PRACTICAL ACCOUNTING 2

THEORY & PRACTICE

ADVANCE ACCOUNTING
PARTNERSHIP - RETIREMENT OF A PARTNER
QUIZZER
 Partnership Retirement of a Partner

RETIREMENT OF A PARTNER
Implied Goodwill
1. Pastor, Ramon and Sendong were partners with capital balances as of January 1, 2013, of
P100,000, P150,000 and P200,000 respectively, sharing profit and losses on a 5:3:2 ratio. On July
1, 2013 Pastor withdraw from the partnership. Partners agreed that at the time of withdrawal,
certain inventories had to be revalued at P70,000 from its cost of P50,000. For the six month
period ending June 30,2013, the partnership generated a net income of PI40,000. Further,
partners agreed to pay Pastor PI95,000 for his interest and that the remaining partners' capital
accounts would be adjusted for whatever goodwill the settlement would generate. The payment
to Pastor included a goodwill of:
a. P15,000 c. P50,000
b. P25,000 d. P42,500 Guerrero 2013

2. Jaime Dizon, a partner in an accounting firm, decided to withdraw from the partnership.
Dizon's share of the partnership profits and losses was 20%. Upon withdrawing from the
partnership he was paid P74,000 in final settlement for his interest. The total of the partners' capital
accounts before recognition of partnership goodwill prior to Dizon's withdrawal was P210,000. After
his withdrawal the remaining partners' capital accounts, excluding their share of goodwill, totalled
PI 60,000. The implied goodwill of the firm was:
a. P120,000 c. P160,000
b. P140,000 d. P250,000 Guerrero 2013

Total Assets
3. On July 10, 2013 Lolo wants to retire from JKL Partnership. The statement of financial position for
the JKL Partnership before closing on that date shows the
following:
Cash P 148,000 Liabilities P 90,000
Receivables, net 72,000 Jose capital 200,000
Equipment, net 270,000 Kiko capital 96,000
Goodwill 60,000 Lolo capital 84,000
Income summary 80,000
Total P550,000 Total P550,000

Jose, Kiko and Lolo share profts and losses in the ratio of 5:3:2, respectively. The partners agreed
to write off the goodwill and to adjust the equipment to their fair market values of P230,000.Lolo
is paid P110,000 cash for his total interest.

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 Advance Accounting

Assuming the use of the total goodwill method the total assets of the new partnership after the
retirement of Lolo is:
a. P554,000 c. P474,000
b. P490,000 d. P550,000 Guerrero 2013

4. The condensed statement of financial position of the partnership of Edong, Fredo and Godo with
corresponding profit and loss sharing percentage as of June 30, 2013 was as follows:
Net assets P400,000
Edong, capital (50%) P200,000
Fredo, capital (30%) 120,000
Godo, capital (20%) 80,000
P400,000
As of said date, Edong retired from the partnership. By mutual agreement, he was paid P225,000
for his interest in the partnership. The total implied goodwill was to be recorded. After Edong's
retirement, the total net assets of the partnership was:
a. P250,000
b. P17 5,000
c. P200,000
d. P225,000 Guerrero 2013
Partnership paid the retiring partner
Revaluation method
Remaining partners' capital balances
5. The December 31,2011, statement of financial position of the BB, CC, and DD partnership is
summarized as follows:
Cash P100,000 CC, loan .. PIOO.OOO
Other assets, at cost 500,000 BB, capital 100,000
CC, capital 200,000
DD, capital 200,000
P600,000 P600,000
The partners share profits and losses as follows: BB, 20%; CC, 30%; and DD, 50%, CC is
retiring from the partnership and the partners have agreed that "other assets" should be
adjusted to their fair value of P600.000 at December 31, 2011. They further agree that CC will
receive P244.000 cash for his partnership interest exclusive of the loan, which is to be paid in
full. No goodwill implied by CC's payment will be recorded. Dayag 2013
After CC's retirement, the capital balances of BB and DD, respectively, will be:
a. P116,000and P240,000 c. P 100,000and P200,000
b. P 101,714 and P254,286 d. P 73,143 and P182,857

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 Partnership Retirement of a Partner

6. On June 30,2011, the statement of financial position for the partnership of CC, MM, and PP,
together with their respective profit and loss ratios, were as follows:
Assets, at cost P180,000
CC, loan 9,000
CC, capital (20%) 42,000
MM, capital (20%) 39,000
PP, capital (60%) 90,000
Total P180,000
CC decided to retire from the partnership. By mutual agreement, the assets are to be adjusted
to their fair value of P216,000 at June 30, 2011. It was agreed that the partnership would pay
CC P61.200 cash for CC's partnership interest, including CC's loan which is to be repaid in full.
No goodwill is to be recorded. After CC's retirement, what is the balance of MM's capital
account?
a. 36.450 c. 45,450
b. 39,000 d. 46,200 Dayag 2013

7. In May 2010, Imclda, a partner of an accounting firm, decided to withdraw when the partners'
capital balances were: Mikee, P600,000; Raul, P600,000; and Imelda, P400,000. It was agreed
that Imclda is to take the partnership's fully depreciated computer with a second hand value of
P24,000 that cost the partnership P36,000. If profits and losses are shared equally, what would
be the capital balances of the remaining partners after the retirement of Imelda?
Mikee Raul
a. 600,000 600,000
b. 592,000 592,000
c. 608,000 608,000
d. 612,000 612,000 Punzalan 2014
8. On December 31, 2013 the condensed statement of financial position of ABC Partnership is
presented below:
Total assets P180,000
Amy loan P10,000
Amy capital 45,000
Bea capital 40,000
Cat capital 85,000
Total P180,000
Amy, Bea and Cat share profits and losses in the ratio of 3:2:1 respectively. It was agreed among
the partners that Amy retires from the partnership and the partnership's assets to be
adjusted to their fair value of P210,000. The partners further agreed to pay Amy P64,000 cash
for her total interest in the partnership.

