CHAPTER III DISSOLUTION- CHANGES IN OWNERSHIP2. 1. DEFINITION 2.

CAUSES OF
DISSOLUTION 3. ADMISSION OF A PARTNER REPORTER: Jomari CabardoThe dissolution of a
partnership is the change in r..." target="_blank" style="box-sizing: inherit;
text-decoration: none; background-color: transparent; color: rgb(0, 142, 210);
line-height: inherit;">3. <ul><li>The dissolution of a partnership is the change in
relation of the partners caused by any partner ceasing to be associated in the
carrying on as distinguished from the winding up of the business of the partnership
(Civil Code of the Philippines, Article 1828). </li></ul>DEFINITION:LIMITED LIFE is
one of the characteristics of a pa..." target="_blank" style="box-sizing: inherit;
text-decoration: none; background-color: transparent; color: rgb(0, 142, 210);
line-height: inherit;">4. <ul><li>LIMITED LIFE is one of the characteristics of a
partnership. Any change in the membership of this form of business organization
will result to dissolution. Dissolution of the partnership does not necessarily
imply that business operations will come to an end. Most changes in the ownership
of a partnership are accomplished without interruption of its normal operation.
</li></ul>DISSOLUTION should be distinguished from liquidatio..." target="_blank"
style="box-sizing: inherit; text-decoration: none; background-color: transparent;
color: rgb(0, 142, 210); line-height: inherit;">5. <ul><li>DISSOLUTION should be
distinguished from liquidation of a partnership. A partnership is said to be
liquidated when the business is terminated; a partnership may be dissolved without
being terminated but liquidated is always preceded by dissolution. </li></ul>1.
Admission of a partner 6. CAUSES OF DISSOLUTION: <ul><li>1. Admission of a partner
</li></ul><ul><li>2. Withdrawal or retirement of a partner
</li></ul><ul><li>3.Death of a partner </li></ul><ul><li>4.Incorporation of a
partnership </li></ul>A new partner can only be ad..." target="_blank" style="box-
sizing: inherit; text-decoration: none; background-color: transparent; color:
rgb(0, 142, 210); line-height: inherit;">7. ADMISSION OF A PARTNER <ul><li>A new
partner can only be admitted into a partnership with the consent of all the
continuing partners. This is based on the principle of DELECTUS PERSONAE
</li></ul>No one becomes a member of the partnership without the consent of all the
members. This is because a partnership is based on mutual trust and confidence of
the partners.8. A person may become a partner in an existing partnership by either
of the following: <ul><li>1. Purchase of an interest from one or more
</li></ul><ul><li>of the existing partners. </li></ul><ul><li>2. Investment of
assets in the partnership </li></ul><ul><li>by the new partner.
</li></ul>9. Purchase of an Interest From Existing Partners By: Jennylou
EnitorioWith the consent of all the partners, a new partner..." target="_blank"
style="box-sizing: inherit; text-decoration: none; background-color: transparent;
color: rgb(0, 142, 210); line-height: inherit;">10. <ul><li>With the consent of all
the partners, a new partner may be admitted in an existing partnership by
purchasing a capital equity interest directly from one or more of the old partners.
Terms such as PURCHASES, SELLS, PAYS, BOUGHT,SOLD AND TRANSFERRED indicate
admission by purchase. </li></ul>(Name of Seller), Capital xxx 11. Pro-Forma Entry:
<ul><li>(Name of Seller), Capital xxx </li></ul><ul><li>(Name of Buyer), Capital
xxx </li></ul>12. The purchase price of the interest sold to a new partner may be:
<ul><li>1. Equal to the book value of the interest sold. </li></ul><ul><li>2. Less
than the book value of the interest sold. </li></ul><ul><li>3. More than the book
value of the interest sold. </li></ul>Coloma and Claudio are part..."
