AFAR Quick Notes 2018

(Ivan Yannick S. Bagayao)

Problem A:

Melai admits Nora as a partner in business. Just before the partnership’s formation, Melai’s books
showed the following:

Cash 2,200
Account Receivable 12,000
Merchandise Inventory 18,000
Accounts Payable 6,200
Melai, capital 26,400

It was agreed that, for purpose of establishing Melai’s investment in the firm, the following adjustment
shall be reflected:

 Allowance for bad debts of 2% should be set up.

 Merchandise inventory should be valued at P20,200.
 Prepaid expenses of P350 and accrued expenses of P400 should be recognize.

1. How much is the adjusted capital of Melai prior to admission of Nora?

A. 14, 155
B. 26,400
C. 28,310
D. 28,410

2. How much cash should Nora invest to secure a one-third interest in the partnership?
A. 14, 155
B. 26,400
C. 28,310
D. 28, 410

3. If Nora contributed an equipment with carrying value of P4,000 and fair value of P4,500, how
much cash was contributed for a one-fifth interest in the partnership?
A. 2,577.50
B. 7,077.50
C. 14,155
D. 35, 387.50

Problem B:

On May 1, 2018, the business assets and liabilities of Joe and Pete were as follows:

Joe Pete
Cash P 28,000 P 62,000
Receivables 200,000 600,000
Inventories 120,000 200,000
Land, Buildings, and Equipment 650,000 535,000
Other assets 2,000 3,000
Accounts Payable (180,000) (250,000)
Notes payable (200,000) (350,000)

Joe and Pete agreed to form a partnership by contributing their net assets, subject to the following
adjustment:

 Receivables of P20,000 in Joe’s books and P40,000 in Pete’s books are uncollectible.
 Inventories of P6,000 and P7,000 in the respective books of Joe and Pete are worthless.
 Other assets in both books are to be written off.
4. Upon the partnership’s formation, the respective capital of partners Joe and Pete would be?
A. P592,000 and P750,000
B. P620,000 and P800,000
C. P592,000 and P800,000
D. P520,000 and P750,000

5. Under Bonus Method, if the partner agreed to have a capital ratio of 40:60 for Joe and Pete
respectively, how much is the amount of bonus to or (from) Joe?
A. 55,000 bonus to Joe
B. (55,000) bonus from Joe
C. 79,000 bonus to Joe
D. (79,000) bonus from Pete

6. Under Bonus Method, if the partner agreed to have a capital ratio pf 40:60 for Joe and Pete
respectively, how much is the adjusted capital of Joe?
A. P805,200
B. P750,000
C. P592,000
D. P536,800

7. Under Bonus Method, if the partner agreed to have a capital ratio of 60:40 for Joe and Pete
respectively and they further agreed to have a total capital of P1,500,000, how much is the
amount bonus to or (from) Joe?
A. 150,000 bonus to Joe
B. (150,000) bonus from Joe
C. 308,000 bonus to Joe
D. (308,000) bonus from Joe

8. Under Bonus Method, if the partner agreed to have a capital ratio of 60:40 for Joe and Pete
respectively, and they further agreed to have a total capital of P1,500,000, how much is the
adjusted capital of Pete?
A. P900,000
B. P750,000
C. P600,000
D. P592,000

9. If the partners agreed that Joe should withdraw or invest in order to have a capital ratio of
40%, how much should be the amount of additional investment or withdrawal?
A. P92,000 investment
B. P92,000 withdrawal
C. P296,000 investment
D. P296,000 withdrawal

10. If the partners agreed that Joe should withdraw or invest in order to have a capital ratio of
40%, how much is the adjusted capital of Joe and Pete?
A. P592,000 and P750,000
B. P500,000 and P750,000
C. P592,000 and P888,000
D. P888,000 and P750,000

11. If the partner agreed to revalue assets to maintain 40:60 capital ratio for Joe and Pete
respectively, how much is the adjusted capital of Joe?
A. P500,000
B. P592,000
C. P750,000
D. P888,000
 12. If the partners agreed to revalue assets to maintain 40:60 capital ratio for Joe and Pete
respectively, how much is the adjusted capital of Pete?
A. P500,000
B. P592,000
C. P750,000
D. P888,000

13. If the partners agreed to effect revaluation down of assets to maintain 40:60 capital ratio for
Joe and Pete respectively, how much is the adjusted capital of Joe?
A. P500,000
B. P592,000
C. P750,000
D. P888,000

14. If the partners agreed to effect revaluation down of assets to maintain 40:60 capital ratio for
Joe and Pete respectively, how much is the adjusted capital of Pete?
A. P500,000
B. P592,000
C. P750,000
D. P888,000

Problem C:

Aldrin, Benny and Carlo, new CPA’s, are to form partnership. Aldrin will contribute cash of P50,000 and
his computer that originally cost P60,000 but with a second-hand value of P25,000. Benny will contribute
P80,000 in cash. Carlo, whose family sells computers, will contribute P25,000 in cash and brand-new
computer with printer that cost his family’s computer dealership P50,000 but with a regular selling price
of P60,000. The three agree to share profits and losses equally.

