000 for
a 20% interest in the capital, profit and losses.
Required:
a. Prepare a schedule of partners’ capital balances after the admission of Tomas, if:
1. Goodwill is not to be recorded
2. Goodwill is to be recorded
3. Goodwill is to be recorded and then written off
b. Redo requirement a (3) except that the profit or loss ratio is 4:4:2 for Bruno and Tomas instead.
SOLUTIONS:
a. (1) Bonus Method:
Contributed capital of Tomas.......................................................... .................. P140,000
Agreed capital of Tomas (P640,000 x 20%) ................................... .................. _128,000
Bonus to old partners, P/L ratio ...................................................... .................. P 12,000
BRUNO MARIO TOMAS TOTAL
Balances before admission ..................... P200,000 P300,000 – P500,000
Admission of Tomas .............................. ___9,000 ___3,000 _128,000 _140,000
Balances after admission ....................... P209,000 P303,000 P128,000 P640,000
(2) Goodwill Method:
Total agreed capital (P140,000 20%) . .................. ..................... P700,000
Total contributed capital ........................ .................. ..................... _640,000
Goodwill to old partners, P/L ratio ........ .................. ..................... P 60,000
BRUNO MARIO TOMAS TOTAL
Balances before admission ..................... P200,000 P300,000 P – P500,000
Admission of Tomas .............................. __45,000 __15,000 _140,000 _200,000
Balances after admission........................ P245,000 P315,000 P140,000 P700,000
(3) Goodwill with subsequent write-off.
BRUNO MARIO TOMAS TOTAL
Balances from A-2 ................................. P245,000 P315,000 P140,000 P700,000
Goodwill written off, 6:2:2 .................... ( 36,000) ( 12,000) ( 12,000) ( 60,000)
Balances ................................................. P209,000 P303,000 P128,000 P640,000
b. BRUNO MARIO TOMAS TOTAL
Balances from A-2 ................................. P245,000 P315,000 P140,000 P700,000
Goodwill written off, 4:4:2 .................... ( 24,000) ( 24,000) ( 12,000) ( 60,000)
Balances ................................................. P221,000 P291,000 P128,000 P640,000
3. ADMISSION BY PURCHASE AND BY INVESTMENT
A partnership had the following condensed balanced sheet:
Assets Liabilities and Capital
Cash P 5, 000 Liabilities P 15, 000
Non-cash assets 65, 000 XX, Capital (80%) 40, 000
XX, Loan 5, 000 YY, Capital (20%) 20, 000
TOTAL P75, 000 TOTAL P 75, 000
` The percentages in the 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)
a. 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 P 15, 000 which is divided between them in proportion to the
equities given up.
Required: Prepare the entry (ies) to record the admission of ZZ as a new partner.
b. Referring to letter a, what are the capital balances of XX, YY and ZZ after the admission?
(Situation 2)
a. 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 P 20, 000 which is divided between them in proportion to the
equities given up.
Required: Prepare the entry (ies) to record the admission of ZZ as a new partner if book value
method (no adjustments/no revaluation) is used.
b. Referring to letter a, what are the capital balances of XX, YY and ZZ after the admission?
c. Using the same information in letter a, compute the partnership gain to be recognized in partnership
books.
d. Using the same information in letter a, compute the gain to be recognized by XX and YY.
e. If revaluation/adjustments in assets are recognized, what is the entry to admit ZZ should be?
f. Referring to letter e, what are the capital balances of XX, YY and ZZ after the admission?
(Situation 3)
a. 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 P 12, 000 which is divided between them in proportion to the
equities given up.
Required: Prepare the entry (ies) to record the admission of ZZ as a new partner if book value
method (no adjustments/no revaluation) is used.
b. Referring to letter a, what are the capital balances of XX, YY and ZZ after the admission?
c. Using the same information in letter a, compute the partnership loss to be recognized in partnership
books.
d. Using the same information in letter a, compute the loss to be recognized by XX and YY.
e. If revaluation/adjustments in assets are recognized, what is the entry to admit ZZ should be?
f. Referring to letter e, what are the capital balances of XX, YY and ZZ after the admission?
(Situation 4)
a. ZZ invests P 25, 000 for a ¼ interest in the firm. The total agreed capital is P85, 000.
Required: Prepare the entry (ies) to record the admission of ZZ as a new partner.
b. Referring to letter a, what are the capital balances of XX, YY and ZZ after the admission?
c. Referring to letter a, what is the new profit and loss of all partners after ZZ’s admission should be?
(Situation 5)
a. ZZ conveyed tangible assets with a fair value of P 32, 500 with an assumed mortgage of P 5, 000
in exchange for a 35% interest in capital, keeping in mind that ZZ would be acquiring for a ¼ interest
in profits. The total agreed capital is P85, 000.
