SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS

BUSINESS AND MANAGEMENT

COURSE MATERIAL NO. 2 PARTNERSHIP OPERATIONS

Rules for the Distribution of Profit and Losses

The losses and profits shall be distributed in conformity with the agreement. If only the share of
each partner in the profits has been agreed upon, the share of each in the losses shall be in the
same proportion.

In the absence of a stipulation, the share of each partner in the profits and losses shall be in
proportion to what he may have contributed, but the industrial partner shall not be liable for the
losses. As for profits, the industrial partner shall receive such share as may be just and equitable
under the circumstances. If, besides his service he has contributed capital, he shall also receive a
share in the profits in proportion to his capital. (Article 1797)

A stipulation which excludes one or more partners from any share in the profits or losses is void.
(Article 1799)

The summary of the above provision of the Civil Code is as follows:

A. As to Capitalist Partner

Distribution of Profits
1. Profits shall be divided according to the partners’ agreement.
2. If there is no agreement, the profits shall be based in proportion to their capital
contribution.

Distribution of Losses
1. Loses shall be distributed according to the partners’ agreement.
2. If there is no agreement as to distribution of losses, but there is an agreement as to
profits, the losses shall be distributed according to the profit sharing ratio.
3. In the absence of agreement, the loses shall be based in proportion to their capital
contribution.

B. As to Industrial Partner

Distribution of Profits
1. Profits shall be divided according to the partners’ agreement.
2. If there is no agreement, industrial partner receives a just and equitable under the
circumstances. Industrial partner shall receive such share, which may be satisfied first
before the capitalist partners divide the profits.

Note: The partners shall determine what equitable share of the industrial partner is. However, in
case the parties cannot agree on what is just and equitable share, the court will determine the just
and equitable share of the industrial partner.

Distribution of Losses
1. Losses shall be distributed according to the partners’ agreement.
2. In the absence of agreement, industrial partner is not liable for losses.
The partners may agree with any of the following schemes of distribution of profits and losses:
1. Equally
2. Arbitrary ratio
3. Capital Ratio
a. Original Capital
b. Beginning Capital
c. Ending Capital
d. Average Capital
I. Simple Average
II. Weighted Average (Peso-Month/Peso-Day Average capital)
4. Salary Allowance and the balance on the agreed ratio
5. Interest Allowance and the balance on the agreed ratio
6. Bonus to managing partner and the balance on the agreed ratio
7. Order of priority distribution schemes if profits are not sufficient to cover the salary and
interest allowances.

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

FOR EQUITY OF DISTRIBUTION OF NET INCOME ALLOWANCES ARE GIVEN

a. Salary Allowance – it is given to recognize the time rendered by the partners to the entity.
b. Interest Allowance -nit is given to recognize the difference in the capital contributed to
the partnership.
c. Bonus Allowance – it is given if the partnership realized a profit to give recognition to the
managerial skills of the partner.

Permanent vs Temporary Withdrawals

A. Permanent (Capital Withdrawals) – it affects the computation of average capital. It is a
withdrawal against the invested capital.
B. Temporary (Personal Withdrawals) – it does not affect the computation of average capital. It
is a withdrawal in anticipation of profit.

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

PRACTICE PROBLEMS

PROBLEM 1

On June 30, Yu and Bugante formed a partnership. The partners agreed to invest equal amounts of
capital. Yu invested his proprietorship’s assets and liabilities as follows:

Yu’s
Book Value Market Value
Accounts Receivable 72,000 72,000
Allowance for Uncollectible Accounts - 10,500
Merchandise Inventory 223,400 241,000
Prepaid Expenses 17,000 17,000
Office Equipment 459,000 276,000
Accumulated Depreciation 153,000 -
Accounts Payable 191,000 191,000

On June 30, Bugante invested cash in an amount equal to the current market value of Yu’s partnership
capital. Yu, the managing partner, would earn two-thirds of partnership profits. Bugante agreed to
accept one-third of the profits.

During the remainder of the year, the partnership earned P450,000. The temporary withdrawals of Yu
and Bugante were P352,000 and P230,000, respectively.

Requirement:
1. Journalize the partners’ initial investments in a new set of books.
2. Prepare the partnership’s statement of financial position immediately after its formation on
June 30.
3. Journalize the entries to close the income summary and the drawing accounts.

