1.
Assets contributed by the
partners to a partnership business
should be initially measured in
the partnership books at
at FAIR VALUE
2. A partner’s drawing account is
a. An expense account
b. A capital account
c. A contra-capital account
d. A liability account
c. A contra-capital account
3. A partner’s withdrawal of assets from a
partnership that is considered a permanent
reduction in the partner’s equity is debited to
the partner’s:
a. Drawing Account
b. Retained Earnings Account
c. Capital Account
d. Loan Receivable Account
c. Capital Account
4. WHAT ARE THE
ACCOUNTING FOR EQUITY
OF PARTNERSHIP?
● FORMATION
● OPERATIONS
● DISSOLUTION
● LIQUIDATION
TRUE OR FALSE
1. 5. All assets contributed to (and related
liabilities assumed by) the partnership shall
be measured at BOOK VALUE.
2. The main distinction lies on the accounting
for assets.
ADDITIONAL
PROBLEMS
PROBLEM #1
A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment
with assessed value of P100,000 with historical cost of P800,000 and accumulated
depreciation of P600,000. A day after the partnership formation, the equipment was sold for P
300,000.
B will contribute a land and building with crying amount of P1,200,000 and fair value of
P1,500,000. The land and building are subject to a mortgage payable amounting to P300,000 to
be assumed by the partnership. The partners agreed that B will have 60% capital interest in the
partnership. The partners also agreed that C will contribute sufficient cash to the partnership.
1. What is the total agreed capitalization of the ABC Partnership?
2. What is the cash to be contributed by C in the ABC Partnership?
ALPHA, BRAVO and CHARLIE decided to form
SOLUTION: ABC Partnership. It was agreed that ALPHA will
contribute an equipment with assessed value of
P100,000 with historical cost of P800,000 and
● ALPHA = 300,000 accumulated depreciation of P600,000. A day
● BRAVO = 1,500,000 – 300,000 = 1,200,000 after the partnership formation, the equipment
1,200,000 / .60 = 2,000,000 was sold for P 300,000.
BRAVO will contribute a land and building with
crying amount of P1,200,000 and fair value of
TOTAL AGREED CAPITALIZATION = 2,000,000 P1,500,000. The land and building are subject to a
mortgage payable amounting to P300,000 to be
(TAC)2,000,000 - (ALPHA)300,000-(BRAVO)1,200,000 assumed by the partnership. The partners agreed
CHARLIE = 500,000 that BRAVO will have 60% capital interest in the
partnership. The partners also agreed that
CHARLIE will contribute sufficient cash to the
JOURNAL ENTRY:
partnership.
Equipment 300,000
Land & Building 1,500,000 1. What is the total agreed capitalization of the
Cash 500,000 ABC Partnership?
Mortgage Payable 300,000 2. What is the cash to be contributed by
Alpha, Capital 300,000 CHARLIE in the ABC Partnership?
Bravo, Capital 1,200,000
Charlie, Capital 500,000
PROBLEM #2
Charlie and Delta formed a partnership. Charlie invested cash worth P85,000 and a machine. On
the other hand, Delta contributed cash worth P55,000 and equipment which has a mortgage of
P35.000 which Delta will pay personally. The total capital after formation was P360,000. They
also further agreed to reflect the 55:45 ratio as to their capital balances respectively. No other
investment or withdrawal occurred other than mentioned to reflect their capital ratio agreement.
1. How much is the fair value of the machine?
2. How much is the fair value of the equipment?
Charlie and Delta formed
a partnership. Charlie
invested cash worth
SOLUTION: P85,000 and a machine.
On the other hand, Delta
contributed cash worth
P55,000 and equipment
which has a mortgage of
TAC CASH EQUIPMENT P35,000 which Delta will
CHARLIE (360,000*.55) 198,000 - 85,000 113,000 pay personally. The total
DELTA (360,000*.45) 162,000 - 55,000 107,000 capital after formation
was P360,000. They also
further agreed to reflect
the 55:45 ratio as to their
capital balances
respectively. No other
investment or withdrawal
occurred other than
mentioned to reflect their
capital ratio agreement.
1. How much is the fair
value of the machine?
2. How much is the fair
value of the equipment?
Sources:
- Accounting for Special Transactions 2020 Edition (Millan)
- Advanced Accounting 2013 Edition Vol 1 (Guerrero)
- https://www.law.cornell.edu/wex/capital_account
- https://corporatefinanceinstitute.com/resources/knowledge/finance/drawing-account/
