FAR 2 Q2 - Sample problems with solutions - FOR Email PDF

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COLLEGE OF ACCOUNTANCYFINANCIAL ACCOUNTING & REPORTING PART 2SELECTED PROBLEMS FROM QUIZ 2 QUESTIONNAIREWITH SOLUTIONSADMISSION OF A PARTNER-PURCHASE OF INTEREST FROM EXISTINGPARTNERS (Payment to old partners is more than the interest purchased) Bee & Cee are partners sharing profits in the ...

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COLLEGE OF ACCOUNTANCY FINANCIAL ACCOUNTING & REPORTING PART 2 SELECTED PROBLEMS FROM QUIZ 2 QUESTIONNAIRE WITH SOLUTIONS ADMISSION OF A PARTNER-PURCHASE OF INTEREST FROM EXISTING PARTNERS (Payment to old partners is more than the interest purchased) 1. Bee & Cee are partners sharing profits in the ratio of 3:2, respectively. Their capital balances are: Bee-P48,000 and Cee-P24,000. On January 1, they agreed to admit Dee into the partnership. Dee purchases ½ interest from Bee and Cee. Dee pays P50,000 to the partners which they divided between themselves. What is the capital balance of Bee after the admission of Dee? ANSWER: Bee P24,000 SOLUTION: Bee Capital P48,000 – ( P48,000 X 50% interest purchased by Dee=P24,000) =P24,000 ADMISSION OF A PARTNER-PURCHASE OF INTEREST FROM EXISTING PARTNERS (Payment to old partners is less than the interest purchased) 2. On January 1, Bee & Cee Partnership agreed to admit Dee into the partnership. Dee purchases 1/4 interest from Bee and ½ of Cee’s interest. Dee pays the partners P25,000 which they divided between themselves. Bee and Cee are sharing profits in the ratio of 60% and 40%, respectively. Their capital balances are: Bee-P72,000 and Cee-P36,000. What is the capital balance of Cee after the admission of Dee? ANSWER: Cee P18,000 SOLUTION: Cee Capital P36,000 – (P36,000x ½) = P18,000 Cee Capital after the admission of Dee Cee Capital before the admission of Dee P36,000 Less (P36,000x ½)………………………… 18,000 Cee capital after the admission of Dee P18,000 ====== (Purchase of interest from existing partners, payment is less than the interest purchased. No recognition of gain or loss in the books of the partnership. Only transfer of capital) Page 3-4 , case 2

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ADMISSION OF A PARTNER-INVESTMENT OF ASSETS IN A PARTNERSHIPBONUS TO THE NEW PARTNER

3. Bee & Cee has capital balances of P195,000 and P585,000 respectively before admitting Dee. Bee & Cee has a profit and loss ratio of 30:70. Dee invested P300,000 for a one-third interest in a Bee & Cee Partnership. After distribution of the bonus, what is the capital balance of Bee? ANSWER: P177,000

Solution: P195,000+P585,000+P300,000=P1,080,000x1/3 =P360,000 Capital interest of Dee. Dee’s investment is P300,000. Bonus to new partner of P60,000. Bee, Capital P195,000- (P60,000 x 30%=P18,000)=P177,000

Contributed Bee

195,000

Cee

585,000

Total

780,000

Bonus Agreed 177,000 18,000 543,000 42,000 60,000 720,000

Dee

300,000

60,000

Total

1,080,000

360,000

0 1,080,000

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx ADMISSION OF A PARTNER-INVESTMENT OF ASSETS IN A PARTNERSHIPBONUS TO THE OLD PARTNERS 4. Bee & Cee capital balances are P 300,000 and P100,000 respectively before the admission of Dee. Dee invested P200,000 for a 1/4 interest in a Bee & Cee Partnership. Bee & Cee’s profit and loss ratio are 3/4 & 1/4, respectively. What is the capital balance of Cee after the distribution of bonus? ANSWER P112,500 P300,000+100,000+200,000=P600,000x1/4=P150,000 capital credit to Dee. Actual contribution of Dee, P200,000-150,000=P50,000 bonus to old partners. Cee capital P100,000 + (P50,000x1/4=P12,500)= P112,500

Contributed Bonus

Agreed

Bee

300,000 37,500 337,500

Cee

100,000 12,500 112,500

Total

400,000 50,000 450,000

Dee

200,000 -50,000 150,000

Total

600,000

0 600,000

5. Bee & Cee have capital balances of P 450,000 and P1,350,000 respectively before the admission of Dee. Dee invested P900,000 for a 1/4 interest in a Bee & Cee Partnership. Bee & Cee’s profit and loss ratio are 2/5 & 3/5, respectively. What is the capital balance of Bee after the distribution of bonus? ANSWER P540,000

