ADVANCED ACCOUNTING PART 1

Partnership Dissolution
SHARE IN UNRECORDED NET INCOME
Equity accounts at JAN 31, 2017:
PETRON, CAPITAL

410,000

SHELL, CAPITAL

300,000

P&L ratio 3:2; ADMIT CALTEX 30% interest in capital and P&L(investment of
200,000)
January 1 to March 31 income 150,000
Record share in net income before recording admission of CALTEX(ADJUSTED
CAPITAL BALANCES)
PETRON, CAPITAL

3/5 x 150,000 = 90,000 + 410,000

SHELL, CAPITAL

2/5 x 150,000 = 60,000 + 300,000

CC

AC

BONUS

500,000

429,200

(70,800)

360,000

312,800

(47,200)

200,000

318,000*

118,000

1,060,000

1,060,000

*1,060,000 x 30% = 318,000

NEW CAPITAL BALANCES:
P = 429,200
S = 312,800
C = 318,000

REVALUATION OF ASSETS
Equity accounts at JAN 1, 2017:
PETRON, CAPITAL
SHELL, CAPITAL

410,000
300,000

P&L ratio 3:2; ADMIT CALTEX 40% interest in capital and P&L(investment of
200,000)

ADJUST ASSETS TO THEIR FMV:

BV
Merchandise Inventory

FMV
100,000

90,000

Land

200,000

250,000

Equipment

150,000

70,000

Accumulated Depreciation

(60,000)

Record share in the revaluation before recording admission of CALTEX

Merchandise Inventory
Equipment

Less 10,000

Land

Plus 50,000

Less 20,000*

OVERALL ADDITION OF 20,000 to be shared by PETRON AND SHELL(ADJUSTED

CAPITAL BALANCES)
PETRON

3/5 x 20,000 = 12,000 + 410,000

SHELL

2/5 x 20,000 = 8,000 + 300,000

*EQUIPMENT COMPUTATION
BV of 150,000 less Accumulated Depreciation of 60,000
FMV

90,000

70,000
20,000

CC

AC

BONUS

422,000

318,800

(103,200)

308,000

239,200

(68,800)

200,000

372,000*

172,000

930,000

930,000

*930,000 x 40% = 372,000

NEW CAPITAL BALANCES
PRIOR YEARS

[] IN CASES INCLUDING CORRECTION OF

P = 318,800

ERROR, APPLY SAME PROCEDURE.

S = 239,200
RECORDING OF

COMPUTE ADJUSTMENTS PRIOR TO

C = 372,000

ADMISSION OF NEW PARTNER.

WITHDRAWAL, RETIREMENT, DEATH OF A PARTNER

WITHDRAWAL
Methods of liquidating the withdrawing partners ownership equity
a. Payment to WP will NOT come from the partnership
- WP may sell his interest to remaining partners or to an outsider with the
latters permission. Record the transfer at BV.
b. Payment to WP will come from the partnership
1. Payment = Interest withdrawn
2. Payment < Interest withdrawn
Bonus to REMAINING partners
3. Payment > Interest withdrawn
Bonus to RETIRING partner

EXAMPLE RETIREMENT OF A PARTNER

Howard, Jake, and Piolo P&L ratio 3:5:2
October 31 Piolo retires
Capital Balances:
H 130,000
J 200,000
P 50,000
ASSUMPTIONS:
a.
b.
c.
d.
e.
f.

J will pay P 50,000 cash for his equity

J will pay P 60,000 cash for his equity
J will pay P 40,000 cash for his equity
P is paid 50,000 in partnership cash for his equity
P is paid 60,000 in partnership cash for his equity
P is paid 45,000 in partnership cash for his equity

CASES A,B,C are similar to admission by purchase. Transfer capital balance of Piolo
at BV regardless of amount paid. This is a personal transaction between Jake and
Piolo. Gain or loss is personal and such will not be recorded in the partnership.
PAYMENT TO WP COMING FROM THE PARTNERSHIP
CASE D
Payment = Interest withdrawn
Piolo, Capital50,000

Cash

50,000

CASE E
Payment > Interest withdrawn(Bonus to withdrawing partner)
Amount payable to Piolo 60,000
partner(Piolo)
Piolos interest @ BV
10,000 x 3/8 = 3,750
Bonus to Piolo(WP)
= 6,250

50,000

10,000

Bonus to withdrawing
Howard, Capital
Jake, Capital

10,000 x 5/8

10,000
CASE F
Payment < Interest withdrawn(Bonus to remaining partners)
Amount payable to Piolo 45,000
Piolos interest @ BV
5,000 x 3/8 = 1,875

50,000

Bonus to remaining partners

= 3,125

5,000

Bonus to remaining partners

Howard, Capital
Jake, Capital

5,000 x 5/8
5,000