target="_blank" style="box-sizing: inherit; text-decoration: none; background-
color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">13. Illustrative problem A: <ul><li>Coloma and Claudio are partners with
capital balances of P100,000 and P50,000 respectively. They share profits and
losses equally. Cordero is a new partner. </li></ul>..." target="_blank"
style="box-sizing: inherit; text-decoration: none; background-color: transparent;
color: rgb(0, 142, 210); line-height: inherit;">14. Case 1a: Purchase at book value
from one partner only. <ul><li>Cordero purchases a 1/5 interest from Coloma by
paying P20,000. </li></ul><ul><li>ENTRY: </li></ul><ul><li>Coloma, Capital 20 000
</li></ul><ul><li>Cordero, Capital 20 000 </li></ul>15. Case 1b: Purchase at book
value from more than one partner. <ul><li>Cordero purchases 1/5 interest from the
old partners by paying P30 000. </li></ul><ul><li>ENTRY: </li></ul><ul><li>Coloma,
Capital 20 000 </li></ul><ul><li>Claudio, Capital 10 000 </li></ul><ul><li>Cordero,
Capital 30 000 </li></ul>Cordero pu..." target="_blank" style="box-sizing: inherit;
text-decoration: none; background-color: transparent; color: rgb(0, 142, 210);
line-height: inherit;">16. Case 2:Purchase at less than book value. <ul><li>Cordero
purchases 1/5 interest from the old partners by paying P25,000.
</li></ul><ul><li>ENTRY: </li></ul><ul><li>Coloma, Capital 20 000
</li></ul><ul><li>Claudio, Capital 10 000 </li></ul><ul><li>Cordero, Capital 30 000
</li></ul>Cordero p..." target="_blank" style="box-sizing: inherit; text-
decoration: none; background-color: transparent; color: rgb(0, 142, 210); line-
height: inherit;">17. Case 3: Purchase at more than book value. <ul><li>Cordero
pays P 40, 000 for a 1/5 interest of the old partners. </li></ul><ul><li>ENTRY:
</li></ul><ul><li>Coloma, Capital 20 000 </li></ul><ul><li>Claudio, Capital 10 000
</li></ul><ul><li>Cordero, Capital 30 000 </li></ul>18. Asset Revaluation upon
Admission of a New Partner by Purchase <ul><li>Coloma and Claudio are partners with
capital balances of P100,00 and P50,000 respectively. They share profits and loses
equally. Cordero is a new partner who purchase a 1/5 interest from Coloma and
Claudio paying P40,000. However, before the admission of Cordero, partnership
assets are to be revalued using as basis amount to be paid by Cordero.
</li></ul>Step 1- the new partnership capital is equal to the..." target="_blank"
style="box-sizing: inherit; text-decoration: none; background-color: transparent;
color: rgb(0, 142, 210); line-height: inherit;">19. <ul><li>Step 1- the new
partnership capital is equal to the amount paid by the incoming partner divided by
his fraction of interest. </li></ul><ul><li>New partnership Capital = P40,000 / 1/5
</li></ul><ul><li>P200,000 </li></ul>Step 2 = the amount of asset revaluation is
equal t..." target="_blank" style="box-sizing: inherit; text-decoration: none;
background-color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">20. <ul><li>Step 2 = the amount of asset revaluation is equal to the new
partnership capital less old partnership capital. </li></ul><ul><li>Asset
revaluation = P200,000 – P150,000 </li></ul><ul><li> = P50,000 </li></ul>Step 3 –
the allocation of the amount of the asset ..." target="_blank" style="box-sizing:
inherit; text-decoration: none; background-color: transparent; color: rgb(0, 142,
210); line-height: inherit;">21. <ul><li>Step 3 – the allocation of the amount of
the asset revaluation among the old partners is as follows:
</li></ul><ul><li>P50,000 / 2 per partner. </li></ul>Step 4 – the capital balances
of the old partners a..." target="_blank" style="box-sizing: inherit; text-
decoration: none; background-color: transparent; color: rgb(0, 142, 210); line-
height: inherit;">22. <ul><li>Step 4 – the capital balances of the old partners
after asset revaluation is equal to their old capital balances plus their share on
asset revaluation. </li></ul><ul><li>Coloma Claudio </li></ul><ul><li>Capital
balances before revaluation P100,000 P50,000 </li></ul><ul><li>Share on asset
revaluation 25,000 25,000 </li></ul><ul><li>Capital balances after revaluation
P125,000 P75,000 </li></ul>Step 5 – the amount of interest transferred by the ..."
