CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
ADVANCED FINANCIAL ACCOUNTING GERMAN/LIM/VALIX/K. DELA CRUZ/MARASIGAN
PARTNERSHIP FORMATION
Part I: Theory of Accounts
1. This is the framework within which the partners are to operate or conduct partnership business.
A. Partnership agreement
B. Partnership virtue
C. PFRS
D. Mutual Agency
2. The following are true regarding the characteristics of a general partnership except,
A. Separate legal entity
B. Ease of formation
C. Unlimited liability
D. Unlimited life
3. If the partnership assumes a liability of a partner, in recording in the new partnership books, it
involves a
A. Credit to the asset
B. Credit to the capital account of that partner
C. Debit to drawing account of that partner
D. Debit capital account of that partner
4. If a certain asset is contributed to the partnership, and in the absence of the agreed value, when
recording that certain asset in the partnership books, it is valued at
A. Fair market value
B. Assessed value
C. Original cost
D. Promised value
Part II: Problem Solving
1. A and B will form a new partnership and the following are ascertained:
A will invest cash P300,000 for 60% interest in the capital and profits of the partnership
B will contribute land with an original cost of P40,000 and fair market value of P70,000
B will also contribute building which has an assessed value of P50,000 and an appraised value
of P90,000. The building is also subject to a mortgage of P40,000 which the partnership will
assume.
B will contribute sufficient cash for his interest in the capital of the partnership
1. What is the total capital after formation?
A. 500,000
B. 420,000
C. 460,000
D. 350,000
2. What is the amount of cash to be contributed by B for his interest in the capital of the
partnership?
A. 40,000
B. 80,000
C. 110,000
D. 150,000
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2. On January 1, 2023, A and B decided to form a partnership. They have the following statement of
financial positions:
A B
Cash 1,500 3,750
Accounts receivable 54,000 22,500
Inventory - 20,250
Equipment 15,000 27,000
Total Assets 70,500 73,500
Accounts payable 13,500 24,000
A, Capital 57,000 -
B. Capital - 49,500
Total Liabilities and Capital 70,500 73,500
The following were agreed to be adjusted:
The equipment of both A and B are under-depreciated by P1,500 and P4,500 respectively
Both A and B needs to setup an allowance for doubtful accounts amounting to P12,000 and
P4,500 respectively
Upon formation, the partnership will have a 60-40 profit and loss ratio for A and B respectively
All liabilities will be assumed by the partnership
A must invest to bring the partners' capital balances in proportion to their profit and loss ratio
1. What is the total capital after formation?
A. 106,500
B. 123,750
C. 101,250
D. 72,500
2. What is the capital credit of A upon formation?
A. 57,000
B. 60,750
C. 43,500
D. 74,250
3. What is the amount of cash to be contributed by A based on their agreement?
A. 14,250
B. 5,250
C. 10,250
D. 17,250
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3. A and B partners sharing profits 60:40. The following is the statement of financial position of the
said partnership:
Cash 48,000
Accounts receivable 92,000
Inventory 165,000
Equipment, net 25,000
Total Assets 330,000
Accounts payable 89,000
A, Capital 133,000
B. Capital 108,000
Total Liabilities and Capital 330,000
The existing partners agreed to admit C as partner to form a new partnership ABC. The terms of
their agreement are as follows:
An allowance for doubtful accounts amounting to P4,500 is to be established
Inventories are to be restated at the agreed value of P170,000
Accrued expenses of P4,000 are to be recognized
The accounts payable will be assumed by the new partnership
A, B and C will divide profits 5:3:2 and the capital balances after formation of the new partnership
will reflect the said ratio. A and B will make personal cash settlements between themselves to
adjust their capital balances. C on the other hand, will invest additional cash for his investment in
the capital interest in the new partnership.
What is the amount of cash to be invested by C for his capital interest in the new
partnership?
A. 50,000
B. 60,250
C. 59,375
D. 47,500
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4. A and B decided to combine their businesses and form a partnership. The following are the
statement of financial position before formation:
A B
Cash 2,048,400 1,098,360
Accounts receivable 1,031,960 2,498,716
Inventory 528,160 1,144,448
Equipment, net 613,380 852,224
Other assets 8,800 15,840
Total Assets 4,230,700 5,609,588
Accounts payable 787,336 1,072,060
Notes payable 1,000,000 -
Mortgage payable - 1,440,000
A, Capital 2,443,364 -
B. Capital - 3,097,528
Total Liabilities and Capital 4,230,700 5,609,588
The partners agreed that the equipment of A is under-depreciated by P80,000 and B’s equipment is
over-depreciated by P200,000. Accounts receivable of P108,000 in A’s books and P140,000 in B’s
books are deemed uncollectible. The partnership decided to assume all liabilities of A and B. The
partnership agrees to have a 60:40 capital interest and profit and loss ratio. B is willing to invest or
withdraw cash from the partnership to comply with the agreement.
1. What are the capital balances of A and B respectively after formation?
A. 2,255,364 and 1,503,576
B. 2,255,364 and 3,157,528
C. 6,896,292 and 4,597,528
D. 6,896,292 and 3,157,528
2. What is the total asset after formation?
A. 8,058,336
B. 5,618,336
C. 9,712,288
D. 9,840,288
END
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