ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1

Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Lesson Title: Partnership Dissolution (Changes of Materials:

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Ownership Interest) Columnar notebook; calculator;

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textbook
Learning Targets:

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References:
At the end of the learning session:
Millan, Zeus Vernon B.; Accounting for
1. I can account the admission of new partners by purchase of Special Transactions; 2018 Edition;

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interest and by investment in the partnership. pp. 65-112

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2. I can record partnership dissolution through withdrawal,
Ballada, Winlu; Partnership and

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retirement or death of a partner.
Corporation Acctg
3. I can account the conversion of partnership into a corporation

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Productivity Tip:
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Create a plan to help you organize your time and keep track of your daily tasks. You'll be more effective
and feel in control of your day. Scheduling breaks is also helpful. Consider separating study subjects
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with breaks to help you focus.

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A. LESSON PREVIEW/REVIEW
1) Introduction (2 mins)
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Welcome to the class! For today’s lesson, you will learn on about the partnership’s dissolution. But before
that, let’s have a review first about the partnership’s operation topic.
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Instructions: Encircle the letter that corresponds to your answer to each questions.
1. Statement 1. In the absence of a specific agreement, the law requires that partnership profits be divided equally
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amount the partners.

Statement 2. In the absence of stipulation, the share of each partner in profits or losses shall be in the same
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proportion to what he may have contributed, but industrial partner may not be liable for the losses.
Which of the statements above is true?
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a) Statement 1 b) Statement 2 c.) Both statements d) None of these

2. Partners Cherrymie and Josamel receive a salary of P150,000 and P300,000, respectively, and share profit and
losses in a 2:1 ratio, respectively. If the partnership suffered a P150,000 loss in 2019, by how much would
Cherrymie’s account decrease?
a) P400,000 b) P250,000 c) P200,000 d) P100,000
3. A partner has a capital balance of P400,000 for five months, P500,000 for four months, and P600,000 flor three
months. The average capital balance is
a) P483,333 b) P485,000 c) P491,680 d) P500,000
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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

“Check your answers against the Key to Corrections found at the end of this SAS. Write your score on your
paper.”

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2) Activity 1: What I Know Chart, part 1 (3 mins)

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Please write in the first column what you know about the questions in the second column. The third
column is left blank at this time.

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What I Know Questions: What I Learned (Activity 4)

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1. What is dissolution?

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2. What is the difference between

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dissolution and liquidation?
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3. What are the causes of the
partnership dissolution?
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B.MAIN LESSON
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Activity 2: Content Notes (13 mins)

Major considerations in accounting for partnership dissolutions” Dissolution is the change in the
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relation of the partners caused by

any partners being disassociated
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Admission of a partner from the business

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Purchase of interest in the

partnership
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Purchase of interest from one Purchase of interest from more Purchase of interest –
partner than one partner Revaluation of Assets

Investment in the partnership

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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Credit to capital equal to Credit to capital is less Credit to capital is greater

investment than investment than investment

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Amount of Investment

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Bonus method

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Correction of Errors

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Withdrawal, retirement or death of
a partner
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Withdrawal- Purchase of interest Retirement – Purchase of Retirement – Payment in
by remaining partners interest by partnership the form of Non-cash Asset
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Death of a Partner – Purchase of Withdrawal – Fully depreciated

interest by partnership asset
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Retirement of a Partner-
Personal account
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Settlement amount includes payment for loan Settlement of amount excludes payment for
loan
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Incorporation of a partnership
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Total par value and number of

Share premium Preference share
shares issued
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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Causes of partnership dissolution

1. Admission of a partner
2. Withdrawal, retirement or death of a partner

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3. Incorporation of a partnership

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Admission of partner

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• The admission of a new partner may be effected either through:
1. Purchase of interest in the partnership, or
2. Investment in the partnership

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Purchase of interest

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• A personal transaction between and among the partners

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• Any consideration paid or received is not recorded in the partnership books
• Only a transfer within equity is made to establish the capital account of the new partner and decrease
the capital account(s) of the selling partner(s).
• No gain or loss shall is recognized in the partnership books.
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Revaluation of assets
• When a partnership is dissolved but not liquidated, a new partnership is created. The assets and liabilities
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carried over to the new partnership are restated to fair values.

• Any adjustment to the assets and liabilities is allocated first to the existing partners before recording the
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admission of the new partner.

Investment in the partnership

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• The incoming partner invests directly to the partnership instead of purchasing interest from an existing
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partner(s).
• This is a transaction between the new partner and the partnership. Any consideration paid by the
incoming partner is recorded in the partnership books.
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• No gain or loss shall be recognized

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Withdrawal, retirement or death of a partner

• When a partner withdraws, retires or dies, his interest may be purchased (a) by one or all of the remaining
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partners or (b) by the partnership.