JOURNAL ENTRIES:

Accounts Receivable ?
Merchandise Inventory ?
Prepaid Expenses ?
Office Equipment ?
Allowance for Doubtful Accounts ?
Accumulated Depreciation ?
Accounts Payable ?
Yu, Capital ?
#to record investment of Yu to the
Partnership

Cash ?
Bugante, Capital ?
#to record investment of Bugante

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

Yu and Bugante
Statement of Financial Position
June 30, 2023

Assets

Cash ?
Accounts Receivable 72,000
Allowance for Doubtful Accounts ? ?
Merchandise Inventory ?
Prepaid Expenses ?
Office Equipment ?
Less: Accumulated Depreciation - ? ?
Total Assets 1,000,000

Liabilities and Capital

Accounts Payable ?
Yu, Capital 404,500
Bugante, Capital 404,500
Total Liabilities and Capital 1,000,000

Income Summary ?
Yu, Capital ?
Bugante, Capital ?
#to close income summary accounts to
capital accounts

Yu, Capital ?
Bugante, Capital ?
Yu, Drawing ?
Bugante, Drawing ?
#to close drawing accounts

PROBLEM 2

Anatalio and Guzon entered into a partnership on Mar 1, 2023, by investing P125,000 and P75,000,
respectively. They agreed that Anatalio, as the managing partner, is to receive a salary of P30,000
per year and a bonus computed at 10% of the profit after salaries; the balance of the profit is to
be distributed in the ratio of their original capital contributions. On Dec. 1, 2023, the account
balances were as follows:

Cash 70,000
Accounts Receivable 67,000
Furniture and Fixtures 45,000
Sales Returns 5,000
Purchases 196,000
Operating Expenses 60,000
Accounts Payable 60,000
Sales 233,000
Anatalio, Capital 125,000
Guzon, Capital 75,000
Anatalio, Drawing 20,000
Guzon, Drawing 30,000

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

Inventories on Dec. 31, 2023 were as follows: supplies, P25,000; merchandise, P73,000. Prepaid
insurance was P950 while accrued expenses were P1,550. Depreciation rate was 20% per year.

Required:

1. Prepare the statement of recognized income and expenses and distribute the profit.
2. Compute for the partners’ ending capital balances.

Anatalio and Guzon

Statement of Income and Expenses
December 31, 2023

Sales ?
Less: Sales Returns ?
Net Sales 228,000.00
Less: Costs of Goods Sold:
Purchases ?
Less: Ending Inventory ? ?
Gross Margin 107,500.00
Less: Operating Expenses:
Operating Expenses ?
Accrued Expenses ?
Depreciation ? ?
Net Income distributable to Partners 38,450.00

Income Summary ?
Anatalio, Capital 33,910.00
Guzon, Capital 4,540.00
#to distribute income to partners' capital

Anatalio Guzon Total

Salary to Anatalio ? ? ?
10% Bonus to Anatalio after salaries
[(P38,450-P25,000)x10%] ? ? ?
Balance to be divided based on original capital balances
[(P38,450-P25,000-P1,345) = P12,105]
Anatalio [P12,105 x (P125,000/P200,000)] ? ?
Guzon [P12,105 x (P75,000/P200,000)] ? ?
Share of Partners in Profits ? ? ?

Anatalio Guzon Total

Beginning Capital Balances ? ? ?
Share of Partners in Profits ? ? ?
Withdrawals ? ? ?
Ending Capital Balances 138,910.00 49,540.00 188,450.00

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

PROBLEM 3

Lerin and Digao established a general professional partnership by investing P200,000 and P350,000,
respectively.

a. Loss is P330,000 and the partners have no written partnership agreement.

b. Profit is P330,000 and the partnership agreement states that the partners share profits and
losses on the basis of their capital contributions.
c. Loss is P385,000 and the partnership agreement states that the partners share profits on the
basis of their capital contributions.
d. Profit is P625,000. The first P300,000 is shared on the basis of their capital contribution.
The next P225,000 is based on the partner’s service, with Lerin receiving 30% and Digao
receiving P70%. The remainder is shared equally.

