AFAR First Monthly Assessment - First (Topic 1) - Part 1

1. A unique feature of partnerships (compared with publicly owned corporations) is that:

a. Limited liability with respect to damages arising from professional services
b. Greater allowable tax deductions for retirement plans
c. Ease of formation
d. Book value
2. Upon the formation of partnership, in the absence of _______, the asset should be valued at
________. Use the ______ of assets if two valuation cannot be used.
a. Book value, agreed value, fair market value
b. Agreed value, fair market value, book value
c. Agreed value, book value, fair market value
d. Fair market value, book value, agreed value
3. Which of the following statements concerning the formation of partnership business is correct?
a. Philippine Financial Reporting Standards (PFRS) allows recognition of goodwill arising from the
formation of partnership.

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b. The juridical personality of the partnership arises from the issuance of certification of
registration.
c. The parties may become partners only upon contribution of money or property but not of
industry or service.
d. The capital to be credited to each partner upon formation may not be the amount actually

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contributed by each partner.
4. ZY Partnership was formed on March 1 with the following asset contributed by partners Zen and Yu:
Yu R Zen
Cash ₱ 262,500 ₱ 187,500
Merchandise 412,500
Building 750,000
Furniture and fixtures - 112,500
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The partnership agreement provides for the following:

1. The partnership assumed the ₱225,000 mortgage on the building.
2. Zen and Yu shall share profits or losses 1:3, respectively.
3. Zen and Yu shall have initially equal capital. No unidentifiable asset is to be recognized.
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Yu’s capital would be:

a. ₱1,500,000
b. ₱750,000
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c. ₱862,500
d. ₱543,750
5. Allan, Bobby and Castor decided to form ABC Partnership. It was agreed that Allan will contribute
an equipment with assessed value of ₱100,000 with historical cost of ₱800,000 and accumulated
depreciation of ₱600,000. Allan day after the partnership formation, the equipment was sold for
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₱300,000.
Bobby will contribute a land and building with carrying of ₱1,200,000 and fair value of ₱1,500,000.
The land and building are subject to a mortgage payable amounting to ₱300,000 to be assumed by
the partnership. The partners agreed that Bobby will have 60% capital interest in the partnership.
The partners also agreed that Castor will contribute sufficient cash to the partnership.
What is the total agreed capitalization of the ABC Partnership?
a. ₱3,000,000
b. ₱2,500,000
c. ₱2,000,000
d. ₱1,500,000
6. Allan, Bobby and Castor decided to form ABC Partnership. It was agreed that Allan will contribute
an equipment with assessed value of ₱100,000 with historical cost of ₱800,000 and accumulated
depreciation of ₱600,000. Allan day after the partnership formation, the equipment was sold for
₱300,000.
 Bobby will contribute a land and building with carrying of ₱1,200,000 and fair value of ₱1,500,000.
The land and building are subject to a mortgage payable amounting to ₱300,000 to be assumed by
the partnership. The partners agreed that Bobby will have 60% capital interest in the partnership.
The partners also agreed that Castor will contribute sufficient cash to the partnership.
What is the cash to be contributed by Castor in the ABC Partnership?
a. ₱800,000
b. ₱700,000
c. ₱600,000
d. ₱500,000
7. On March 1, PBA and NBA decides to combine their businesses and form a partnership. their
statements of financial position on March 1 before adjustments, showed the following:
PBA NBA
Cash ₱ 9,000 ₱ 3, 750
Accounts receivable 18,500 13,500
Inventories 30,000 19,500
Furniture and fixtures (net) 30,000 9,000

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Office equipment (net) 11,500 2,750
Prepaid expenses 6,375 3,000
Total ₱105,375 ₱ 51,500

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Accounts payable ₱ 45,750 ₱ 18,000