target="_blank" style="box-sizing: inherit; text-decoration: none; background-
color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">23. <ul><li>Step 5 – the amount of interest transferred by the old
partners to the new partner is based on the new capital balances (capital balances
after asset revaluation). </li></ul><ul><li>Coloma Claudio
</li></ul><ul><li>Capital balances after revaluation P125,000 P75,000
</li></ul><ul><li>Interest transferred 1/5 1/5 </li></ul><ul><li>Capital
transferred after revaluation P25,000 P15,000 </li></ul>Step 6 – the journal
entries to record the revaluat..." target="_blank" style="box-sizing: inherit;
text-decoration: none; background-color: transparent; color: rgb(0, 142, 210);
line-height: inherit;">24. <ul><li>Step 6 – the journal entries to record the
revaluation of asset and admission of Cordero are as follows:
</li></ul><ul><li>ENTRY: </li></ul><ul><li>Asset 50 000 </li></ul><ul><li>Coloma,
Capital 25 000 </li></ul><ul><li>Claudio, Capital 25 000 </li></ul><ul><li>Coloma,
Capital 25 000 </li></ul><ul><li>Claudio, Capital 15 000 </li></ul><ul><li>Cordero,
Capital 40 000 </li></ul>25. Investment of Assets in a Partnership By: Cecille
Shyne DeseoIt is a transaction between the original partnershi..." target="_blank"
style="box-sizing: inherit; text-decoration: none; background-color: transparent;
color: rgb(0, 142, 210); line-height: inherit;">26. <ul><li>It is a transaction
between the original partnership and the new partner. A person may be admitted into
a partnership by investing cash or other assets in the business. </li></ul>Invests
Contributes Total Assets Total Partner’s Equity27. Definition of TERMSTOTAL
CONTRIBUTED CAPITAL – the sum of the capital..." target="_blank" style="box-sizing:
inherit; text-decoration: none; background-color: transparent; color:
rgb(0, 142, 210); line-height: inherit;">28. <ul><li>TOTAL CONTRIBUTED CAPITAL –
the sum of the capital balances of the old partners and the actual investment of
the new partner. </li></ul><ul><li>TOTAL AGREED CAPITAL – it is the total capital
</li></ul><ul><li>of the partnership after considering the
</li></ul><ul><li>capital credits given to each of the </li></ul><ul><li>partners
</li></ul><ul><li>BONUS – it is the amount of capital or equity
</li></ul><ul><li>transferred by one partner to another </li></ul><ul><li>partner.
</li></ul>CAPITAL CREDIT – it is the equity of a partner in t..." target="_blank"
style="box-sizing: inherit; text-decoration: none; background-color: transparent;
color: rgb(0, 142, 210); line-height: inherit;">29. <ul><li>CAPITAL CREDIT – it is
the equity of a partner in the </li></ul><ul><li>new partnership and is obtained by
</li></ul><ul><li>multiplying the total agreed capital by </li></ul><ul><li>the
applicable percentage interest of the </li></ul><ul><li>partner.
</li></ul><ul><li>ASSET REVALUATION – necessary adjustment in
</li></ul><ul><li>asset values upon admission of a new </li></ul><ul><li>partner.
The adjustment in assets may be </li></ul><ul><li>determined as the difference
between the </li></ul><ul><li>agreed capital and the total contributed capital.
</li></ul>30. Problems relating to Admission of a new Partner by Investment
<ul><li>1. Agreed capital is given </li></ul><ul><li>a. No Bonus, No Asset
Revaluation </li></ul><ul><li>b. Bonus to old Partners, No Asset Revaluation
</li></ul><ul><li>c. Bonus to New Partner, No Asset Revaluation
</li></ul><ul><li>d. Asset Revaluation (Positive & Negative), </li></ul><ul><li>No
Bonus </li></ul>2. Agreed Capital is not given. a..." target="_blank" style="box-
sizing: inherit; text-decoration: none; background-color: transparent; color:
rgb(0, 142, 210); line-height: inherit;">31. <ul><li>2. Agreed Capital is not
given. </li></ul><ul><li>a. Bonus Method </li></ul><ul><li>b. Asset Revaluation
method (Positive & </li></ul><ul><li>Negative) </li></ul><ul><li>3. Agreed Capital
is not given but basis for its computation is indicated in the terms of admission
</li></ul><ul><li>4. The amount of the Contribution of the New partner is not given
</li></ul><ul><li>5. Fraction of Interest is not given. </li></ul>32. The following
are the illustrations of the various problems involving admission of a new partner
by investment..33. Agreed Capital is GivenConde inves..." target="_blank"
style="box-sizing: inherit; text-decoration: none; background-color: transparent;
color: rgb(0, 142, 210); line-height: inherit;">34. Case 1 – No Bonus, No Asset
Revaluation <ul><li>Conde invests P100,000 for a ¼ interest in the
</li></ul><ul><li>agreed capital of P400,000. </li></ul>ENTRY: Cash 100 000 Conde,
Capital 100 000 Solution: Contributed Capital Agreed Capital Calma P 200,000
P200,000 Castro 100,000 100,000 Conde 100,000 100,000 TOTAL P 400, 000 P
400,00035. Case 2 – Bonus to the old partners, no Asset revaluation <ul><li>Conde
invests P100, 000 for a 1/5 interests in the new firm
</li></ul><ul><li>capitalization of P400, 000. </li></ul>ENTRY: Cash 100 000 Conde,
Capital 100 000 Conde, Capital 20 000 Calma, Capital 10 000 Castro, Capital 10 000
Solution: Contributed Capital Agreed Capital Bonus Calma P 200, 000 P 210, 000 P
10, 000 Castro 100, 000 110, 000 10, 000 Conde 100, 000 80, 000 (20, 000) TOTAL P
400, 000 P 400, 000 ---36. Case 3 – Bonus to new partner, no asset revaluation
<ul><li>Conde invests P60,000 for a ¼ interest in the total capitalization
</li></ul><ul><li>of P360,000. </li></ul>ENTRY: Cash 60 000 Calma, Capital 15 000
Castro, Capital 15 000 Conde, Capital 90 000 Solution: Contributed Capital Agreed
Capital Bonus Calma P 200, 000 P 185, 000 (P 15, 000) Castro 100, 000 85, 000 (15,
000) Conde 60, 000 90, 000 30, 000 TOTAL P 360, 000 P 360, 000 ---Conde..."
target="_blank" style="box-sizing: inherit; text-decoration: none; background-
color: transparent; color: rgb(0, 142, 210); line-height: inherit;">37. Case 4 –
Positive Asset Revaluation, no Bonus <ul><li>Conde invests P100, 000 for a 1/5
interest in the agreed </li></ul><ul><li>capital of P500, 000. </li></ul>ENTRIES:
Other assets 100 000 Calma, Capital 50 000 Castro, Capital 50 000 Cash 100 000
Conde, Capital 100 000 Solution: Contributed Capital Agreed Capital Asset
Revaluation Calma P 200, 000 P 250, 000 P 50, 000 Castro 100, 000 150, 000 50, 000
Conde 100, 000 100, 000 --- TOTAL P 400, 000 P 500, 000 P 100, 000Conde..."
target="_blank" style="box-sizing: inherit; text-decoration: none; background-
color: transparent; color: rgb(0, 142, 210); line-height: inherit;">38. Case 5 –
Negative Asset Revaluation, No Bonus <ul><li>Conde invests P60,000 for a 1/5
interest in the agreed capital </li></ul><ul><li>of P300,000. </li></ul>ENTRIES:
Calma, Capital 30 000 Castro, Capital 30 000 Other assets 60 000 Cash 60 000 Conde,
Capital 60 000 Solution: Contributed Capital Agreed capital Asset Revaluation Calma
P 200,000 P170, 000 (P 30,000) Castro 100,000 70, 000 (30, 000) Conde 60,000 60,
000 --- TOTAL P 360, 000 P 300, 000 (P 60, 000)39. Agreed Capital is Not GivenWhen
such a situation exists, the admission 40. <ul><li>When such a situation exists,
the admission </li></ul><ul><li>of the new partner is recorded using any of
</li></ul><ul><li>These 2 methods: </li></ul><ul><li>1. Bonus Method
</li></ul><ul><li>2. Asset Revaluation Method </li></ul> CC) & Negative Asse..."