15. Upon formation, capital balances are

RPCPA- a. b. c. d.
adapted
Aldrin P75,000 P80,000 P88,333 P110,000
Benny 80,000 80,000 88,333 80,000
Carlo 85,000 80,000 88,334 75,000

Problem D:

On March 1, 2018, Ivan and Yannick decide to combine their businesses and form a partnership. The
balance sheets of Ivan and Yannick on March 3 before adjustments show the following:

Ivan Yannick
Cash P 9,000 P 3,750
Accounts recievable 18,500 13,500
Inventories 30,000 19,500
Furniture and fixture (net) 30,000 9,000
Office equipment (net) 11,500 2,750
Prepaid expenses 6,375 3,000
P105,37
5 P51,500

P
Accounts payable P 45,750 18,000
Ivan, Capital 59,625
Yannick, Capital 33,500
 P105,37
5 P51,500

The agreed to provide 3% for doubtful accounts of their accounts receivables and found Yannick’s
furniture and fixture to be under-depreciated by P900.00

16. If each partner’s share in equity is to be equal to the net assets invested, the capital accounts
of Ivan and Yannick could be

RPCPA- a. b. c. d.
adapted
Ivan P58,170 P58,320 P59,070 P104,820
Yannick P33,095 P32,945 P32,195 P50,195

Problem E:

Roque and Manalo formed a partnership and they agreed to share initial capital equally, although Roque
contributed P150,000 and Manalo contributed P126,000 in identifiable assets.

17. Under the bonus approach to adjust the capital accounts, Manalo’s unidentifiable assets
should be debited for
A. P 0
B. P 12,00
C. P 20,000
D. P 59,000

Problem F:

Kathy and Nathan formed a partnership on January 1, 2018. To start the partnership, Kathy transferred
cash totaling P116,000 and office equipment with a book value of P90,000 and a fair market value of
P84,000. Nathan transferred cash of P56,000, land valued at P36,000, and a building valued at P300,000.
Nathan bought these at a lump sum price of P250,000. In addition, the partnership assumed the
mortgage of P232,000 on the building.

18. The amount of capital to be credited to Kathy and Nathan, respectively, on January 1, 2018
should be :
A. P206,000 and P160,000
B. P200,000 and P74,000
C. P200,000 and P160,000
D. P206,000 and P392,000

PARTNERSHIP OPERATIONS:

Problem A:

GeeHan partnership begins its first year of operations with Gee, capital of 160,000 and Han capital of
80,000. According to the partnership agreement, all profits will distributed as follows:

a. Gee will be allowed a monthly salary of P 10,000

b. The partners will be allowed with interest equal to 10% of the capital balance as of the first day
of the year.
c. Gee will be allowed a bonus of 10% of the net income after salaries.
d. The remainder will be divided on the basis of 60:40 for the first year and 50:50 for the second
year.
Assume further, that the partnership generated Net Income of P 320,000 for the first year and
P200,000 for the second year.

1. What is the share of Han in the net income for the first year?
A. 70,400
B. 150,400
C. 249,600
 D. 409,600

2. What is the share of Gee in the net income for the first year?
A. 70,400
B. 150,400
C. 249,600
D. 409,600

3. How much is the adjusted capital of Gee at the beginning of second year?
A. 150,400
B. 249,600
C. 409,600
D. 586,560

4. What is the share of Han in the net income for the second year?
A. 23,040
B. 173,440
C. 176,960
D. 586,560

5. What is the share of Gee in the net income for the second year?
A. 23,040
B. 173,440
C. 176,960
D. 586,560

Problem B:

Dada and Mama, had capital accounts in 2015 as follows:

Dada, Capital Mama Capital

04/01 5,000 01/01 38,000 09/01 3,000 01/01 15,000
07/31 10,000 10/01 1,000 06/01 10,000
09/30 5,000 11/30 5,000
12/01 4,000

