Chapter 3 Teachers Manual Afar Part 1

 

Chapter 3 Partnership  – Part 3

PROBLEM 3-1: TRUE OR FALSE 1. FALSE 2. 3. 4. 5. 6. 7. 8. 9. 10.

TRUE TRUE FALSE FALSE TRUE FALSE (50% x 80%) = 40% TRUE TRUE FALSE (1,000 (1,000 –  100 payment) = 900   – 100

PROBLEM 3-2: THEORY & COMPUTATIONAL 1.

D

2.

Solutions:

C as e #1: R eq equir uirem emen entt (a): (a): The capital balances of the existing partners are adjusted as follows:

Cash  Accounts receivable receivable Inventory Prepaid asset  Accounts payable  Accrued liabilities Net assets

 A, Capital (60%) B, Capital (40%)

Carrying amts.

Fair values

Increase (Decrease)

26,000 120,000 180,000

26,000 116,400 205,000 3,600 (62,000) (4,000)

(3,600) 25,000 3,600 (4,000)

285,000

21,000

(62,000) 264,000

Unadjus Una djus ted

S h. in adjus tme ment nt

A djus ted

170,000 94,000

(21K x 60%) = 12,600 (21K x 40%) = 8,400

182,600 102,400

264,000

285,000

1

 

Date

B, Capital (182,600 x 1/2) C, Capital (182,600 x 1/2) 

51,200 51,200

to record the admission of C to the partnership

R eq equir uirem emen entt (b): B efo fore re admis s ion  A, Capital B, Capital C, Capital

A dmis dmis s ion of C

A ft fte er admis dmis s ion

182,600 102,400 -

(51,200) 51,200

182,600  51,200  51, 200  51,200  51, 200

285,000

-

285,000

A dm dmis is s ion of C

A fter fter admis dmis s ion 60%  20%  20%

Requirement (c): P artner rtner B ef efore ore adm dmis is s ion  A B C

60% 40%

-20% 20%

100%

100%

C as e #2: S cen cena ari rio oA R eq equir uirem emen entt (a): (a): The fair value of the 20% interest acquired by C is i s computed as follows:  Adjusted net assets assets before admission of C 285,000 Divide by: Interest of old partners (100% - 20%) 80% Grossed-up fair value 356,250 Multiply by: Interest of C 20% Fair value of C's interest

Date

71,250

Cash C, Capital

71,250 71,250

to record the admission of C to the partnership

R eq equir uirem emen entt (b): B efo fore re admis s ion  A, Capital B, Capital C, Capital

A dmis dmis s ion of C

71,250

A ft fte er admis dmis s ion 182,600 102,400 71,250

71,250

356,250

182,600 102,400 285,000

2

 

Requirement (c): P artner rtner B efore efore adm dmis is s ion  A B C

60% 40%

A dm dmis is s ion of C

A fter fter admis dmis s ion

(100% - 20%) x 60% (100% - 20%) x 40% 20%

48%  32%  20%

100%

100%

C as e # #2: 2: S ce cena nari rio oB R eq equir uirem emen entt (a): (a): Date Cash  A, Capital (100K – (100K – 71,250)  71,250) x 60% B, Capital (100K – (100K – 71,250)  71,250) x 40% C, Capital

71,250 17,250 11,500 100,000

to record the admission of C to the partnership

R eq equir uirem emen entt (b): B efo fore re admis s ion

A dmis dmis s ion of C

182,600 102,400

(17,250) (11,500) 100,000

A ft fte er admis dmis s ion 165,350 90,900 100,000

285,000

71,250

356,250

 A, Capital B, Capital C, Capital

C as e #3: Solution:  Adjusted net assets assets Divide by: Existing partners' interest Total net assets after investment by C Multiply by: C's interest  Amt. of contribution contribution by C

3.