Required:

1. Determine the partners; share in the profit or loss for each of the situations above.
2. Using the information in situation D, journalize the entries to close the (a) income and
summary and (b) partners’ drawing accounts assuming that during the year Lerin and Digao
withdraw cash of P310,000 and P250,000, respectively. Indicate the amount or decrease in each
partners’ capital balance, and the overall effect on the partnership capital.

200,000.00 350,000.00 550,000.00

a Lerin Digao Total
Balance to be divided based on original capital balances:
Lerin ? ? ?
Digao ? ? ?
? (120,000.00) (210,000.00) (330,000.00)

b 200,000.00 350,000.00 550,000.00

Lerin Digao Total
Balance to be divided based on original capital balances:
Lerin ? ? ?
Digao ? ? ?
? 120,000.00 210,000.00 330,000.00

c 200,000.00 350,000.00 550,000.00

Lerin Digao Total
Balance to be divided based on original capital balances:
Lerin ? ? ?
Digao ? ? ?
? (140,000.00) (245,000.00) (385,000.00)

Lerin Digao Total

P300,000 to be divided based on original capital
d balances:
Lerin ? ? ?
Digao ? ? ?
P225,000 to be divided based on 30%:70%:
Lerin ? ? ?
Diago ? ? ?
Balance to be divided equally:
?
Lerin ? ? ?
Digao ? ? ?
? 226,590.91 398,409.09 625,000.00

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

Income Summary ?
? ?
? ?
#to close income summary to partners' capital

? ?
? ?
Lerin, Drawings ?
Digao, Drawings ?

Lerin Digao Total

Beginning Capital Balances ? ? ?
Share of Partners in Profits ? ? ?
Withdrawals ? ? ?
? 116,590.91 498,409.09 615,000.00

PROBLEM 4

Caminade, Sagario and Garrido formed a commercial partnership on May 13, 2023. Caminade invested
P150,000; Sagario, P180,000 and Garrido, P270,000. Caminade will be the managing partner. Sagario
will work in the store half of his time while Garrido will be a silent partner.

a. Loss is P429,000 and the partners have no written partnership agreement.

b. Loss is P600,000. The articles of partnership states that partners Caminade, Sagario and
Garrido agreed that profits would be shared in the ratio of P40:25:35; respectively. The
agreement did not mention the manner of sharing of losses.
c. Profit is P920,000. The first P400,000 is shared on the basis of salary allowances, with
Caminade receiving P280,000 and Sagario receiving P120,000. The remainder is allocated on the
basis of their capital contributions.
d. Profit is P1,800,000. The first P750,000 is shared on the basis of their capital contributions;
and the next P360,000 is based on the service, with Caminade receiving P280,000 and Sagario
receiving P80,000. Any remainder is shared equally.

Required:

Determine the partners’ share in the profit or loss for each of the situations above.

150,000.00 180,000.00 270,000.00 600,000.00

a. Caminade Sagario Garido Total
Balance to be divided based on original capital
balances:
? ? ?
? ? ?
? ? ?
? (107,250.00) (128,700.00) (193,050.00) (429,000.00)

40% 25% 35% 100%

b Caminade Sagario Garido Total
Balance to be divided based on 40%:25%:35%
? ? ?
? ? ?
? ? ?
? (240,000.00) (150,000.00) (210,000.00) (600,000.00)

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

150,000.00 180,000.00 270,000.00 600,000.00

c Caminade Sagario Garido Total
? ? ? ? 400,000.00
Balance to be divided based on original capital balances:
?
? ? ?
? ? ?
? ? ?
? 130,000.00 156,000.00 234,000.00 520,000.00

d Caminade Sagario Garido Total

P750,000 to be divided based on their original capital
contributions:
? ? ?
? ? ?
? ? ?
P360,000 to be divided based on service provided:
? ? ?
? ? ?
? ? ?
Balance to be divided equally:
?
? ? ?
? ? ?
? ? ?
? 697,500.00 535,000.00 567,500.00 1,800,000.00

PROBLEM 5

A summary of changes in the capital accounts of the Razote, Ragasa and Dumbrique partnership for
2023, before closing, follows:

