PARTNERSHIP DISSOLUTION Case 2: On July 1, 2023.

C was admitted to the partnership when he

-​ Change in the relationship of the partners caused by the partner. purchased a proportionate interest from A and B representing 20% interest in
the net assets and profits of the firm for 100,000.
1.​ Admission
2.​ Withdrawal A, capital 32,000 (400k x 20% x 40%)
3.​ Death B, capital 48,000 (400k x 20% x 60%)
4.​ Incorporation of Partnership ​ C, capital 80,000 (400k x 20%)
-​ (partnership will not continue but rather in other form of
business) PROBLEM 2: Investment in the Partnership

Admission of Partner Case 1: On July 1, 2023. C was admitted to the partnership when he
-​ The enter of the new partner acquired 20% interest in the net assets and profits of the firm for a 100,000
(requires consent of all the existing partners) investment.

Purchase of Interest Investment in the P/L Ratios

Partnership
A, capital 150,000 40%
Incoming partner’s NOT RECORDED RECORDED
contribution B, capital 250,000 60%

Partnership Capital REMAINS THE SAME INCREASED TOTAL 400,000

Gain/Loss NO GAIN/LOSS NO GAIN/LOSS

Cash 100,000
​ C, capital 100,000
​ PROBLEM 1: Purchase of Interest
Cash 100,000​ ​ ​
Case 1: On July 1, 2023. C, was admitted to the partnership when he ​ C, capital 80,000 (the difference will go to all existing partners)
purchased 50% of A’s interest in the partnership for 100,000. ​ A, capital 8,000 (20k x 40%)
​ B, capital 12,000 (20k x 60%)
P/L Ratios
The 20,000 difference will be given to A and B. It is counted as BONUS)
A, capital 150,000 40%
Cash 100,000
B, capital 250,000 60% A, capital 12,000 (30k x 40%)
B, capital 18,000 (30k x 60%)
TOTAL 400,000
​ C, capital 130,000 – it is treated as bonus

A, capital 75,000
​ C, capital 75,000
​ (150,000 x 50%)
hindi magre-record ng CASH kasi PERSONAL TRANSACTION
 PROBLEM 3: Withdrawal, Retirement, or Death of a partner
A B TOTAL
The capital account balances of the partners in ABC partnership on July 1,
2023 before any necessary adjustments are as follows: Adj. balance 330,000 520,000 850,000

Credit from 220,000 330,000 550,000

Capital accounts SNI - Share in Net Income capital of C
A, capital (20%) 150,000 180,000 330,000 550,000 850,000 1,400,000
B, capital (30%) 250,000 270,000 520,000
Case 2:
C, capital (50%) 100,000 450,000 550,000
C, capital 550,000
TOTAL 500,000 900,000 1,400,000
A, capital 28,000 (70k x 20% ÷ 50%)​
B, capital 42,000 (70k x 30% ÷ 50%)​
The partnership reported profit of 900,000 for 6 months ended July 1, 2023. ​ Cash 620,000​ ​

Requirement: Provide the journal entries under the following cases: 620,000
(550,000)
Case 1: On July 1,2023, C withdraws from the partnership when he was = 70,000
bought out by his co-partners for 620,000 cash.
Case 2: C retires on July 1,2023. It was agreed that C shall receive 620,000 Incorporation of Partnership
cash from the partnership in settlement of his interest. Reasons:

1.​ Bought out by his co-partners 1.​ Limited liability of shareholders

2.​ From the partnership 2.​ Ease of raising additional funds (through SH)
3.​ Privacy and Confidentiality (unlike partnership)
These two are different from each other, don’t get confuse 4.​ Dispersion of risk (risk of business can be distributed)
5.​ Unlimited life (unlike partnership, it is easily dissolved)
Case 1: 6.​ Transferability of ownership

Income summary 900,000 On the date of Incorporation

A, capital 180,000 (900k x 20%)
B, capital 270,000 (900k x 30%) a.​ Partner’s capital balances are adjusted for their respective share in
C, capital 450,000 (900k x 50%) any P/L and revaluation gains or losses as the date of incorporation.
The adjusted capital balances may be used in determining the
C, capital 550,000 number of shares to be issued to each partner.
A, capital 220,000 (550k x 20% ÷ 50%) b.​ Normally, the books of the partnership are closed and new books are
B, capital 330,000 (550k x 30% ÷ 50%) established for the corporation.