 Mama and Dada receive a monthly salary of P 2,000 and P 1,000 respectively.
 Dada receives a 20% Bonus based on income after salaries, interest, but before Bonus.
 Interest is 5% of their average capital balances.
 The remainder shall be allocated based on ending capital balance if negative while it shall be
based on average capital balance if positive. ( use 2 decimal places)

6. What is the average capital balance of Mama?

A. 20, 000
B. 40,000
C. 41,266
D. 58,733

7. What is the average capital balance of Dada?

A. 20,000
B. 40,000
C. 41,266
D. 58,733

8. If the partnership reports income of P100,000 in 2015 before salaries, interest and bonus
what is the share of Dada if salaries and interest are treated as allocation of net income?
A. 41,266
 B. 58,733
C. 80,500
D. 94,300

Problem C:

BATMAN and SUPERMAN share profits and losses equally after salary and interest allowances. BATMAN
and SUPERMAN receive salary allowances of P40,000 and P60,000, respectively, and both partners
receive 10% interest on their average capital balances. Average capital balances are calculated at the
beginning of each month, regardless of when additional capital contributions or permanent
withdrawals are made subsequently within the month. Partners’ drawings of P3,000 per month are not
used in determining the average capital balances. Total net income for 2015 is P240,000.

BATMAN SUPERMAN
January 1 capital balances P200,000 P240,000

Yearly drawings (P3,000 a month) (36,000) (36,000)

Permanent withdrawals of capital:

June 3 (24,000)

May 2 (30,000)

Additional investment of capital:

July 3 80,000
October 2 100,000

9. What is the weighted-average capital for BATMAN and SUPERMAN in 2015?

A. P224,000 and P245,000
B. P203,333 and P221,167
C. P221,333 and P239,167
D. P256,000 and P220,000

10. If the average capital for BATMAN and SUPERMAN from the above information is P224,000
and P238,000, respectively, what will be the total amount of profit allocated to salary and
interest distributions?
A. P93,800
B. P146,200
C. P218,200
D. P240,000

11. If the average capital balances for BATMAN and SUPERMAN are P200,000 and P240,000,
what will be the total partnership profit allocations be for BATMAN and SUPERMAN in
2015?
A. P100,000 and P140,000
B. P108,000 and P132,000
C. P120,000 and P120,000
D. P140,000 and P100,000

Problem D:

Lim and Isko share profits and losses in a ratio of 2:3, respectively, after salary allowances, interest
allowances and bonus allocations. Lim and Isko resceive salary allowancs of P30,000 and P60,000,
respectively, and both partners receive 10% interest based upon the balance in their capital accounts on
January 1. Partners’ drawings are not used in determining the average capital balances. Total net income
for 2011 is P180,000. If net income after deducting the interest and salary allocations is more than
P60,000, Isko receives a bonus of 5% of the original amount of net income.

Lim Isko

January 1 capital balances P600,000 P900,000

 Yearly drawings (P3,000 a month) 36,000 36,000

12. What is the total amount for the allocation of interest, salary, and bonus, and how much
over-allocation is present?
A. P180,000 and P0
B. P240,000 and P60,000
C. P249,000 and P0
D. P249,000 and P69,000

13. If the partnership experiences net loss of P60,000 for the year, what will be the final net
amount of profit of (loss) closed to each partner’s capital account?
A. (P90,000) to Lim and P30,000 to Isko
B. (P30,000) to Lim and P(30,000) to Isko
C. (P24,000) to Lim and (P36,000) to Isko
D. P30,000 to Lim and (P90,000) to Isko

PARTNERSHIP DISSOLUTION:

Problem A:

LUCIO, HENRY and JOHN are partners sharing profits and losses of 40%, 40% and 20%, respectively. The
December 31, 2017 balance sheet of the partnership before any profit allocation was summarized as
follows:

ASSETS LIABILITIES &

CAPITAL

Cash 90,000 Account Payable 7,500

Inventories 60,000 JOHN, Loan 5,000
Equipment 75,000 LUCIO, Capital 100,000
Trademark 22,500 HENRY, Capital 90,000
JOHN, Capital 45,000
TOTAL Liabilities &
TOTAL Assets 247,500 Capital 247,500

The income summary account has a credit balance of P 25,000 for the year 2017. On January 1, 2017, a
partner has decide to retire from the partnership and by mutual agreement among; the following have
been arrived at:

 Inventories amounting to P10,000 is considered obsolete and must be written off

 Equipment should be adjusted to their current value of P50,000
 Trademarks are to be written-off immediately before the retirement.