Razote Ragasa Dumbrique Total

Balance, Jan. 1, 2023 80,000 80,000 90,000 250,000
Investment, Apr. 1 20,000 20,000
Withdrawal, May 1 (15,000) (15,000)
Withdrawal, July 1 (10,000) (10,000)
Withdrawal, Sept. 1 (30,000) (30,000)
90,000 65,000 60,000 215,000

Required:

Determine the allocation of the 2023 profit to the partners under each of the following independent
assumptions:

1. Profit is P48,000 and profit is divided on the basis of average capital balances.
2. Profit is P50,000. Razote receives a bonus of 10% of the profit for managing the business,
and the balance to be divided on the basis of the beginning capital balances.
3. Loss is 35,000, each partners is allowed 10% interest on the beginning capital balances , and
the balance to be divided equally.

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Average
1 Computation of ACB - Razote Transactions Balances Months Balance
Beginning Balance, Jan 1 ? 80,000.00 ? ?
Investment, Apr 1 ? 100,000.00 ? ?
Withdrawal, July 1 ? 90,000.00 ? ?
? 90,000.00

Average
Computation of ACB - Ragasa Transactions Balances Months Balance
? ? ? ? ?
? ? ? ? ?
? 70,000.00

Average
Computation of ACB - Dumbrique Transactions Balances Months Balance
? ? ? ? ?
? ? ? ? ?
? 80,000.00

90,000.00 70,000.00 80,000.00 240,000.00

Razote Ragasa Dumbrique Total
Balance to be divided based on average capital
balances:
? ? ?
? ? ?
? ? ?
? 18,000.00 14,000.00 16,000.00 48,000.00

2 80,000.00 80,000.00 90,000.00 250,000.00

Razote Ragasa Dumbrique Total
? ? ?
Balance to be divided based on original capital
balances:
?
? ? ?
? ? ?
? ? ?
? 19,400.00 14,400.00 16,200.00 50,000.00

3 80,000.00 80,000.00 90,000.00 250,000.00

Razote Ragasa Dumbrique Total
? ? ? ? 25,000.00
Balance to be divided equally:
[(P(35,000)-P25,000) = P(60,000)]
Razote [P(60,000)/3] ? ?
Ragasa [P(60,000)/3] ? ?
Dumbrique [P(60,000)/3] ? ?
? (12,000.00) (12,000.00) (11,000.00) (35,000.00)

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

PROBLEM 6

Alegoria and Ramirez are partners in a bakery business. The activity in each partner’s capital account
for 2023 follows:

Alegoria, Capital Ramirez, Capital

200,000 Jan. 1 300,000 Jan. 1
80,000 Feb. 12 Mar. 23 50,000
May 25 40,000 July 10 50,000
70,000 Oct. 19 Sept. 30 50,000
Dec 10 20,000 180,000 Dec. 5
10,000 Dec 30 Dec. 30 230,000
300,000 Dec. 31 100,000 Dec. 31

The drawing account is not used. The profit for 2023 is P2,000,000.

Required:

Determine the partners’ share in the profit under each of the following assumptions:

1. Beginning capital balances.

2. Average capital balances. (Investments and withdrawals are assumed to have been made as of
the beginning of the month if made before the middle of the month, and assumed to have been
made as of the beginning of the following month if made after the middle of the month.)
3. Ending capital balances.
4. Bonus to Alegoria equal to 20% of the profit in excess of P1,500,000, balances to be divided
equally.
5. Salary allowances of P450,000 and P350,000 to Alegoria and Ramirez, respectively; interest on
average capital balances imputed at 10% balance to be divided equally. (Investments and
withdrawals are treated as in requirement #2.)

200,000.00 300,000.00 500,000.00

Alegoria Ramirez Total
1 Balance to be divided based on beginning capital balances:
? ? ?
? ? ?
? 800,000.00 1,200,000.00 2,000,000.00

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

2 Computation of ACB - Alegoria Transactions Balances Months Average Balance

Beginning Balance, Jan 1 ? ? ? ?
? ? ? ? ?
? ? ? ? ?
? ? ? ? ?
? ? ? ? ?
? ? ? ? ?
? 260,000.00

Computation of ACB - Ramirez Transactions Balances Months Average Balance

Beginning Balance, Jan 1 ? ? ? ?
? ? ? ? ?
? ? ? ? ?
? ? ? ? ?
? ? ? ? ?
? ? ? ? ?
? 360,000.00