285,000 3/5 475,000 2/5

190,000

Solutions:

R eq equir uirem emen entt (a): (a):  April  A, Capital

320,000 3

 

 30%/50% 50%   B, Capital (360K – (360K – 320K)  320K) x 30%/ C, Capital (360K – (360K – 320K)  320K) x 20%/  20%/50% 50%   Cash

1, 20x1

24,000 16,000 360,000

to record the retirement of A from the  partnership

R eq equir uirem emen entt (b):  A, Capital B, Capital C, Capital

B efore retirem retir ement ent

R et etir ir em ement ent of A

A fter fter retirem retir ement ent

320,000 192,000 128,000

(320,000) (24,000) (16,000)

168,000 112,000

640,000

(360,000)

280,000

Requirement (c): P artner artner B efore retirem retir ement ent  A B C

50% 30% 20%

R etir etirem ement ent of A -50% 30% / (30% + 20%) 20% / (30% + 20%)

100%

A fter fter retirem retir ement ent 60% 40% 100%

4

 

PROBLEM 3-3: EXERCISES  – COMPUTATIONAL 1.

Solutions:

C as e #1: R eq equir uirem emen entt (a): (a): The capital balances of the existing partners are adjusted as follows:

Carrying amts.

Cash  Accounts receivable Inventory Equipment  Accounts payable  Accrued liabilities

30,000

140,000 200,000 500,000 (80,000)

Net assets

790,000

Fair values

Increase (Decrease)

30,000

-

120,000 160,000 450,000 (80,000) (20,000) 660,000

(20,000) (40,000) (50,000) (20,000)

(130,000)

Unadjusted

 A djus dju s tment

A djus dju s ted

515,000 275,000

-130K x 60% = -78K -130K x 40% = -52K

437,000 223,000

 Apple, Capital (60%) Banana, Capital (40%)

790,000 Date

660,000

B, Capital (223,00 x 1/2) C, Capital (223,00 x 1/2) 

111,500 111,500

to record the admission of C to the partnership

R eq equir uirem emen entt (b):  A, Capital B, Capital C, Capital

B efo fore re admis s ion

A dmis dmis s ion of C

437,000 223,000 -

(111,500) 111,500

A ft fte er admis dmis s ion 437,000 111,500 111,500

660,000

-

660,000

A dm dmis is s ion of C

A fter fter admis dmis s ion 60%  20%  20%

Requirement (c): P artner rtner B ef efore ore adm dmis is s ion  A B C

60% 40%

-20% 20%

100%

100%

5

 

C as e #2: R eq equir uirem emen entt (a): (a): The fair value of the 20% interest acquired by C is i s computed as follows:  Adjusted net assets assets before admission of C 660,000 Divide by: Interest of old partners (100% - 20%) 80% Grossed-up fair value

825,000

Multiply by: Interest of C Fair value of C's interest

20% 165,000

Date

Cash C, Capital

165,000 165,000

to record the admission of C to the partnership

R eq equir uirem emen entt (b): B efo fore re admis s ion

-

165,000

A ft fte er admis dmis s ion 437,000  223,000  223, 000 165,000

660,000

165,000

825,000

 A, Capital

437,000

B, Capital C, Capital

223,000

Requirement (c): P artner rtner B efore efore adm dmis is s ion  A B C

60% 40%

A dmis dmis s ion of C

A dm dmis is s ion of C (100% - 20%) x 60% (100% - 20%) x 40% 20%

A fter fter admis dmis s ion 48%  32%  20%

100%

100%

C as e # #3: 3:   R eq equir uirem emen entt (a): (a): Date Cash  A, Capital (165K – (165K – 100K)  100K) x 60% B, Capital (165K – (165K – 100K)  100K) x 40% C, Capital to record the admission of C to the partnership

6

100,000 39,000 26,000 165,000

 

R eq equir uirem emen entt (b): B efo fore re admis s ion

A dmis dmis s ion of C

437,000 223,000

-

(39,000) (26,000) 165,000

A ft fte er admis dmis s ion  398,000  398, 000 197,000 165,000

660,000

100,000

760,000

 A, Capital B, Capital C, Capital

C as e #4: R eq equir uirem emen entt (a): (a): Date Cash C, Capital  A, Capital (165K – (165K – 125K)  125K) x 60% B, Capital (165K – (165K – 125K)  125K) x 40%

165,000 125,000 24,000 16,000

to record the admission of C to the partnership

R eq equir uirem emen entt (b): B efo fore re admis s ion  A, Capital B, Capital C, Capital

A dmis dmis s ion of C

-

24,000 16,000 125,000

A ft fte er admis dmis s ion 461,000  239,000  239, 000 125,000

660,000

165,000

825,000

437,000 223,000

C as e #5:

 Adjusted net assets assets Divide by: Existing partners' interest

660,000 3/5

Total net assets after investment by Carrots Multiply by: Carrots’ Carrots’ interest

1,100,000 2/5

440,000

 Amt. of contribution contribution by Carrots

7

 

2.