C’s capital will be debited because he will leave the partnership

 ÷ Par value 10 10 10 10
PROBLEM 4: Incorporation of a Partnership
No. of 17,000 23,000 35,000 75,000
On January 1, 2023, the partners ABC partnership decided to admit other shares
investors. As a result, the partnership shall be converted to a corporation. issued
The following was determined:
PARTNERSHIP LIQUIDATION
Carrying Fair Increased – -​ The termination of business operations or the winding up of affairs.
Amount Value revaluation gain
It is process by which:
Assets 700,000 800,000 100,000
1. Assets are converted to cash
Liabilities 50,000 50,000
​ ​
A, capital (20%) 150,000 N/A ​ ​ ​ →

B, capital (30%) 200,000 N/A

2. Liabilities are settled
C, capital (50%) 300,000 N/A
​ CASH → LOANS

The corporation has an authorized capitalization of P2,000,000 divided into Settlement of Claims
200,000 ordinary shares with par value of 10 per share. 1.​ Outside creditors
2.​ Inside creditors (payable to partners)
Requirements: 3.​ Owner’s capital balance
1.​ Compute for the adjusted balances of the partners in fair value
adjustments. 3. Any remaining amount is distributed to owners.
2.​ What is the aggregate par value of the shares issued to A, B, and C,
respectively. Methods of Liquidation
3.​ How many shares are issued to each partner? 1.​ Lump-sum liquidation
2.​ Installment liquidation
A B C TOTAL
LUMP-SUM LIQUIDATION
Unadjusted 150,000 200,000 300,000 650,000 STEP 1: G/L on sale (loss ang common)
balance
Net cash “proceeds”​ xx
Share in 20,000 30,000 50,000 100,000
revaluation CA of non-cash assets​ (xx)
gain
Gain or Loss ₱xx
Adjusted 170,000 230,000 350,000 750,000
balance
 PROBLEM 1: Lump-Sum Liquidation
STEP 2: Allocate G/L
On January 1, 2024 the partners of ABC Co. decided to liquidate their
partnership. The following information was made available:
A B C TOTAL

Capital bal. xx xx xx xx Cash 40,000

(Net drawings) Accounts receivable 120,000

Payable to partners xx xx xx xx Inventory 240,000

Receivable from partner (xx) (xx) (xx) (xx) Equipment 600,000

BALANCE xx xx xx xx Total 1,000,000

ALLOCATION x(x) x(x) x(x) x(x)

Accounts payable 60,000
Amount received by the ₱xx ₱xx ₱xx ₱xx
partners Payable to B 40,000

A, capital (20%) 200,000

Net drawings will be deducted if there is RIGHT OF OFFSET.
B, capital (30%) 300,000
STEP 3: Checking
C, capital (50%) 400,000

Cash, beginning xx Total 1,000,000

Net cash proceeds xx
Case 1: Information on the conversion of non-cash asset is as follows:
Payment to outside creditors (xx) a.​ 100,000 was collected on the accounts receivable; the balance is
uncollectible
Cash available for distribution ₱xx
b.​ 140,000 was received for the entire inventory
c.​ The equipment was sold for 500,000
d.​ 4,000 liquidation expense were paid

Requirements:
1.​ Net cash proceeds
2.​ Total loss on sale
3.​ Amounts received by each partners
4.​ Cash available for distribution to partners
5.​ Prepare a statement of liquidation
 Statement of Liquidation
#1 Conversion of non-cash assets and distribution of loss
Collection of A/R 100,000
#2 Payment to outside creditors
Sale of inventory 140,000 #3 Payment to inside creditors
#4 Payment to partners
Sale of equipment 500,000

Liquidation expense (4,000)

Assets Liabilities Equity
Net cash proceeds 736,000
C NCA AP P A B C
Less: CA of NCA (960,000)
Balance before 40k 960k 60k 40k 200k 300k 500k
Total loss on sale 224,000 liquidation

#1 736k (960k) 0 0 (44.8k) (67.2k) (112k)

A B C TOTAL
TOTAL 776k 0 60k 40k 155.2k 232.8k 388k
Capital 200,000 300,000 400,000 900,000
balance #2 (60k) 0 (60k) 0 0 0 0

Payable to - 40,000 - 40,000 TOTAL 716k 0 0 0 155.2k 232.8k 388k

partners
#3 (40k) (40k)
Receivable - - - -
from partners TOTAL 676k 0 155.2k 232.8k 388k
BALANCE 200,000 340,000 400,000 940,000 #4 (676k) (155.2k) (232.8k) (388k)

ALLOCATION (44,800) (67,200) (112,000) (224,000) TOTAL 0 0 0 0 0 0 0

Amount
received by 155,200 272,800 288,000 716,000
the partners INSTALLMENT LIQUIDATION

Differences between Lump-sum

Cash, beginning 40,000 1.​ Expected future expenses - recognized immediately as losses, It
Net cash proceeds 736,000 can be estimated liquidation expense or cash retained for future
expense
Payment to outside creditors (60,000) 2.​ Unsold non-cash assets - also recognized as losses