target="_blank" style="box-sizing: inherit; text-decoration: none; background-
color: transparent; color: rgb(0, 142, 210); line-height: inherit;">41. Positive
Asset Revaluation Method (Ac > CC) & Negative Asset Revaluation Method (Ac < CC)
<ul><li>The Agreed capitalization is computed as </li></ul><ul><li>follows:
</li></ul><ul><li>AC = New partner’s CC ÷ new partner’s </li></ul><ul><li>fraction
of interest </li></ul>42. 1. Bonus Method ENTRY: Cash 100 000 Conde, Capital 80 000
Calma, Capital 15 000 Castro, Capital 5 000 Solution: Contributed Capital Agreed
Capital Bonus Calma P 200, 000 P 215, 000 P 15, 000 Castro 100, 000 105, 000 5,000
Conde 100, 000 80, 000 (20, 000) TOTAL P 400, 000 P 400, 000 ---43. 2. Positive
Asset Revaluation Method ENTRIES: Other Assets 100 000 Calma, Capital 75 000
Castro, Capital 25 000 Cash 100 000 Conde, Capital 100 000 Solution: Contributed
Capital Agreed Capital Asset revaluation Calma P 200, 000 P 275, 000 P 75, 000
Castro 100, 000 125, 000 25,000 Conde 100, 000 100, 000 --- TOTAL P 400, 000 P 500,
000 P 100, 00044. 1. Bonus Method ENTRY: Cash 80 000 Calma, Capital 11 250 Castro,
Capital 3 750 Conde, Capital 95 000 Solution: Contributed Capital Agreed Capital
Bonus Calma P 200, 000 P 188, 750 (P 11, 250) Castro 100, 000 96, 250 (3, 750)
Conde 80, 000 95, 000 15, 000 TOTAL P 380, 000 P 380, 000 ---45. 2. Negative Asset
Revaluation Method ENTRIES: Calma, Capital 45 000 Castro, Capital 15 000 Other
Assets 60 000 Cash 80 000 Conde, Capital 80 000 Solution: Contributed Capital
Agreed Capital Asset revaluation Calma P 200, 000 P155, 000 (P 45, 000) Castro 100,
000 85 , 000 (15,000) Conde 80, 000 80, 000 --- TOTAL P 380, 000 P 320, 000 (P 60,
000)48. Withdrawal and Retirement of a PartnerThe partnership may allow any of its
partners to wi..." target="_blank" style="box-sizing: inherit; text-decoration:
none; background-color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">49. <ul><li>The partnership may allow any of its partners to withdraw or
retire from the firm. The business may continue after such withdrawals; on the
other hand, the interest of the retiring or withdrawing partner may be:
</li></ul><ul><li>1. sold to a new partner (outsider) </li></ul><ul><li>2. sold to
continuing (remaining) partners </li></ul><ul><li>3. sold to the partnership
</li></ul>SALE OF INTEREST TO A NEW PARTNER 50. <ul><li>SALE OF INTEREST TO A NEW
PARTNER </li></ul><ul><li>* With the consent of the remaining partners, the
retiring partner may sell his interest to an outsider. The sale is recorded in the
same manner as in the admission of a new partner by purchase. The partnership
recognizes only the transfer of capital interest from the retiring partner to the
new partner. Any gain or loss from the sale is a personal gain or loss of the
retiring partner. </li></ul>* The inter..." target="_blank" style="box-sizing:
inherit; text-decoration: none; background-color: transparent; color: rgb(0, 142,
210); line-height: inherit;">51. SALE OF INTEREST TO CONTINUING PARTNERS <ul><li>*
The interest of the retiring partner may be acquired by any of the continuing
partners. The transaction is recorded in the same manner as in the sale of interest
to a new partner. The partnership recognizes only the transfer of capital interest
from the retiring partner to the acquiring partner or partners. </li></ul>*A
retiring par..." target="_blank" style="box-sizing: inherit; text-decoration: none;
background-color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">52. SALE OF INTEREST TO THE PARTNERSHIP <ul><li>*A retiring partner may
sell his capital interest to the continuing partners through the partnership. The
partnership has the obligation to make payment to the retiring partner either by:
</li></ul><ul><li>Payment in cash; </li></ul><ul><li>Transfer of none cash assets;
or </li></ul><ul><li>3. Recognition of a liability for the full or the balance of
the unpaid interest of the retiring partner. </li></ul>*The purchase price or
amount of settlement by the ..." target="_blank" style="box-sizing: inherit; text-
decoration: none; background-color: transparent; color: rgb(0, 142, 210); line-
height: inherit;">53. <ul><li>*The purchase price or amount of settlement by the
partnership to the retiring partner may be: </li></ul><ul><li>Equal to the interest
of the retiring partner (at book value) </li></ul><ul><li>Less than the
interest of the retiring partner </li></ul><ul><li>( at less than book value)
</li></ul><ul><li>3. More than the interest of the retiring partner ( at more than
the book value) </li></ul>* When the payment to the retiring partner is less ..."