Required: Prepare the entry (ies) to record the admission of ZZ as a new partner if bonus
method is used.
b. Referring to letter a, what are the capital balances of XX, YY and ZZ after the admission?
(Situation 6)
a. ZZ conveyed a non-cash asset with a fair value of P 15, 000 in exchange for a 30% interest in
capital and a 1/5 interest in profits. The total agreed capital is P80, 000.
Required: Prepare the entry (ies) to record the admission of ZZ as a new partner if bonus
method is used.
b. Referring to letter a, what are the capital balances of XX, YY and ZZ after the admission?
c. Referring to letter a, what is the new profit and loss of all partners after ZZ’s admission should be?
(Situation 7)
a. ZZ invests P 15, 000 for a 40% interest in the firm.
Required: Prepare the entry (ies) to record the admission of ZZ as a new partner if bonus
method is used.
b. Referring to letter a, prepare the entry (ies) to record the admission of ZZ as a new partner if
goodwill method is used.
(Situation 8)
a. ZZ invest P 40, 000 in the firm. P 10, 000 is considered a bonus to Partners XX and YY. Prepare
the entry (ies) to record the admission of ZZ.
(Situation 9)
a. ZZ invest P 40, 000 in the firm is allowed a credit of P 12, 000 for goodwill upon admission. Prepare
the entry (ies) to record the admission of ZZ.
(Situation 10)
a. ZZ invest P 30, 000 in the firm for a 37.5% interest in the firm. The total firm capital is to be P 80,
000 and partners agreed that their capital balances should made to equal to their new profit or loss
ratio. Prepare the entry (ies) to record the admission of ZZ.
4. The partnership of Ace, Jack and Spade has been in business for 25 years. On December 31, 2010,
Space decided to retire from the partnership. The partnership balance sheet reported the following loan
and capital balances for each partner at December 31, 2010:
Loan Capital
Ace - P 150, 000
Jack P 200, 000
Spade P 15, 000 Cr. P 105, 000
The partners allocate income and loss in the ratio of 20:30:50.
Sale of interest to one or more of the remaining partners:
(BOOK VALUE)
a. Jack acquired Spade’s total interest for P 150, 000 in a personal transaction. Partnership assets
were not revalued, and partnership goodwill was not recognized.
Required: Prepare the entry (ies) to record the retirement of Spade.
b. Referring to letter a, what are the capital balances of the remaining partners after retirement of
Spade?
(WITH ADJUSTMENTS)
a. Jack acquired Spade’s total interest for P 150, 000 in a personal transaction. There were
adjustments in partnership assets to the entire business were recognized by the partnership.
Required: Prepare the entry (ies) to record the retirement of Spade.
b. Referring to letter a, what are the capital balances of the remaining partners after retirement of
Spade?
(BONUS TO RETIRING PARTNER)
a. Spade received P 180, 000 from partnership cash for his total interest upon retirement.
Required: Prepare the entry (ies) to record the retirement of Spade.
b. Referring to letter a, what are the capital balances of the remaining partners after retirement of
Spade?
(BONUS TO RETIRING PARTNER)
a. Spade received P 60, 000 of cash and partnership land with a fair value of P 120, 000 from
partnership for his total interest upon retirement. The carrying value of the land on partnership
books was P 100, 000.
Required: Prepare the entry (ies) to record the retirement of Spade.
b. Referring to letter a, what are the capital balances of the remaining partners after retirement of
Spade?
(BONUS TO RETIRING PARTNER)
a. Due to the limited cash in the partnership, Spade received land with a fair value of P 100, 000 and
a note payable for P 50, 000 for his total interest upon retirement. The carrying value of the land
into the partnership books was P 60, 000.
Required: Prepare the entry (ies) to record the retirement of Spade.
b. Referring to letter a, what are the capital balances of the remaining partners after retirement of
Spade?
(PARTIAL GOODWILL)
a. Spade received P 150, 000 of cash from the partnership for his total interest upon retirement. The
partnership recorded the portion of goodwill attributable to Spade.
Required: Prepare the entry (ies) to record the retirement of Spade.
b. Referring to letter a, what are the capital balances of the remaining partners after retirement of
Spade?
(TOTAL GOODWILL)
a. Spade received P 150, 000 of cash from the partnership for his total interest upon retirement. The
partnership recorded the portion of goodwill attributable to all the partners.
Required: Prepare the entry (ies) to record the retirement of Spade.
b. Referring to letter a, what are the capital balances of the remaining partners after retirement of
Spade?
(BONUS TO REMAINING PARTNERS)
a. Spade received P 110, 000 of cash from the partnership for his total interest upon retirement.
Required: Prepare the entry (ies) to record the retirement of Spade.
b. Referring to letter a, what are the capital balances of the remaining partners after retirement of
Spade?