Solutions:

C as e #1: The adjusted capital balances of the partners on the date of A’s retirement are computed as follows:

 A (50%) (5 0%)

B (3 (30%) 0%)

C (2 (20%) 0%)

Jan. 1 Sh. In profit Drawings

320,000 400,000 (40,000)

192,000 240,000 (60,000)

128,000 160,000 (30,000)

Sept. 1

680,000

372,000

258,000

R eq equir uirem emen entt (a): (a): Sept.  A, Capital 1, B, Capital (700K – (700K – 680K)  680K) x 30%/  30%/50% 50%   20x1 C, Capital (700K – (700K – 680K)  680K) x 20%/  20%/50% 50%   Cash

680,000 12,000 8,000 700,000

to record the retirement of A from the  partnership

R eq equir uirem emen entt (b):  A, Capital B, Capital C, Capital

B efore retirem retir ement ent

R et etir ir em ement ent of A

680,000 372,000 258,000

(680,000) (12,000) (8,000)

A fter fter retirem retir ement ent  360,000  360, 000  250,000  250, 000

1,310,000

(700,000)

610,000

Requirement (c): P artner artner

B efore retirem retir ement ent

R etir etirem ement ent of A

 A B C

50% 30% 20%

-50% 30% / (30% + 20%) 20% / (30% + 20%)

100%

A fter fter retirem retir ement ent 60% 40% 100%

8

 

C as e #2: Solutions:

R eq equir uirem emen entt (a): (a): Sept.  A, Capital 1, Cash 20x1 B, Capital (680K (680K –  – 650K)  650K) x 30%/  30%/50% 50%  C, Capital (680K (680K –  650K) x 20%  20%//50%   – 650K)

680,000 650,000 18,000 12,000

to record the retirement of A from the  partnership

R eq equir uirem emen entt (b):  A, Capital B, Capital C, Capital

3.

B efore retirem retir ement ent

R et etir ir em ement ent of A

680,000 372,000 258,000

(680,000) 18,000 12,000

A fter fter retirem retir ement ent  390,000  390, 000  270,000  270, 000

1,310,000

(650,000)

660,000

Solution:

 A

B

C

Tota To tall

Cash Equipment Capital balances - Jan. 1 Sh. In profit (120K x 150K/480K (a)); (120K x 160K/480K); (120K x 170K/480K)

100,000 50,000 150,000

160,000 160,000

50,000 120,000 170,000

310,000 170,000 480,000

37,500

40,000

42,500

120,000

C apita pitall bala balances nces - D ec. 31

187,500

200,000

212,500

600,000

Since the problem does not state the partnership p artnership agreement on the sharing of profits and losses, it is assumed that the sharing is based on the partners’ respective contributions.

4.

Solutions:

R eq equir uirem emen entt (a): (a): The adjustments to the capital balances of A and B are computed as follows: A B 600K x 20% [187.5K ÷ (187.5K + 200K)] (58,065) 600K x 20% [200K ÷ (187.5K + 200K)] (61,935)

9

 

Jan. 1, 20x2

 A, Capital B, Capital D, Capital (600,000 x 20%) 

58,065 61,935 120,000

to record the admission of D to the partnership

R eq equir uirem emen entt (b):  A

B

C

D

Tota To tall

Before admission  Admission of D

187,500 (58,065)

200,000 (61,935)

212,500 -

120,000

600,000 -

 A fter admis s i on

129, 129,435 435

138, 138,065 065

212,500 212, 500

120,000 120, 000

600,000

5.