• The interest of the withdrawing, retiring, or deceased partner shall be adjusted for the following:
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a. his share of any profit or loss during the period up to the date of his withdrawal, retirement or
death; and
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b. his share of any revaluation gains or losses as at the date of his withdrawal, retirement, or
death.
• Purchase by one or all of the remaining partners
This is a transaction between and among the partners (or deceased partner’s estate). As such, the settlement
amount is not recorded in the books. The only entry to be made in the partnership books is a transfer within
equity.
• Settlement by the partnership
This is a transaction between the retiring or withdrawing partner (or deceased partner’s estate) and the
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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

partnership. As such, the settlement amount is recorded in the books.

Incorporation of a partnership

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• On date of incorporation:

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a. The partners’ capital balances are adjusted for their respective shares in any profit or loss and
revaluation gains or losses as at the date of incorporation. The adjusted capital balances may be

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used in determining the number of shares to be issued to each partner.
b. Normally, the books of the partnership are closed and new books are set-up for the corporation.

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Activity 3: Skill-building Activities

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Instruction: Answer what is asked in the following problems.

Admission of a new partner

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1. Carrot joins the partnership of Apple and Banana. The partnership’s statement of financial position before
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Carrot’s admission is as follows:
Cash 30,000 Accounts payable 80,000
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Accounts Receivable 140,000 Apple, Capital (60%) 515,000

Inventory 200,000 Banana, Capital (40%) 275,000
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Equipment 500,000 _______

Total Assets 870,000 Total liabilities and equity 870,000
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The following adjustments are determined:

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a. The recoverable amount of the accounts receivable is P120,000.

b. The inventory has a net realizable value of P160,000.
c. The equipment has a fair value of P450,000.
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d. Unrecorded liabilities amount to P20,000.

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Case 1: Purchase of interest from one partner

Carrot acquires half of Banana’s capital interest for P800,000.
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Requirements: Provide the entry and determine the capital balances and P/L ratio of the partners after Carrot’s
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admission.
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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Case 2: Purchase of interest from more than on partner

Carrot purchases 20% of Apple’s and Banana’s capital interests for P800,000.

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Requirements: Provide the entry and determine the capital balances of the partners after Carrot’s admission.

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Case 3: Amount of investment

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Carrot wants to invest for a 20% in the net assets and profits of the partnership.

Requirements: If no bonus is allowed, how much should Carrot invest, and what would be the new P/L ratio of

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the partners after Carrot’s admission? M
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Case 4: Investment in the partnership – Bonus to new partner

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Carrot invests P100,000 for a 20% interest in the net assets and profits of the partnership. No goodwill is
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recognized.
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Requirements: Provide the entry and compute for the capital balances of the partners after Carrot’s admission.
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Case 5: Investment in the partnership – Bonus to old partners

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Carrot invests P180,000 for a 20% interest in the net assets profits of the partnership. No goodwill is recognized/

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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Requirements: Provide the entry and compute for the capital balances of the partners after Carrot’s admission.

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Withdrawal, retirement or death of a partner

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2. Partners A, B and C had the following capital balances on Jan. 1, 20x1: A, Capital (50%) P320,000; B, Capital

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(30%) P 192,000; and C, Capital (20%) P128,000. Partner a decided to retire on Sept. 1, 20x1. The partnership
earned profit of P800,000 from Jan. 1 to Aug 31, 20x1 and the partners had the following capital withdrawals

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during the period: A, P40,000; B, P60,000; and C, P30,000.

Case 1: Purchase of interest by remaining partner

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Partner B purchases Partner A’s interest for P700,000. M
Requirements: Provide the entry and compute for the capital balances and P/L ratio of the partners after A’s
retirement.
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Case 2: Settlement of interest by partnership

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The partnership pays Partner A P700,000 for his interest.

Requirements: Provide the entry and compute for the capital balances and P/L ratio of the partners after A’s
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retirement.
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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Case 3: Settlement of interest by partnership

The partnership pays Partner A P650,000 for his capital.

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Requirements: Provide the entry and compute for the capital balances of the partners after A’s retirement.