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Capital 59,625 33,500
Total ₱105,375 ₱ 51,500
They agreed to have the following items recorded in their books:
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1. Provide a 2% allowance for doubtful accounts.
2. PBA’s furniture and fixtures should be ₱31,000, while NBA’s office equipment is under-
depreciated by ₱250.
3. Rent expense incurred previously by PBA was not yet recorded amounting to ₱1,000, while
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salary expense incurred by NBA was not also recorded amounting to ₱800.
4. The fair market value of inventory amounted to:
For PBA …………………………………………………………… ₱29,500
For NBA………………………………………………………….. 21,000
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Compute the net (debit) credit adjustment for PBA and NBA:
PBA NBA
a. ₱2,870 ₱2,820
b. (2,870) (2,820)
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c. ₱(870) ₱180
d. 870 (180)
8. Helena and Indiana formed a partnership by contributing ₱250,000 and ₱350,000 cash. They agreed
to share profits equally but to share capital 40:60, respectively.
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If assets are undervalued, compute the capital balances of Helena and Indiana?
a. ₱350,000; ₱350,000
b. ₱250,000; ₱375,000
c. ₱250,000; ₱250,000
d. ₱240,000; ₱360,000
9. If the partnership agreement does not specify how income is to be allocated, profits should be
allocated
a. Equally.
b. In proportion to the weighted average of capital invested during the period.
c. Equitably so that partners are compensated for the time and effort expended on behalf of the
partnership
d. In accordance with their original capital.
10. The fact that salaries paid to partners are not a component of partnership income is indicative of
a. A departure from generally accepted accounting principles
b. Being characteristic of the entity theory
 c. Being characteristic of the proprietary theory
d. Why partnerships are characterized by unlimited liability
11. Which of the following transactions will not affect the capital balance partner?
a. Share of a partner in the partnership's net loss.
b. Receipt of bonus by a partner from another partner based on the agreement.
c. Advances made by the partnership to a partner.
d. Additional investment by a partner to the partnership.
12. Munda and Rexy are partners sharing profits as follows:
a) ₱100,000 and ₱200,000 salaries to Munda and Rexy, respectively. The salary provision shall be
increased by 50% each when profit exceeds ₱500,000.
b) Residual profit is shared equally.
Munda received ₱150,000 profit sharing. What is the partnership profit?
a. ₱450,000
b. ₱400,000
c. ₱500,000
d. ₱300,000

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13. A, B, and C are partners with average capital balances during 20X1 of ₱472,500, ₱238,650, and
₱162,350, respectively. In 20X1, the partnership had a net loss of ₱125,624 before the interest and
salaries to partners.
Partners A, B and C agreed to share profits in the following order of distribution:

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a) 10% interest on their average capital balances

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b) Salaries of ₱122,325 to A and ₱82,625 to C
c) Residual profits or loss is divided equally.
By what amount should A’s and C’s capital account change – increase (decrease)?
A C
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a. ₱ 30,267 (₱40,448) c.(₱ 40,844) ₱31,325
b. ₱ 29,476 ₱ 17,536 d. (₱41,875) (₱41,875)
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14. On January 1, 20X1, Harikrishna, Ivanchuk, and Jobava formed HIJ Partnership with original capital
contribution of ₱300,000, ₱500,000 and ₱200,000. Harikrishna is appointed managing partner.
During 20X1, Harikrishna, Ivanchuk and Jobava made additional investments of ₱500,000, ₱200,000
and ₱300,000, respectively. At the end 20X1, Harikrishna, Ivanchuk and Jobava made drawings of
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₱200,000, ₱100,000 and ₱400,000, respectively. At the end of 20X1, the capital balance of Jobava
is reported at ₱320,000. The profit or loss agreement of the partners is as follows:
a) 10% interest on original capital contribution of the partners.
b) Quarterly salary of ₱40,000 and ₱10,000 for Harikrishna and Ivanchuk, respectively.
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c) Bonus to Harikrishna equivalent to 20% of Net Income after interest and salary to all partners.
d) Remainder is to be distributed equally among the partners.
What is the partnership profit for the year ended December 31, 20X1?
a. ₱900,000
b. ₱1,020,000
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c. ₱1,050,000
d. ₱960,000
15. Motivational and Rice are partners in merchandising business. During 20X1, they withdrew their
salary allowances of ₱40,000 and ₱60,000, respectively. Profits and losses are shared in the ratio
of 3:2. The income summary account has a credit balance of ₱120,000 before any income allocation.
Their capital accounts reflect the following:
Motivational Rice
Beginning balance………………………………………. ₱50,000 ₱30,000
Additional investments………………………………….. ₱30,000 ₱40,000
Withdrawals other than for salary allowances……... (₱10,000) (₱15,000)
Ending Capital……………………………………………. ₱70,000 ₱55,000
The capital balance of each partner on December 31, 20X1 after closing the income summary and
withdrawals accounts.
a. Motivational, ₱82,000; Rice, ₱63,000 c. Motivational, ₱70,000; Rice, ₱55,000
 b. Motivational, ₱122,000; Rice, ₱123,000 d. Motivational, ₱82,000; Rice, ₱123,000
16. On January 1, 20x1, Firouzja and Grischuk formed FG Partnership and the articles of co-partnership
provides that profit or loss shall be distributed accordingly:
• 10% interest on average capital balance.
• ₱150,000 and ₱300,000 quarterly salary for Firouzja and Grischuk, respectively.
• The remainder shall be distributed in the ratio of 3:2 for Firouzja and Grischuk, respectively.
The following transactions regarding the capital balance of the partners year 20x1 are provided:
Firouzja Grischuk
Capital Capital
January 1, 20x1 investment ₱3,000,000 ₱1,500,000
March 31, 20x1 investment 300,000
July 1, 20x1 withdrawal (600,000)
September 30, 20x1 withdrawal (600,000)
October 1, 20x1 investment 2,100,000
The chief accountant of the partnership reported net income of ₱3,000,000 for year 20x1.