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 Advance Accounting

What is the capital balance of Cat after the retirement of Amy?

a. P35,000 c. P27,000
b. P92,000 d. P33,000 Guerrero 2013

9. Cina, Doy and Eli shared profit and losses based on 5:3:2. Eli was allowed to withdraw from
the partnership on 31 December 2013 with P600,000 cash as full settlement. The condensed
statement of financial position of the partnership as of that date was as follows:

Assets
Due from Eli P250,000
Goodwill 2,000,000
Other assets 4,750,000
Total assets P7,000,000

Liabilities and Capital

Liabilities P2,000,000
Due to Doy 750,000
Cina, capital 1,750,000
Doy, capital 1,500,000
Eli, capital 1,000,000
Total liabilities and capital P7,000,000
Using the goodwill method, the new capital balances of the remaining partners after Eli's
withdrawal are:
a. Cina, PI,843,750 and Doy, PI,556,250.
b. Cina, Pl,375,000 and doy, Pl,275,000.
c. Cina, P2,000,000 and doy, PI,650,000.
d. Cina, PI, 750,000 and Doy, PI,500,000. Guerrero 2013

10. On June 30,2013 the balance sheet for the partnership of Cruz, Merced and Prieto, together with
their respective profit and loss ratio, were as follows:

Assets, at cost P180,000

Cruz, loan 9,000

Cruz, capital (20%) 42,000
Merced, capital (20%) 39,000
Prieto, capital (60%) 90,000
P180,000

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 Partnership Retirement of a Partner

Cruz had decided to retire from the partnership. By mutual agreement, the assets are to be
adjusted to their fair value of P216,000 at June 30, 2013. It was agreed that the partnership would
pay Cruz P61,200 cash for Cruz's partnership interest, including Cruz's loan which is to be repaid
in full. No goodwill is to be recorded. After Cruz's retirement, what is the balance of Merced capital
account?
a. P36,450 c. P45,450
b. P39,000 d. P46,200 Guerrero 2013
Effect on partners' capital balance
11. Peter, Queen, and Roy are partners with capital balances of P300,000, P300,000, and
P200,000, respectively; and sharing profits and losses equally. Roy is to retire and it is agreed
that he is to take certain office equipment with second hand value of P50,000 and a note for
his interest. The office equipment carried in the books at P65,000 but brand new would cost
P80,000. Roy's acquisition of the office equipment would result in
a. Reduction in capital of P5,000 each for Peter, Queen, and Roy.
b. Reduction in capital of P7,5000 each for Peter, Queen, and Roy.
c. Reduction in capital of P15,000 for Roy.
d. Reduction in capital of P55,000 for Roy. Punzalan 2014
12. Cen, Deng and Lala are partners with capital balances on 31 December 2011 of P300,000,
P300,000 and P200,000 respectively. Profit are shared equally. Lala wishes to withdraw and it is
agreed that she is to take certain furniture and fixtures with second hand value of P50,000 and
note for the balance of her interest. The furniture and fixtures are carried in the books at P65,000.
Brand new, the furniture and fixtures may cost P80,000. Lala's acquisition of the second-hand
furniture will result to:
a. Reduction in capital of P15,000 each for Cen and Deng.
b. Reduction in capital of P10,000 for Lala.
c. Reduction in capital of P5,000 each for Cen, Deng and Lala.
d. Reduction*in capital of P7,500 each for Cen, and Deng. Guerrero 2013
Total Capital
13. Lina, Mina and Nina were partners with capital balances on January 2, 2013 of P300,000,
P200,000 and PI00,000, respectively. On July 1,2013 Lina retires from the partnership. On the
date of retirement the partnership net loss is P60,000 and the partners agreed that certain asset
is to be revalued at P80,000 from its original cost of P50,000. The partners agreed further to pay
Lina P225,000 in settlement of her interest. The remaining partners continue to operate under a
new partnership, MN partnership.
What is the total capital of MN partnership?
a. P345,000 c. P340,000
b. P285,000 d. P280,000 Guerrero 2013

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 Advance Accounting

Bonus Method
Bonus to retiring partner
14. On October 31, 2010, Morris retired from the partnership of Morris, Philip, and Marl. Morris
received P55,000 representing final settlement of his interest in the amount of P50,000. Under
the bonus method,
a. P5,000 was recorded as goodwill.
b. P5,000 was recorded as expense.
c. Charged P5,000 against the capital balances of Philip and Marl.
d. P55,000 was recorded as bonus. Punzalan 2014

Comprehensive
15. Rita, Sisa, and Tina are partners with capital balances on June 30,2013 of P60,000, P60,000 and
P40,000, respectively. Profits and losses are shared equally. Tina withdraws from the
partnership. The partners agree that Tina is to take certain furniture at their second hand
value of P2,400 and cash for the balance of her interest. The furniture is carried on the books
as fully depreciated.

The amount of cash to be paid to Tina and the capital balances of the remaining partners after
the retirement of Tina are:

Cash Rita capital Sisa capital

a. P40,000 P6 0,000 P60,000
b. P37,600 P61,200 P61,200
c. P38,400 P60,800 P60,800
d. P42,800 P58,800 P58,800 Guerrero 2013

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 Partnership Retirement of a Partner

ANSWER SHEET
1.A
2.A
3.B
4.D
5.A
6.C
7.C
8.B
9.B
10.C
11.D
12.C
13.A
14.C
15.C

ANSWER KEY Page 7