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Incorporation of a Partnership
3. Use the information in Problem 2 above. However, instead of Partner A retiring, the partnership is converted

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into a corporation on Aug. 31, 20x1. The corporation issued 1,000 preference shares with par value of P200 per
share to each of the partners and even multiples of ordinary shares with par value of P50 per share for their
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remaining interests.
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Requirements: Compute for the number of shares issued to each of the partners.
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“Check your answers against the Key to Corrections found at the end of this SAS. Write your score on your
paper.”
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Activity 4: What I Know Chart, part 2 (2 mins)

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For this part, review the questions in the What I Know Chart from Activity 1 and write your answers to the
questions based on what you now know in the third column of the chart.
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Activity 5: Check for Understanding (Graded Quiz)

A, B and C are partners with the following P/L ratio and capital balances: A (60%) P100,000; B(30%) P60,000;
and C (10%) P20,000.

Case 1: D purchases one-half of A’s capital interest or P70,000. Provide the journal entry under the book value
method.

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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

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Case 2: D purchases 20% interest in the partnership from A, B and C for P60,000. Provide the journal entry
under the book value method and determine the capital balances of the partners after D’s admission.

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Case 3: D invests P70,000 cash for a 20% interest in the partnership’s net assets and profits. Provide the journal
entry and determine the capital balances and P/L ratio of the partners after D’s admission.
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Case 4: D wants t infuse capital to the partnership for a 10% interest in the net assets and profits. The partners
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determine that the net assets are fairly valued except for land carried at P365,000 but has a fair value of
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P410,000. If no bonus is to be given to any partner, how much is D’s required investment?
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Case 5: C withdraws from the partnership and sells his interest to B for P30,000. Provide the journal entry and
determine the capital balances and P/L ratio of the remaining partners after C’s withdrawal.
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Case 6: C retires and the partnership settles his interest for P32,000. Provide the journal entry and determine
the capital balances and P/L ratio of the remaining partners after C’s retirement.

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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

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Case 7 The partnership is converted into a corporation. The corporation issues 6,000, 3,000 and 1,000 ordinary
shares to A, B and C respectively. If the ordinary shares have par value of P10 per share, how much is the
resulting share premium?

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C. LESSON WRAP-UP
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1) Activity 6: Thinking about Learning (5 mins)
Congratulations! You are done with this lesson. Mark your place in the work tracker which will help you
track how much work you have accomplished and how much work there is left to do.
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How do you feel today?

I feel (unsatisfactory/satisfactory/excellent) because ______________________________________________
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What are your challenges in learning the concepts in this module? If you do not have challenges, what is your
best learning for today?
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________________________________________________________________________________________
________________________________________________________________________________________
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What are the questions/thoughts you want to share to your teacher today?
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________________________________________________________________________________________
________________________________________________________________________________________

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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

FAQs
1. What will partners do partnership is dissolved but they would still like to continue the business?
The business is continued after dissolution and a new articles of partnership should be drawn up.

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2. Is there any gain or loss if a partner is admitted through purchase of interest/

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No gain or loss is recognized in the partnership books. This transaction is personal between and among
the buyer and purchaser.

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3. What is the journal entry in the following scenario?
• Admission of a partner
Purchase of interest

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Dr. Selling partner’s capital
Cr. Incoming partner’s capital

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Investment in the partneship

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Dr. Asset Invested
Cr. Incoming partner’s capital
• Withdrawal, retirement or death of a partner
Purchase by remaining partners
Dr. Outgoing partner’s capital
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Cr. Purchasing partner’s capital
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Settlement by partnership
Dr. Outgoing partner’s capital
Cr. Payment made
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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

KEY TO CORRECTIONS
Pre-test
1. B 2. B 3. A

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Activity 3
1. Solutions:

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Case 1:

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Carrying amts. Fair values Increase (Decrease)
Cash 30,000 30,000 -

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Accounts receivable 140,000 120,000 (20,000)

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Inventory 200,000 160,000 (40,000)
Equipment 500,000 450,000 (50,000)
Accounts payable (80,000) (80,000) -

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Accrued liabilities (20,000) (20,000)
Net assets 790,000 660,000 (130,000)
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Apple Banana Carrot Total
Capital, beg. 515,000 275,000 790,000
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Revaluation decrease (78,000) (52,000) (130,000)

Adjusted, before admission 437,000 223,000 660,000
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Sale from Banana to Carrot (111,500) 111,500 -

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Capital after admission 437,000 111,500 111,500 660,000

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Date Banana, Capital (223,00 x 1/2) 111,500

Carrot, Capital (223,00 x 1/2) 111,500
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Partner Before admission Admission of Carrot After admission

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Apple 60% 60%

Banana 40% -20% 20%
Carrot 20% 20%
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100% 100%
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Case 2:

Date Apple, Capital (437K adj. cap. see above x 20%) 87,400
Banana, Capital (223K adj. cap. x 20%) 44,600
Carrot, Capital 132,000

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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Apple Banana Carrot Totals