target="_blank" style="box-sizing: inherit; text-decoration: none; background-
color: transparent; color: rgb(0, 142, 210); line-height: inherit;">54. <ul><li>*
When the payment to the retiring partner is less than or more than his capital
interest, the difference between the purchase price and the capital interest may be
accounted for using : </li></ul><ul><li>1. bonus method </li></ul><ul><li>2. asset
revaluation method </li></ul>55. ACCOUNTING PROBLEMS INVOLVED IN THE RETIREMENT OF
A PARTNER <ul><li>Following are the accounting problems involved in determining the
capital interest of the retiring partner: </li></ul><ul><li>Determination of the
profit or loss from the beginning of the accounting period to the date of
withdrawal or retirement and the distribution of such profit or loss.
</li></ul><ul><li>Closing of the partnership books. </li></ul><ul><li>Correction of
accounting errors in prior periods like overstatement or understatement of
inventories, excessive depreciation charges and failure to provide adequately for
doubtful accounts. </li></ul><ul><li>Revaluation partnership assets to current
values. </li></ul><ul><li>Recording of bonus brought by the retirement of a partner
</li></ul><ul><li>Settlement of the interest of the retiring partner. </li></ul>The
foll..." target="_blank" style="box-sizing: inherit; text-decoration: none;
background-color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">56. CALCULATION OF RETIRING PARTNER’S INTEREST <ul><li>The following
schedule are helpful in determining the interest of a retiring partner:
</li></ul><ul><li>Investment </li></ul><ul><li>- Withdrawals </li></ul><ul><li>+
Share in partnership profits to date of retirement or </li></ul><ul><li>- Share in
partnership losses to date of retirement </li></ul><ul><li>+ Loans and advances to
the partnership or </li></ul><ul><li>- Loans and advances from the partnership
</li></ul><ul><li>+ Revaluation of assets increasing their recorded values or
</li></ul><ul><li>- Revaluation of assets decreasing their recorded values
</li></ul><ul><li>Interest upon retirement </li></ul>Illustrative Problem A: The
statement of financial ..." target="_blank" style="box-sizing: inherit; text-
decoration: none; background-color: transparent; color: rgb(0, 142, 210); line-
height: inherit;">57. <ul><li>Illustrative Problem A: The statement of financial
position of the partnership of Dy, David, and Diaz on December 31, 2009 follows:
</li></ul><ul><li>Asset Liabilities and Capital </li></ul><ul><li>Cash P110,000
Liabilities P 20, 000 </li></ul><ul><li>Other Asset 30,000 Dy , Capital 20, 000
</li></ul><ul><li> David, Capital 40, 000 </li></ul><ul><li> Diaz, Capital 60, 000
P140,000 Total Liabilities and Capital P 140,000 </li></ul><ul><li>The partners
share profits and losses in the ratio of 4:2:4. On July 1, 2010, Diaz asked to be
allowed to withdraw from the partnership. The partners decided to close the books
as of these date so as to determine the capital interest of Diaz. Profit for 6
months ended amounted P60,000 while drawings of Dy, David and Diaz amount to P4,000
, P6,000 and P2,000, respectively. Profits and losses are to be shared equally
after the retirement of Diaz. </li></ul>The following entries will be prepared
prior to the..." target="_blank" style="box-sizing: inherit; text-decoration: none;
background-color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">58. <ul><li>The following entries will be prepared prior to the
retirement of Diaz from the partnership: </li></ul><ul><li>Income Summary 60,000
</li></ul><ul><li>Dy, Capital 24,000 </li></ul><ul><li>David, Capital 12, 000
</li></ul><ul><li>Diaz, Capital 24, 000 </li></ul><ul><li>b. Dy, Capital 4,000
</li></ul><ul><li>David, Capital 6,000 </li></ul><ul><li>Diaz, Capital 2,000
</li></ul><ul><li>Dy, Drawing 4,000 </li></ul><ul><li>David, Drawing 6,000
</li></ul><ul><li>Diaz, Drawing 2,000 </li></ul>After considering the preceding
entries, the capita..." target="_blank" style="box-sizing: inherit; text-
decoration: none; background-color: transparent; color: rgb(0, 142, 210); line-