Solutions:

R eq equir uirem emen entt (a): (a): Dec. 31, B, Capital 20x1 Cash  A, Capital (200K (200K –  – 164K)  164K) x 40%/60% (200K –  – 164K)  164K) x 20%/60%  C, Capital (200K

200,000 164,000 24,000 12,000

R eq equir uirem emen entt (b):  A

B

C

Tota To tall

Before withdrawal Withdrawal of B

187,500 24,000

200,000 (200,000)

212,500 12,000

600,000 (164,000)

 A fter withdr wi thdrawa awall

211,500 211, 500

-

224,500 224, 500

436,000

Requirement (c): P artner artner B efore retirem retir ement ent  A B C

40% 40% 20%

R etir etirem ement ent of A 40% / (40% + 20%) -40% 20% / (40% + 20%)

100%

A fter fter retirem retir ement ent 66.67%  33.33%  33. 33% 100%

10

 

6.

Solutions:

R eq equir uirem emen entts (a) and and (b): Cash  Accounts receivable receivable Inventory Land Building Equipment Other assets

Totall as Tota as s et etss  Accounts payable Notes payable

 A

B

Tota To tals ls

11,000 214,536 114,535 603,000

22,354 532,890 253,402

33,354 747,426 367,937 603,000 428,267 85,134 -

50,345 993,416 (178,940) (200,000)

428,267 34,789 1,271,702 (243,650) (345,000)

614,4 614,476 76

683,052 683,052

Net as s et etss

 2,265,1  2,2 65,118 18 (422,590) (545,000) 1,297,528

Requirement (c):  Adjusted net assets assets Divide by: (100% - 20%) Grossed up fair value Multiply by: C's interest

1,297,528 80% 1,621,910 20%

 A mount moun t of need contri con tri buti bution on

324, 324,382 382

R eq equir uirem emen entt (d): Fair value of net asset contribution

 A (40%) (4 0%)

B ( 40%)

C (2 (20%) 0%)

Tota To tall

614,476

683,052

324,382

1,621,910

648,764

648,764

324,382

1,621,910

(34,288) (34, 288)

34,288

-

Required capital balance (1,621,910 x 40%); (1,621,910 x 40%); (1,621,910 x 20%)

C as h s et ettl tlem ement ent (payment)/ r eceipt ecei pt R eq equir uirem emen entt (e):  A (4 (40%) 0%)

B (4 (40%) 0%)

C (2 (20%) 0%)

 Adjusted capital balances, balances, Jan. 1 Share in profit (325K x 40%); (325K x 40%); (325K x 20%) Drawings

648,764

648,764

324,382

130,000 (50,000)

130,000 (65,000)

65,000 (28,000)

C apita pitall bala balances nces , D ec. 31

728,764

713,764

361,382

11

 

7.

Solution:

 A

B

C

To Tota tall

Before retirement Revaluation of equipt. (24K ÷ 3)  Adjusted Retirement of C

600,000

600,000

400,000

1,600,000

8,000 608,000

8,000 608,000

8,000 408,000 (408,000)

24,000 1,624,000 (408,000)

 A fter retir r etirement ement

608,000 608, 000

608,000 608, 000

-

1,216,000

PROBLEM 3-4: CLASSROOM ACTIVITY

C as e #1: Solutions: Income summary 50,000  A, Capital (50,000 x 40%) B, Capital (50,000 x 60%)

20,000 30,000

R eq equir uirem emen entt (a): (a): B, Capital [(40,000 + 30,000) x ½] C, Capital

35,000 35,000

R eq equir uirem emen entt (b):  A, Capital (40%) (160,000 + 20,000) B, Capital (30%) (40,000 + 30,000 30,000 –  –  35,000) C, Capital (30%)

180,000 35,000 35,000

Requirement (c): No. It seems unfavorable because the ₱30,000 payment is lower than the ₱35,000 decrease in B’s capital account.  account.  

C as e # #2: 2: Solutions: Income summary 50,000  A, Capital (50,000 x 40%) B, Capital (50,000 x 60%)

R eq equir uirem emen entt (a): (a):  A, Capital - Jan. 1

160,000 12

20,000 30,000

 

B, Capital - Jan. 1 Profit Total net assets Divide by: (100% - 20%) Multiply by: Investment by C

Cash

40,000 50,000 250,000 80% 312,500 20% 62,500

62,500 C, Capital

62,500

R eq equir uirem emen entt (b):  A, Capital (40% x 80% = 32%) B, Capital (60% x 80% = 48%) C, Capital ( 20%)

(160,000 + 20,000) (40,000 + 30,000)

180,000 70,000 62,500

C as e # #3: 3: Solution: Land

100,000  A, Capital (100,000 x 40%) B, Capital (100,000 x 60%)