It was agreed that the partnership will pay, the retiring partner for his interest in the partnership
inclusive of loan balance.

1. If JOHN retired and received P45,000 as a retirement price, how much will be the bonus to or
(from) Henry?
A. (P 1,000)
B. P 1,000
C. P 500
D. (P500)

2. If JOHN retired and received P45,000 as a retirement price, how much will be the adjusted
capital of LUCIO under Bonus method?
A. P 100,000
B. P 87, 000
C. P 86,000
D. P 76,000
 3. If JOHN retired and received P50,000, by how much will the adjusted capital of LUCIO under
revaluation of asset method traceable to entire (full revaluation)?
A. P77,000
B. P87,000
C. P80,250
D. P93,500

4. If John retired and received p47,500, by how much will the adjusted capital of HENRY be
higher of (lower) than LUCIO under specific revaluation of asset method (specific revaluation)?
A. P 0
B. P 10,000
C. P (10,000)
D. P (20,000)

5. If JOHN retired and received P47,500, by how much will the adjusted capital of LUCIO under
specific revaluation of asset method (specific revaluation)?
A. P 77,000
B. P 81,000
C. P 87,000
D. P 91,000

Problem B:

The total capital of partners before recognition of partnership asset revaluation in preparation for the
withdrawal of a partner whose percentage P/L sharing is 25%, amounted to P315,000. He remaining paid
P98,000 by the firm in the final settlement for his interest. The remaining partner’s capital account,
excluding their share of assets revaluation totaled P 315,000.

6. How much is the amount of full revaluation of the firm as agreed by the partners?
A. P28,000
B. P84,000
C. P70,000
D. P112,000

7. How much is the total adjusted capital of the remaining partners?

A. P385,000
B. P497,000
C. P399,000
D. P500,000

Problem C:

Acacia and Carla capital is 480,000 and 520,000 respectively. Profit Share Ratio 4:6. Bubbles invested
500,000 for a 30% interest in the partnership.

8. What is the capital of Acacia after admitting Bubbles?

A. P 480,000
B. P 500,000
C. P 520,000
D. P 550,000

9. What is the capital of Carla after admitting Bubbles?

A. P 480,000
B. P 500,000
C. P 520,000
D. P 550,000

10. What is the capital of Bubbles after admission?

 A. P 450,000
B. P 500,000
C. P 520,000
D. P 550,000

Problem D:

Partners AIL and Charish capital is 480,000 and 520,000 respectively. They share profit and loss equally in
their merchandising business. After admitting BLAIRE, they agreed to have a total capital of P 2,500,000.
The new partner invested P 500,000 for 30% interest in the business.

11. What is the capital of AIL and Charish after admitting BLAIRE?
A. P 500,000; 750,000
B. P 750,000; 855,000
C. P 855,000; 855,000
D. P 895,000; 855,000

12. What is the capital of BLAIRE after admission?

A. P 500,000
B. P 750,000
C. P 855, 000
D. P 895,000

13. How much is the amount of Bonus to or (from) Charish?

A. P 0
B. P 125, 000
C. P (125,000)
D. P (250,000)

14. How much is the amount of revaluation credited of Ail?

A. P 0
B. P 250,000
C. P 375,000
D. P 500,000

Problem E:

Aika and Nicole’s capital is 600,000 and 480,000 respectively. Profit Share Ratio 7:3. Princessita directly
purchased a 1/3 interest by paying Aika 195,000 and Nicole 225,000. The land account is increased by
180,000 before Princessita is accepted.

15. What is the capital of Aika after admitting Princessita?

A. P 300,000
B. P 356,000
C. P 420,000
D. P 484,000

16. What is the capital of Nicole after admitting Princessista?

A. P 300,000
B. P 356,000
C. P 420,000
D. P 484,000

17. What is the capital of Princessita after admitting Princessita?

A. P 300,000
B. P 356,000
C. P 420,000
D. P 484,000
Problem F:

MARK, DAVE and JIM are partners with capital balances of P448,000, P1,560,000 and P680,000
respectively, sharing profit and losses of 6:4:2. JAMIE is admitted as a new partner bringing with him
expertise and is to invest cash for a 25% interest in the partnership, which includes a credit of P 420,000
bonus upon his admission.

18. How much cash should JAMIE contribute?

A. P 336,000
B. P 420,000
C. P 756,000
D. P 3,024,000

19. How much should be the credited to Jamie capital?

A. P 336,000
B. P 420,000
C. P 756,000
D. P 3,024,000