height: inherit;">59. <ul><li>After considering the preceding entries, the capital
interest as of the partners as of July 1,2010 may now be computed as follows:
</li></ul>Diaz Dy David Capital balance, Dec. 31,2009 P 60,000 P 20,000 P 40,000
Share in profit from Jan. 1 – June 30 24,000 24,000 12,000 Withdrawals ( 2,000 )
( 4,000 ) ( 6,000 ) P 82,0000 P 40,000 P 46,000Assumption 1- sale of interest to a
new partner. Di..." target="_blank" style="box-sizing: inherit; text-decoration:
none; background-color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">60. <ul><li>Assumption 1- sale of interest to a new partner. Diaz sold
his interest to Doque for P 100,000. </li></ul><ul><li>Diaz, Capital 82,000
</li></ul><ul><li>Doque, Capital 82,000 </li></ul>Assumption 2 – Sale of interest
to the continuing p..." target="_blank" style="box-sizing: inherit; text-
decoration: none; background-color: transparent; color: rgb(0, 142, 210); line-
height: inherit;">61. <ul><li>Assumption 2 – Sale of interest to the continuing
partners. Diaz sold his interest to Dy and David for P75,000; the interest being
divided equally by the remaining partners. Profits and losses after the retirement
of Diaz will be divided equally. </li></ul><ul><li>Diaz, Capital 82,000
</li></ul><ul><li>Dy, Capital 41,000 </li></ul><ul><li>David, Capital 41,000
</li></ul>Assumption 3 – Sale of interest to the partnership...." target="_blank"
style="box-sizing: inherit; text-decoration: none; background-color: transparent;
color: rgb(0, 142, 210); line-height: inherit;">62. <ul><li>Assumption 3 – Sale of
interest to the partnership. Diaz sold his interest to the partnership. The
partners agreed to make immediate cash settlement to the retiring partner. Profits
and losses after the retiring of Diaz will be divided equally.
</li></ul><ul><li>Case A – Settlement to retiring partner is equal to his capital
interest. The partnership paid Diaz P82,000. </li></ul><ul><li>Diaz, Capital 82,000
</li></ul><ul><li>Cash 82,000 </li></ul>Case B – Settlement is less than the
capital intere..." target="_blank" style="box-sizing: inherit; text-decoration:
none; background-color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">63. <ul><li>Case B – Settlement is less than the capital interest of the
retiring partner (at less than book value). The partnership paid Diaz P76,000 which
is P6,000 less than his capital interest of P82,000. </li></ul>Bonus Method Diaz,
Capital 82,000..." target="_blank" style="box-sizing: inherit; text-decoration:
none; background-color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">64. <ul><li>Bonus Method </li></ul><ul><li>Diaz, Capital 82,000
</li></ul><ul><li>Cash 76,000 </li></ul><ul><li>Dy, Capital 4,000
</li></ul><ul><li>David, Capital 2,000 </li></ul><ul><li>P6,000 x 4/6 = P4,000
</li></ul><ul><li>P6,000 x 2/6 = P2,000 </li></ul>Asset Revaluation Method Dy,
Capi..." target="_blank" style="box-sizing: inherit; text-decoration: none;
background-color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">65. <ul><li>Asset Revaluation Method </li></ul><ul><li>Dy, Capital 6,000
</li></ul><ul><li>David, Capital 3,000 </li></ul><ul><li>Diaz, Capital 6,000
</li></ul><ul><li>Other Assets 15,000 </li></ul><ul><li>Dy = P15,000 x 4/10 =
P6,000 </li></ul><ul><li>David = P15,000 x 2/10 = P3,000 </li></ul><ul><li>Diaz =
P15,000 x 4/10 = P6,000 </li></ul>After the preceding entry, the capital balance of
..." target="_blank" style="box-sizing: inherit; text-decoration: none; background-
color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">66. <ul><li>After the preceding entry, the capital balance of Diaz is
P76,000 and payment to him will be recorded as follows: </li></ul><ul><li>Diaz,
Capital 76,000 </li></ul><ul><li>Cash 76,000 </li></ul><ul><li>A compound entry may
be made as follows: </li></ul><ul><li>Dy, Capital 6,000 </li></ul><ul><li>David,
Capital 3,000 </li></ul><ul><li>Diaz, Capital 82,000 </li></ul><ul><li>Cash 76,000
</li></ul><ul><li>Other Assets 15,000 </li></ul>Case C – Settlement is more than