40,000 60,000

R eq equir uirem emen entt (a): (a): Cash

60,000 C, Capital

60,000

R eq equir uirem emen entt (b):  A, Capital (40% x 80% = 32%) B, Capital (60% x 80% = 48%) C, Capital ( 20%)

(160,000 + 40,000) (40,000 + 60,000)

C as e # #4: 4: Solution: Cash

50,000 C, Capital

50,000

Income summary 100,000  A, Capital (100,000 x 32%)

32,000

13

200,000 100,000 60,000

 

B, Capital (100,000 x 48%) C, Capital (100,000 x 20%)

48,000 20,000

R eq equir uirem emen entt (a): (a): B, Capital (40,000 + 48,000)  A, Capital (32,000 x 32/52) C, Capital (32,000 x 20/52) Cash

88,000 19,692 12,308 120,000

R eq equir uirem emen entt (b):  A, Capital (32%/52% (32%/52% = 61.5%) (160,000 + 32,000 32,000 –  –  19,692) C, Capital Capital (20%/52% = 38.5%) (50,000 + 20,000 20,000 –  –  12,308)

PROBLEM 3-5: THEORY 1. C 2.

B

3.

C

4.

A

5.

A

6.

B

7. 8.

D D

9.

C

10. D

14

172,308 57,692

 

PROBLEM 3-6: MULTIPLE CHOICE - COMPUTATIONAL 1. B Solution: Total capital after admission Multiply by: Interest of Lind Capital credit to Lind Contribution of Lind Bonus to Lind Multiply by: Old P/L ratio of Blau

10,000 60%

Deduction to Blau's capital

6,000

Interest of Blau before admission of Lind Deduction to Blau's capital  Adjusted capital of Blau after admission 2.

150,000 1/3 50,000 (40,000)

60,000 (6,000)

 54,000  54, 000

D (60K + 20K + 15K) = 95K total capital after admission x 20% =

19,000 3. A Recognition of goodwill from non-business combination transactions is prohibited under PFRSs. 4. A Solution: Payment to Eddy Capital balance of Eddy Excess payment to Eddy

180,000 160,000 20,000

Fox Capital before retirement Share inbalances excess payment to Eddy Capital balances after retirement

Grimm

96,000 (12,000)

64,000 (8,000)

84,000

56,000

5. B Solution: Eddy, capital Fox, capital Grimm, capital Investment of Hamm Total partnership capital after admission

160,000 96,000 64,000 140,000 460,000

Multiply by: Interest of Hamm Capital credit to Hamm

25% 115,000 15

 

Investment of Hamm Bonus to old partners

140,000 (25,000)

Eddy, capital (before admission) Share in bonus to old partners (25K x 50%)

160,000 12,500

E ddy, capita capitall (aft (after er adm admii s s ion)

172,500

6. C Solution:

Unadjusted capital balance Share in revaluation gain [(216K  – 180) x (20%; 20% & 50%)]

 A dj djus us ted c apital balance balance

Coll (20%)

 Madur o  Maduro (30%)

Prieto (50%)

Total

42,000

39,000

90,000

171,000

7,200 49,200

7,200 46,200

21,600 111,600

36,000 207,000

The entry to record the settlement of Coll’s interest is as follows:   July Coll, loan 9,000 Coll, Capital 49,200 Maduro, Capital (sh. in excess payment) (3K x 2/8)  750 Prieto, Capital (sh. in excess payment) (3K x 6/8)  2,250 Cash 61,200  Adjusted capital of Maduro before retirement 46,200 Share in excess payment to Coll (750) 1, 20x1

 A djus dj us ted c apital of Madur Maduro o after after retir r etirement ement

45,450 45, 450

7.

D (40K + 40K + 12K) = 92K fair value of net assets – assets  – [(5,000  [(5,000 x 2) x 1 = 10,000 aggregate par value of shares issued ] = 82,000 cred cr edit it to sha s hare re premium 

8.

C (1M + 300K profit profit –  – 200K  200K payment to Partner A) = 1.1M

9. A [(60,000 + 20,000) / 80%] x 20% = 20,000 20,000, unaffected 10. A [50,000 + (10,000 x 4/6)] = 56,667

16