Alegoria Ramirez Total

Balance to be divided based on average capital
balances:
? ? ?
? ? ?
? 838,710.00 1,161,290.00 2,000,000.00

300,000.00 100,000.00 400,000.00

Alegoria Ramirez Total
Balance to be divided based on beginning capital
3 balances:
? ? ?
? ? ?
? 1,500,000.00 500,000.00 2,000,000.00

Alegoria Ramirez Total

4 ? ? ?
Balance to be divided based equally:
?
? ? ?
? ? ?
? 1,200,000.00 800,000.00 2,000,000.00

260,000.00 360,000.00 620,000.00

Alegoria Ramirez Total
5 ? ? ? ?
? ? ? ?
Balance to be divided based equally:
?
? ? ?
? ? ?
? 1,045,000.00 955,000.00 2,000,000.00

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

PROBLEM 7

Liboro, Baluran, and Palatino formed a paernership on Jan. 1, 2023 with capital contributions of
P300,000, P500,000, and P200,000, respectively. For the year ended Dec. 31,2023, the partnership
reported profit of P450,000.

Required:

Determine the partners’ share in the profit under each of the following independent situations and
prepare the entry to record the profit allocation to individual capital accounts:

1. Profit is allocated on the basis of the initial capital contributions.

2. Each partner is allocated an interest of 7% on initial capital contributions and the remainder
is divided among Liboro, Baluran, and Palatino in the 4:3:1, respectively.
3. Salaries of P50,000, P40,000 and P30,000 are given to LIboro, Baluran and Palatino,
respectively; 5% interest on initial capital contributions, and any remainder is divided in
the ratio 4:3:1, respectively.
4. Salaries of P30,000, P45,000 and P65,000 are given to Liboro, Baluran, and Palatino,
respectively; 5% interest on initial capital contributions; bonus to Liboro of 8% of profit
aster deducting bonus but before deducting salaries and interest; and any remainder divided
equally.

300,000.00 500,000.00 200,000.00 1,000,000.00

Liboro Baluran Palatino Total
1 Balance to be divided based on beginning capital balances:
? ? ?
? ? ?
? ? ?
? 135,000.00 225,000.00 90,000.00 450,000.00

? ?
? ?
? ?
? ?
#to record distribution of net income to partners' capital balances

4 3 1 8
2 300,000.00 500,000.00 200,000.00 1,000,000.00
Liboro Baluran Palatino Total
? ? ? ? 70,000.00
Balance to be divided based on beginning capital
balances:
?
? ? ?
? ? ?
? ? ?
? 211,000.00 177,500.00 61,500.00 450,000.00

? ?
? ?
? ?
? ?
#to record distribution of net income to partners' capital balances

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
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4 3 1 8
3 300,000.00 500,000.00 200,000.00 1,000,000.00
Liboro Baluran Palatino Total
? ? ? ? ?
? ? ? ? ?
Balance to be divided based on beginning capital balances:
?
? ? ?
? ? ?
? ? ?
Share of Partners in Profits 205,000.00 170,000.00 75,000.00 450,000.00

? ?
? ?
? ?
? ?
#to record distribution of net income to partners'
capital balances

300,000.00 500,000.00 200,000.00 1,000,000.00

4 Liboro Baluran Palatino Total
? ? ? ? ?
? ? ? ? ?
?
[(P450,000/1.08) x .08] ? ?
Balance to be divided based on beginning capital balances:
?
? ? ?
? ? ?
? ? ?
Share of Partners in Profits 153,888.89 145,555.56 150,555.56 450,000.00

? ?
? ?
? ?
? ?
#to record distribution of net income to partners'
capital balances

PROBLEM 8

Activity in the capital accounts of the partners of Bio and Bisares for the year ended Dec 31, 2023,
follows:

Bio, Capital Bisares, Capital

Balances, Jan. 1 400,000 800,000
Investment, July 1 200,000
Withdrawal, Oct 1 400,000

Profit for the year ended Dec. 31, 2023, amounted to P480,000.

