I: PARTNERSHIP DISSOLUTION:

ADMISSION OF A PARTNER
Time Allotment: 40 mins

II. Learning Objectives:

At the end of the module, you will be able to:

A. Explain the nature of dissolution
B. Distinguish Dissolution from Winding up and termination
C. Identify the transactions that result to partnership dissolution
D. Accounting for admission of a partner
E. Identify different ways of partner admission

III. Procedure
A. Preliminary Activities
Teacher’s activity Student activity

A. Prayer
Good morning class! Good morning sir
Let us stand and pray
B Greetings
How are you today class ? I feel great

B. Activity Proper
Teachers activity Students activity
A. Motivation
Have you been once in a situation where you choose
the best partner in school or in life ?
Yes sir
Well Embracing change is the key to growth. As we
bid farewell to one chapter, let's welcome the
opportunity for a new partnership. Through
dissolution, we pave the way for fresh perspectives,
renewed energy, and shared success with our new
ally. Together, we write the next inspiring chapter of
our journey."

B. Presentation of the lesson

DISSOLUTION
Dissolution of a partnership is a change in the
relationship among partners caused by any partner
ceasing to be associated in the carrying out of the
business.
In dissolution, the partnership is not terminated but
continues until winding up of partners’ affairs is
completed.
Winding up, as distinguish against dissolution, is the
process of settling up business affairs after
dissolution
Termination, is the point where all partnership
affairs have been wound up.
(ask if there’s a question) Ask a question
(Answers perfectly)
Dissolution does not always result to liquidation but
liquidation is always preceded by dissolution.
No partner can be admitted to the partnership
without the consent of all the partners (delectus
personae).
C. Discussions
Conditions Resulting to admission of a partner in
Partnership Dissolution
1. Purchase of interest
2. By investment
Distinction
 A. Parties involved
Transaction Transaction
between the new between the new
partner and the partner and the
existing partnership
partner/s.

B. Recognition
Any consideration Any consideration
received or paid is received by the
not recorded in partnership is
the partnership recorded.
books.

The only entry is

the transfer within
entity.

c. Journal Entry
Selling partner’s Asset invested
capital xx xx
Incoming Incoming
partner’s capital partner’s capital Ask questions
xx xx

C. Capitalization
Partnership capital Partnership
remains the same. capital is
increased by the
incoming
partner’s
contribution.

D. Valuation
A new capital 1) New partner’s
account is capital account,
established for the credited at an
new partner and a amount equal to
corresponding FV of his
decrease is made investment
 on the capital of 2) New partner’s
the selling capital account,
partner/s. credited at an
amount greater
than or less than
FV of his
investment (Bonus
method).

E. Revaluation
When a partnership is dissolved a new
partnership is created. The assets and
liabilities carried over to the new
partnership are restated to fair values.
The adjustment is allocated first to the
existing partners before recording the
admission of a new partner..

General procedures in Dissolution

1. Adjustments of partners capital for their share in
profit or loss ratio at the date of dissolution based on
original P/L ratio
2 .Adjustment of the partners capital for any agreed
adjustments at the date of dissolution to be allocated
based on original P/L ratio(unless the situation stated
a different manner of allocation)
3. Recording the dissolution
Example :
A, capital 50k
Partner A, B and C has a capital balance of 100k D, capital 50k
each, D wants to join the partnership and bought
1/2 capital of A for A, capital 50k
situation:
D, capital 50k
A: 100000
B. 10000
Provide a journal entry on admission of D to the
partnership

Purchase of interest from one or more existing

partners is a personal transaction between the
incoming partner and selling partner.
Regardless of the amount paid by the incoming
partner, there is no gain or loss to be recognize in the
partnership
No additional money or property is invested in the
partnership
The only entry made on the partnership book is the
transfer of an amount from the selling partners
capital to the new partners capital account, unless
assets needs to be revalued.
Admission of a Partner (By investment):
1. IF TCC = TAC
a. if cc = ac full investment approach
b. if cc ≠ ac (bonus to either new or existing
partner)

2. If TCC > TAC

a. withdrawal, possibly any of the partner but
normally existing partner
b. downward revaluation (existing partner)

3. If TCC < TAC

a. additional investment
b. upward Revaluation (existing partner)
c. goodwill (either new or existing partner)