the capital intere..." target="_blank" style="box-sizing: inherit; text-decoration:
none; background-color: transparent; color: rgb(0, 142, 210); line-height:
inherit;">67. <ul><li>Case C – Settlement is more than the capital interest of the
retiring partner (at more than book value). The partnership paid Diaz P85,000 which
is P3,000 more than his capital interest of P82,000. </li></ul><ul><li>Bonus Method
</li></ul><ul><li>Diaz, Capital 82,000 </li></ul><ul><li>Dy, Capital 2,000
</li></ul><ul><li>David, Capital 1,000 </li></ul><ul><li>Cash 85,000
</li></ul>Asset Revaluation Method Other As..." target="_blank" style="box-sizing:
inherit; text-decoration: none; background-color: transparent; color: rgb(0, 142,
210); line-height: inherit;">68. <ul><li>Asset Revaluation Method
</li></ul><ul><li>Other Assets 7,500 </li></ul><ul><li>Dy, Capital 3,000
</li></ul><ul><li>David, Capital 1,500 </li></ul><ul><li>Diaz, Capital 3,000
</li></ul> After the entry recording the asset revaluation, ..." target="_blank"
style="box-sizing: inherit; text-decoration: none; background-color: transparent;
color: rgb(0, 142, 210); line-height: inherit;">69. <ul><li> After the entry
recording the asset revaluation, the capital balance of Diaz is P85,000 and payment
to him will be recorded as follows: </li></ul><ul><li>Diaz, Capital 85,000
</li></ul><ul><li>Cash 85,000 </li></ul><ul><li>A compound entry may be made as
follows: </li></ul><ul><li>Other
Assets 7,500 </li></ul><ul><li>Diaz, Capital 82,000 </li></ul><ul><li>Cash 85,000
</li></ul><ul><li>Dy, Capital 3,000 </li></ul><ul><li>David, Capital 1,500
</li></ul>COMPARISON BETWEEN the BONUS AND ASSET REVALUATION ..." target="_blank"
style="box-sizing: inherit; text-decoration: none; background-color: transparent;
color: rgb(0, 142, 210); line-height: inherit;">70. <ul><li>COMPARISON BETWEEN the
BONUS AND ASSET REVALUATION METHOD </li></ul>Asset Revaluation Dy, Capital David,
Capital Balances after retirement of Diaz under the bonus method P 38,000 P 45,000
Balances after retirement of Diaz under the asset revaluation method P 7,500 P
43,000 P 47,500 Depreciation on asset revaluation (divided equally) ( 7,500 )
( 3,750 ) ( 3,750 ) Balances after depreciation P 39,250 P 43,750 Net advantage
(disadvantage) of using the bonus method ( P 1,250 ) P 1,25071. CHANGE IN CAPITAL
STRUCTURE BY DEATH OR INCAPACITY OF A PARTNER <ul><li>The death or incapacity of a
partner legally dissolves the old partnership since the partner ceases to be
associated in the carrying on of the business. The remaining partners may continue
operations based on a new contract or Articles of Co-Partnership. The interest of
the deceased or incapacitated partner must be determined by the partnership in
order to make necessary settlement with his legal representatives. In case the
business is continued without immediate settlement, the legal representative of the
deceased is considered as an ordinary creditor and is to received an amount equal
to the interest and profits attributable to this interest. </li></ul>The following
accounting problems are encountered i..." target="_blank" style="box-sizing:
inherit; text-decoration: none; background-color: transparent; color: rgb(0, 142,
210); line-height: inherit;">72. <ul><li>The following accounting problems are
encountered in case of death or incapacity of a partner:
</li></ul><ul><li>Determination of the profit or loss from the beginning of the
accounting period to the date of death or incapacity and the distribution of such
profit or loss. </li></ul><ul><li>Closing of the books of the partnership.
Partnership agreement, however, may provide thaSt the books need to be closed and
net income for the fraction of the accounting period to the date of date or
incapacity be determined. </li></ul><ul><li>Correction of prior year’s income, if
there is any. </li></ul><ul><li>Revaluation of partnership assets to arrive at
current values. </li></ul><ul><li>Recording of bonus. </li></ul><ul><li>Settlement
of the interest of the deceased or incapacitated partner. </li></ul>