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
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Required:

Prepare the profit distribution schedule under each of the following assumptions:

1. The partnership contract is silent as to sharing of profit or loss.

2. Profit or loss is divided on the basis of average capital account balances (not including the
profit or loss or the current year.)
3. Profit or loss is divided on the basis of beginning capital account balance.
4. Profit or loss is divided on the basis of ending capital account balances (not including the
profit or loss for the current year.)

400,000.00 800,000.00 1,200,000.00

Bio Bisares Total
Balance to be divided based on beginning capital
1 balances:
? ? ?
? ? ?
Share of Partners in Profits 160,000.00 320,000.00 480,000.00

Average
2 Computation of ACB - Bio Transactions Balances Months Balance
? ? ? ? ?
? ? ? ? ?
? 500,000.00

Computation of ACB - Bisares Transactions Balances Months Average Balance

? ? ? ? ?
? ? ? ? ?
? 700,000.00

500,000.00 700,000.00 1,200,000.00

Bio Bisares Total
Balance to be divided based on average capital
balances:
? ? ?
? ? ?
Share of Partners in Profits 200,000.00 280,000.00 480,000.00

3 400,000.00 800,000.00 1,200,000.00

Bio Bisares Total
Balance to be divided based on beginning capital
balances:
? ? ?
? ? ?
Share of Partners in Profits 160,000.00 320,000.00 480,000.00

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4 600,000.00 400,000.00 1,000,000.00

Bio Bisares Total
Balance to be divided based on ending capital balances:
? ? ?
? ? ?
Share of Partners in Profits 288,000.00 192,000.00 480,000.00

PROBLEM 9

The partnership contract of Eje, Basilio and Dela Torre provided the distribution of the profit or
loss in the following manner:

1. Bonus of 25% of profit before the bonus of Eje.

2. Interest at 15% on average capital account balances to each partner.
3. Residual profits or losses are divided equally.

Profit of Eje, Basilio and Dela Torre for 2023 was P900,000, and the average capital account balances
for the year were Eje, P1,000,000’ Basilio, P2,0000,000; and Dela Toree, P3,000,000.

Required:

Prepare the profit distribution schedule.

Average Capital Balances: 1,000,000.00 2,000,000.00 3,000,000.00 6,000,000.00

Eje Basilio Dela Torre Total
? ? ?
? ? ? ? ?
Balance to be divided equally:
?
? ? ?
? ? ?
? ? ?
? 300,000.00 225,000.00 375,000.00 900,000.00

PROBLEM 10

Perez, Daganta and Barros established a business partnership. The agreement provided for the following:

a. Profits or losses shall be divided in the ratio of 1:1:1 after allowing for 10% interest on
the average capital balances.
b. Salaries of P37,500, P67,500 and P22,500, respectively.
c. Bonus to Barros of 5% profits after salaries and interest allowances.

Average capital balances for 2023 are: Perez, P300,000; Daganta, P225,000 and Barros P450,000.

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
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Required:

Prepare a schedule for the distribution of profit under each of the following levels of profits or
losses:

1. P270,000 profit
2. P225,000 profit
3. P45,000 loss

1 Average Capital Balances: 300,000.00 225,000.00 450,000.00 975,000.00

Perez Daganta Barros Total
? ? ? ? ?
? ? ? ? ?
?
[(P270,000-P97,500-P127,500) x 5%] ? ?
Balance to be divided based on 1:1:1:
?
? ? ?
? ? ?
? ? ?
? 84,000.00 104,250.00 81,750.00 270,000.00

2 Average Capital Balances: 300,000.00 225,000.00 450,000.00 975,000.00

Perez Daganta Barros Total
? ? ? ? ?
? ? ? ? ?
? 67,500.00 90,000.00 67,500.00 225,000.00

3 Average Capital Balances: 300,000.00 225,000.00 450,000.00 975,000.00

Perez Daganta Barros Total
? ? ? ? ?
? ? ? ? ?
Balance to be divided based on 1:1:1:
?
? ? ?
? ? ?
? ? ?
? (22,500.00) - (22,500.00) (45,000.00)

*Bonus is given to partner only if the results of the partnership

operations is favorable.