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What is the capital balance of Firouzja on December 31, 20x1?
a. ₱5,854,500
b. ₱4,354,500
c. ₱6,454,500
d. ₱3,754,500

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17. Which of the following will not result in dissolution of a partnership?
a. Incapacity of a partner
b. Negative capital balance of a partner
c. Bankruptcy of a partner
d. Admission of a new partner
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18. Which of the following will not result to the dissolution of a partnership?
a. Insolvency of the partnership
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b. Admission of a new partner in an existing partnership

c. Assignment of an existing partner's interest to a third person
d. Retirement of a partner
19. If a bonus is traceable to the previous partners rather than an incoming partner, it is allocated
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among the partners according to the:

a. Profit-sharing percentages of the previous partnership.
b. Profit-sharing percentages of the new partnership.
c. Capital percentages of the previous partners.
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d. Capital percentages of the new partnership.

20. MacDo will invest in the partnership of Jabili and Pitsa Hat for a 40% interest. Jabili and Pitsa Hat
have capital of ₱400,000 and ₱300,000 and shares profit 60:40, respectively. MacDo is to invest
₱200,000 into the partnership and to purchase 1/2 of Jabili’s interest for ₱300,000. Compute the
capital interest of MacDo, Jabili and Pitsa Hat, respectively, under the bonus method.
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a. ₱500,000, ₱200,000; ₱200,000

b. ₱360,000, ₱224,000; ₱316,000
c. ₱400,000, ₱200,000; ₱200,000
d. ₱200,000, ₱200,000; ₱200,000
21. The capital accounts of the partnership of Newton, Sharman and Jackson on June 1 are presented,
along with their profit and loss ratios:
Newton ₱ 139,200 1/2
Sharman 208,800 1/3
Jackson 96,000 1/6
On that date, Sidney was admitted to the partnership when he purchased for ₱132,000, a
proportionate interest from Newton and Sharman in the net assets and profits of the partnership.
As a result of this transaction, Sidney acquired a one-fifth interest in the net assets and profits of
the firm.
 Assuming that implied goodwill is not to be recorded, what is the combined gain realized by Newton
and Sharman upon the sale of a portion of their interest in the partnership to Sidney?
a. ₱0
b. ₱43,200
c. ₱62,400
d. ₱82,000
22. Assuming the capital ratio of a partner is 25% but his share in the profit or loss is 30%. In a
partnership formation or dissolution and the partner is given the choice between goodwill and bonus
methods, the partner will
a. Prefer bonus method due to a gain
b. Prefer bonus method due to a loss
c. Prefer goodwill method due to a gain
d. Prefer goodwill method due to a loss
23. The statement of financial position as of September 30, 20X1, for the partnership of Darrella,
Estoque and Francine shows the following information:
Assets ₱180,000 Darrella, loan ₱ 10,000

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Darrella, capital 41,500
Estoque, capital 38,500
. Francine, capital 90,000
Total ₱180,000 Total ₱180,000

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It was agreed among the partners that Darrella retires from the partnership, and it was also further

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agreed that the assets should be adjusted to their fair value of ₱172,500 as of September 30, 20X1.
Net loss prior to the retirement of Darrella amounted to ₱35,000. The partnership is to pay Darrella
₱31,000 cash for Darrella’s partnership interest, which would include the payment of her loan. No
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goodwill is to be recorded. Darrella, Estoque and Francine share profit 40%, 15% and 45%,
respectively. After Darrella’s retirement, how much would Francine’s capital balance be?
a. ₱33,000
b. ₱73,500
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c. ₱68,250
d. ₱92,625
24. On December 31, 20x1, the unadjusted Statement of Financial Position of Lord Partnership shows
the following data with profit or loss sharing agreement of 2:3:5:
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Current Assets ₱3,000,000 Total Liabilities ₱120,000,000

Wilma, Capital 30,000,000
Yasmin, Capital 60,000,000
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Zoraida, Capital 90,000,000

On December 31, 20x1, Wilma decided to retire from the partnership. However, before the
distribution of cash to Wilma, the following data errors were discovered during the pre-retirement
audit:
• During 20x1, the property, plant and equipment has not been subject to revaluation surplus by
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₱45,000,000.
• The 20x1 net income is overstated by ₱15,000,000.
After the adjustment, Wilma received retirement pay of ₱45,000,000 for his capital interest.
What is the capital balance of F after the retirement of Wilma?
a. ₱69,000,000
b. ₱63,000,000
c. ₱56,625,000
d. ₱65,625,000
25. What is the nature of liability of general partners as to partnership debts or obligations?
a. They are liable equally up to the extent of their separate assets after the partnership assets are
exhausted.
b. They are liable pro-rata up to the extent of their separate assets after the partnership assets
are exhausted.
c. They are liable pro-rata up to the extent of their capital contribution only.
d. They are liable solidarily up to the extent of their separate assets after the partnership assets
are exhausted.

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