Adjusted cap. 437,000 223,000 660,000

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(Debit) Credit (87,400) (44,600) 132,000 -
Capital, end. 349,600 178,400 132,000 660,000

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Case 3:

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Adjusted capital before admission 660,000
Divide by: (100% - 20%) 80%

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Grossed-up amount 825,000

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Multiply by: 20%

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Amount of investment 165,000

Partner Before admission Admission of Carrot After admission

A 60%
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(100% - 20%) x 60% 48%
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B 40% (100% - 20%) x 40% 32%
C 20% 20%
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100% 100%
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Case 4:
Adjusted net assets before admission 660,000
Investment of Carrot 100,000
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Net assets after admission 760,000

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Carrot's interest in net assets 20%

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Carrot’s capital credit 152,000

Investment of Carrot 100,000
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Bonus to Carrot 52,000

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Date Cash 100,000

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Apple, Capital (152K – 100K) x 60% 31,200

Banana, Capital (152K – 100K) x 40% 20,800
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Carrot, Capital (660K + 100K) x 20% 152,000

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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Apple Banana Carrot Total

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Adj. cap., before admission 437,000 223,000 660,000
Investment of Carrot 100,000 100,000

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Bonus to Carrot (31,200) (20,800) 52,000 -

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Capital, after admission 405,800 202,200 152,000 760,000

Case 5:

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Adjusted net assets before admission 660,000

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Investment of Carrot 180,000

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Net assets after admission 840,000
Carrot's interest in net assets 20%
Carrot’s capital credit 168,000
Investment of Carrot 180,000
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Bonus to Apple and Banana (12,000)
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Date Cash 180,000

Carrot, Capital (660K + 180K) x 20% 168,000
Apple, Capital (12K x 60%) 7,200
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Banana, Capital (12K x 40%) 4,800

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Apple Banana Carrot Total

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Adj. cap., before admission 437,000 223,000 660,000

Investment of Carrot 180,000 180,000
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Bonus to old partners 7,200 4,800 (12,000) -

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Capital, after admission 444,200 227,800 168,000 840,000

Solutions:
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Case 1:
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A B C Total
Capital - Jan. 1, 20x1 320,000 192,000 128,000 640,000
Profit 400,000 240,000 160,000 800,000
Drawings (40,000) (60,000) (30,000) (130,000)
Capital - before retirement 680,000 372,000 258,000 1,310,000

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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Sept. 1, A, Capital 680,000

20x1 B, Capital 680,000

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A B C Total

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Capital - before retirement 680,000 372,000 258,000 1,310,000

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Sale from A to B (680,000) 680,000 - -
Capital - after retirement - 1,052,000 258,000 1,310,000

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P/L ratio after A’s retirement:

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Partner Before retirement Retirement of A After retirement

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A 50% -50% -
B 30% 30% + 50% 80%
C 20% - 20%
100% 100%
Case 2:
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Sept. 1, A, Capital 680,000
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20x1 B, Capital (700K – 680K) x 30%/50% 12,000

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C, Capital (700K – 680K) x 20%/50% 8,000

Cash 700,000
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A B C Total
Capital - before retirement 680,000 372,000 258,000 1,310,000
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Payment to A (700,000) (700,000)

Bonus to A 20,000 (12,000) (8,000) -
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Capital - after retirement - 360,000 250,000 610,000

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Partner P/L ratio

A -
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B 30% / (30% + 20%) 60%

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C 20% / (30% + 20%) 40%

100%

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 ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#4 & 5

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Case 3:

Sept. 1, A, Capital 680,000

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20x1 Cash 650,000

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B, Capital (680K – 650K) x 30%/50% 18,000
C, Capital (680K – 650K) x 20%/50% 12,000

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to record the retirement of A from the partnership

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A B C Total

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Capital - before retirement 680,000 372,000 258,000 1,310,000
Payment to A (650,000) (650,000)

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Bonus to B and C (30,000) 18,000 12,000 -
Capital - after retirement - 390,000 270,000 660,000

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Solution:
A B C Total
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Adjusted capital (see #2 - 1,310,00
Case 1) 680,000 372,000 258,000 0
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(200,00 (200,00 (200,00 (600,000

Less: PS (1,000 x ₱200 par) 0) 0) 0) )
Remaining interest 480,000 172,000 58,000 710,000
Divide by: Par val. per OS 50 50 50 50
No. of ordinary sh. issued 9,600 3,440 1,160 14,200
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A B C Total
Preference shares issued 1,000 1,000 1,000 3,000
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Ordinary shares issued 9,600 3,440 1,160 14,200

Total shares issued 10,600 4,440 2,160 17,200
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PE
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