BAINTE5X | RCA CPA MBA 2023

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

PROBLEM 11

On Jan. 1, 2023, the Garcia, Pitular and Alfonso Partnership was formed with initial investments by
the partners as follows:

Garcia 2,000,000
Pitular 1,000,000
Alfonso 1,000,000

According to the partnership agreement, profit or loss is to be divided among the partners as follows:

1. Salaries of P120,000 for Garcia, P60,000 for Pitular and P60,000 for Alfonso.
2. Interest at 5% on the original capital balances.
3. The reminder to be divided among Garcia, Pitular, and Alfonso in a ratio of $;1:1,
respectively.

The partnership reported profit of P350,000 for the year ended Dec. 31, 2023.

Required:

Determine the partners’ share in the profit under each of the following in dependent situations:

1. Partners’ salaries and interest on capital balances should be fully allocated and any
deficiency between these allocations and profit is to be divided among Garcia, Pitular, and
Alfonso in the ratio $;1:1, respectively.
2. Partners’ salaries and interest on capital balances should be made only to the extent that
the profit can provide.

1 2,000,000.00 1,000,000.00 1,000,000.00 4,000,000.00

Garcia Pitular Alfonso Total
? ? ? ? 240,000.00
? ? ? ? 200,000.00
Balance to be divided based on 4:1:1:
[(P350,000-P240,000-P200,000) = P(90,000)]
? ? ?
? ? ?
? ? ?
? 160,000.00 95,000.00 95,000.00 350,000.00

2 2,000,000.00 1,000,000.00 1,000,000.00 4,000,000.00

Garcia Pitular Alfonso Total
? ? ? ? 240,000.00
? ? ? ? 200,000.00
Subtotal 220,000.00 110,000.00 110,000.00 440,000.00
Allocation Ratio 0.50 0.25 0.25 1.00
Balance to be divided based on 4:1:1:
? ? ?
? ? ?
? ? ?
? 175,000.00 87,500.00 87,500.00 790,001.00

BAINTE5X | RCA CPA MBA 2023

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

PROBLEM 12

Arguelles, Cabulay, and Palma was formed on Jan. 2, 2023. The original cast investments were as
follows:

Arguelles 960,000
Cabulay 1,440,000
Palma 2,160,000

According to the partnership contract, the partners were to be renumerated as follows:

a. Salaries of 144,000 for Arguelles, P120,000 for Cabulay, and P136,000 for Palma.
b. Interest at 12% on the average capital account balances during the year.
c. Remainder divided 40% to Arguelles, 30% to Cabulay, and 30% to Palma.

Profit for the year ended Dec. 31, 2023, was P920,800. Arguelles invested an additional P240,000 in
the partnership on Kuly 1. Palma withdrew P360,000 from the partnership on Oct. 1.

Required:

1. Prepare the profit distribution schedule.

2. Prepare the statemen of changes in partners’ equity.

Average
1 Computation of ACB - Arguelles Transactions Balances Months Balance
? ? ? ? ?
? ? ? ? ?
? 1,080,000.00

Average
Computation of ACB - Cabulay Transactions Balances Months Balance
? ? ? ? ?
? 1,440,000.00

Average
Computation of ACB - Palma Transactions Balances Months Balance
? ? ? ? ?
? ? ? ? ?
? 2,070,000.00

Profits or Loss Sharing Ratio 40% 30% 30%

Average Capital Balances ? ? ? ?
Arguelles Cabulay Palma Total
? ? ? ? 400,000.00
? ? ? ? 550,800.00
Balance to be divided based on 40%:30%:30%
?
? ? ?
? ? ?
? ? ?
? 261,600.00 283,800.00 375,400.00 920,800.00

BAINTE5X | RCA CPA MBA 2023

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 SCHOOL OF ACCOUNTANCY, ACCOUNTING FOR SPECIAL TRANSACTIONS
BUSINESS AND MANAGEMENT

2 Arguelles, Cabulay and Palma Partnership

Statement of Changes in Partners' Equity
For the period ended December 31, 2023

Arguelles Cabulay Palma Total

Partners' Beginning Capital Balances ? ? ? ?
Add: Partners' Share in Profit/Net Income ? ? ? ?
Additional Investments during the period ? ? ? ?
Total ? ? ? ?
Less: Capital Withdrawals during the period ? ? ? ?
Partners' Ending Capital Balances 1,461,600.00 1,723,800.00 2,175,400.00 5,360,800.00

***END***

BAINTE5X | RCA CPA MBA 2023

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