D . Application
I – Dissolution: Purchase of Interest
Capital balances and profit and loss sharing ratios of
the partners in the ABC Partnership are as follows:
A, capital (40%) . . . . . . . . . . .. . . . . . . . . . . . .
P168,000
B, capital (40%) . . . . . . . . . . . . . . . . . . . . . . .
192,000
C, capital (20%) . . . . . . . . . . . . . . . . . . . . .
120,000
Total . . . . . . . . . . . . .. . . . . . . . . . . . . . . .P 480,000

A needs money and agrees to assign one – fourth of

his interest in the partnership to D for P45,000 cash.
D pays P45,000 directly to A. Compute the (1)
capital balance of D, and (2) the total capital of the
ABC Partnership immediately after the assignment
of the interest to D?

The first step in getting their TCC is to create a table

then input their capital balances. 480,000, Sir
Capital befor admission Capital after Sir, 42 000
e Admission admission
A Capita 168,000
l
B Capita 192,000 192,000
l
C Capita 120,000 120,000
l
D Capita
l

Next, total their capital balances. What is the total

capital of a, b and c ?
-since D bought 1/4 share of A, multiply A’s original
capital to ¼,and we get?
-input 42k to D capital and deduct 42k from A’
capital to arrive at 126,000
- that’s how admission of a partner by purchase of
interest works. As you notice the Total capital didn’t
change because the payment by D to A was a
personal transaction.

Capital befor admission Capital after

e Admission admission
A Capita 168,000 (42,000) 126,000
l
B Capita 192,000 192,000
 l
C Capita 120,000 120,000
l
D Capita 42,000 42,000
l
Total 480,000 - 480,000

The journal entry to the books of partnership was

A, Capital 42,000
D, Capital 42,000

Ok ! Lets proceed to the next case.

II – Dissolution: Admission By Investment .
A partnership had the following condensed balance
sheet: Assets Liabilities and Capital: 60,000, Sir
Cash 2,500 Liabilities 7,500

Noncash 32,500 XX, capital 20,000 30k, Sir

assets (80%)

Xx loan 2,500 YY, capital 10,000

(20%)

Total 37,500 Total P37,500 40 and 10 sir

1: ZZ invests P30,000 for a 50% interest in the firm.

The total agreed capital is P60,000. The old partners
will settle their capital personally to come up with
their P/L ratio. The capital balances of XX, YY and
ZZ after the admission should be:

Okay class, to solve this, create a table and copy the

capital of xx and yy and the invested capital of zz.
Then add, so what’s the total contributed capital ?
-knowing that TAC is given which is 60k, simply
copy then multiply it by 50% to get zz agreed capital
of ?
-then, to get the new P/L ratio of xx and yy and their
AC,
the remaining 50% must be multiplied with their old
P/L ratio.
-50% x 80% for xx and 50% x 20% for yy, so what’s
their new P/L ratio ?

Then multiply TAC to their new PL ratio to get their

new capital.
TCC TAC
Xx cap 20000 24000 40%
Yy cap 10000 6000 10%
Zz cap 30000 30000 50%
total 60000 60000 100%

To record this to the books of partnership:

Cash 30000
YY, capital 4000
ZZ, capital 30000
XX, capital 4000

Now, how will the settlement take place?

IV. Evaluation
Get 1 whole sheet of paper

1.II – Dissolution: Admission of a New Partner – Purchase of interest

A partnership had the following condensed balance sheet: Assets Liabilities and
Capital
Cash………………………….....P 2,500 Liabilities……………………….............P 7,500

Noncash assets………………….. 32,500 XX, capital (80%)……………………..... 20,000

XX, loan………………… 2,500 YY, capital(20%)..…………..........… 10,000

Total…………………………...P37,500 Total…………………………........… .P37,500
The partners agree to admit ZZ as a member of the firm.
If 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 P6,000, which is divided between
them in proportion to the equities given up.

1. The capital balances of XX, YY, and ZZ after the admission if book value method
(no adjustments/no revaluation) is used should be:

2. The partnership profit (or loss) to be recognized in partnership books.

3. The loss to be recognized by XX and YY

Answer :
1.

\
2.0

2. (1500)