Cash available for distribution ₱716,000

 ACCOUNTING FOR CORPORATION
Memo method: Total share capital
Sole proprietorship
Partnership​ ​ The assets of these three are the same Share capital​ ​ ​ xx
Corporation Subscribe share capital​ ​ xx
Subscription receivable​ ​ (xx)
-​ May sariling katauhan Total share capital​ ​ xx
Difference → accounting for equity
JE method: Total share capital
Definition
-​ Artificial being Authorized share capital ​ xx
-​ Created by operation of law Unissued share capital ​ ​ (xx)
-​ Having the right of succession Issued share capital​ ​ xx
-​ Authorized by law Subscribe share capital ​​ xx
-​ Powers Subscription receivable ​​ (xx)
-​ Attributes Total share capital ​ ​ xx
-​ Properties
Sale of stock above PV
Capital → SHE (shareholder’s equity)
Cash xx
Accounting for Share Capital ​ Subscribed Share Capital xx
​ Share premium xx

Memorandum Method Journal Entry Method Legal Capital

Memorandum Entry To record authorized Unissued Share Capital xx -​ Hindi basta-bastang ginagalaw ang portion na ito.
capital Authorized Share Capital xx
Shape Issuance Cost
Subscription Receivable xx To record Subscription Receivable xx
subscription Subscribed Share Capital xx
Example:
Subscribed Share Capt, xx

Cash xx To record the Cash xx ●​ Regulatory fees

Subscription Receivable xx collection of Subscription Receivable xx ●​ Legal fees
subscription
receivable & issuance ●​ commissions/ underwriter’s fees
of shares ●​ Printing of certificates
●​ Documentary stamp tax; other transaction taxes
Subscribed Share Capital xx Subscribed Share Capital xx
Share Capital xx Unissued share capt. xx
Treatments:
●​ Deducted from any resulting share premium from the issuance
Share premium
●​ If share premium is insufficient, the excess is charged to retained
Par value P100
earnings.
Selling price P120
Share premium = P20
Treasury Shares Retained earnings xx
-​ Entities OWN share ​ Treasury shares xx
-​ Previously issued
-​ But subsequently reacquired Retained earnings, restricted xx
​ Retained earnings, unrestricted xx
Accounting for Treasury Shares
-​ Cost method Retirement of Shares
-​ Deducted in the shareholder’s equity -​ Reacquired and cancelled

Reacquisition of Treasury Shares Cancelled means it was removed from the book.

Treasury share xx Case 1: Retirement cost less than original issuance price
​ Cash xx ​ ​ ​ - DEBIT
To record reacquisition:
Retained earnings, unrestricted xx Treasury Share xx
​ Retained earnings, restricted xx ​ Cash xx

Restricted means not available for sale, unless it wants to. To record retirement:

Case 1: Reissuance at cost Share capital xx

Share premium (orig issuance) xx
Cash xx ​ Treasury share xx
​ Treasury share xx ​ Share premium - TS xx

Retained earnings, restricted xx Case 2: Retirement cost more than original issuance price –
​ Retained earnings, unrestricted xx immediately retired - CREDIT

Case 2: Reissuance more than cost Share capital xx

Share premium xx
Cash xx 1 Share premium - TS xx
Treasure share xx 2 Retained earnings xx
Share premium, TS xx ​ Cash xx

Retained earnings, restricted xx Donated Capital

​ Retained earnings, unrestricted xx -​ Arised from gifts received by the corporation from non-reciprocal
transactions
Case 3: Reissuance at below cost Donations from:
1.​ Shareholders
Cash xx 2.​ Government
Share premium xx 3.​ Other sources
 ●​ Date of payment/distribution
Forms:
1.​ Cash Dividends payable xx
2.​ Non-cash ​ Cash/Property/Share dividends xx
3.​ Stock/share (entity’s own share)
Credit will depend on what asset is used
To record the cash and non-cash donations from shareholders
Cash xx Outstanding shares
Non-cash xx Share issued​ ​ ​ xx
​ Share premium (donated capital) xx Shares subscribed​ ​ xx
Treasury share​ ​ ​ (xx)
To record donated shares received from shareholders Outstanding shares​ ​ xx
MEMO ENTRY – received 1,000 shares with par value of 100 from the ÷ Dividends per share​ ​ xx
shareholder as a donation Cash Dividends payable​ xx

To record subsequent reissuance of donated shares

Cash xx Preference over Dividends
​ Share premium (donated capital) xx ●​ Ordinary shareholder
●​ Preference shareholder – preferred first to obtain DIVIDENDS

ACCOUNTING FOR DIVIDENDS

1.​ Non-cumulative Dividends for current year: PS
Dividends
-​ Distribution to shareholders 2.​ Cumulative Dividends for current and previous year: PS

3.​ Non-participating Basic allocation: PS

1.​ Cash dividends
Excess: OS
2.​ Property
3.​ Share dividends 4.​ Participating Basic allocation: both PS and OS (based on %)
Excess: Both PS and OS (based on par value
Relevant dates for accounting for dividends pro-rata)

●​ Date of declaration Pro-rata means proportionate.

Retained earnings xx
​ Dividends payable xx

●​ Date of record
NO ENTRY