P450,000+1,350,000+900,000=P2,700,000x1/4=P675,000 capital credit to Dee. Actual contribution of Dee, P900,000-675,000=P225,000 bonus to old partners. Bee capital P450,000 + (P225,000x2/5=P90,000) = P540,000

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX ADMISSION OF A PARTNER-INVESTMENT OF ASSETS IN A PARTNERSHIP-BONUS TO THE NEW PARTNER (WITH NO PROFIT & LOSS RATIO AGREEMENT) 6. Bee & Cee have capital balances of P 200,000 and P300,000 respectively before the admission of Dee. Dee invested P100,000 for a 20% interest in Bee & Cee partnership. What is the capital balance of Cee after the distribution of bonus? ANSWER P288,000 P100,000+200,000+300,000=P600,000x20%=P120,000 capital credit to Dee. Actual contribution of Dee, P100,000-120,000=P20,000 bonus to new partner. Bee, Capital: P200,000 - (P20,000x2/5=P8,000)=P192,000 Cee, Capital: P300,000 - (20,000x3/5=P12,000)=P288,000

Contributed Bonus

Agreed

Bee

200,000

-8,000 192,000

Cee

300,000 -12,000 288,000

Total

500,000 -20,000 480,000

Dee

100,000 20,000 120,000

Total

600,000

0 600,000

7. Bee & Cee have capital balances of P 500,000 and P300,000 respectively before the admission of Dee. Dee invested P200,000 for a 25% interest in Bee & Cee partnership. What is the capital balance of Cee after the distribution of bonus? ANSWER P381,250 P200,000+500,000+300,000=P1,000,000x25%=P250,000 capital credit to Dee. Actual contribution of Dee, P200,000-250,000=P50,000 bonus to new partner. Bee, Capital: P500,000 - (P50,000 x 5/8 = P31,250)=P468,750 Cee, Capital: P300,000 - (P50,000 x 3/8 = P18,750)=P281,250

ADMISSION OF A PARTNER-INVESTMENT OF ASSETS IN A PARTNERSHIP-BONUS TO THE OLD PARTNERS (WITH NO PROFIT & LOSS RATIO AGREEMENT) 8. Dee invested P400,000 for a 25% interest in Bee & Cee partnership. Before the admission of Dee, Bee & Cee capital has the following capital balances: P400,000 and P600,000 respectively. What is the capital balance of Cee after the distribution of bonus? ANSWER P630,000 P400,000+400,000+600,000=P1,400,000x25%=P350,000 capital credit to Dee. Actual contribution of Dee, P400,000-350,000=P50,000 bonus to OLD partners. Bee, Capital: P400,000 + (P50,000x 4/10=P20,000)=P420,000 Cee, Capital: P600,000 + (P50,000x 6/10=P30,000)=P630,000

Contributed Bonus Agreed Bee

400,000 20,000

420,000

Cee

600,000 30,000

630,000

Total Dee Total

1,000,000 50,000 1,050,000 400,000 -50,000 1,400,000

350,000

0 1,400,000

9. Dee invested P300,000 for a 15% interest in Bee & Cee partnership. Before the admission of Dee, Bee & Cee capital has the following capital balances: P800,000 and P400,000 respectively. What is the capital balance of Cee after the distribution of bonus? ANSWER P425,000 P300,000+800,000+400,000=P1,500,000x15%=P225,000 capital credit to Dee. Actual contribution of Dee, P225,000-300,000=P75,000 bonus to old partners. Bee, Capital: P800,000 + (P75,000x 8/12=P50,000)=P850,000 Cee, Capital: P400,000 + (P75,000x 4/12=P25,000)=P425,000 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

DISSOLUTION DUE TO DEATH OF A PARTNER / RETIREMENT OF THE PARTNER REMINDERS / NOTES TO REMEMBER A. Compute the profit or loss up to the time of death of the partner. If the problem is silent, accounting period starts from January and ends in December. B. Revalue the assets and liabilities of the partnership. C. Overvaluation of assets = Fair value < cost/value per book of the assets (the overvalued amount is a deduction from the capital balance of the partners) D. Undervaluation of assets = ( the reverse of # 3 E. Compute the share of the retiring partner/ deceased partner from the no. 1 (profit or loss based on the result of the operations) F. Compute the share of the retiring / deceased partner from the overvaluation or undervaluation of the assets. G. Share of the retiring / deceased partner is based on profit and loss ratio. If no agreement, based on capital contribution. Review Chapter 2. H. Compute if there is bonus to the retiring/ deceased or remaining partmes.

WITHDRAWAL OR RETIREMENT OF A PARTNER (BONUS TO THE RETIRING PARTNER (WITH PROFIT & LOSS RATIO AGREEMENT) 10. On Sept. 30, 2019, the statement of financial position for the partnership of Bee, Cee & Dee, together with their respective profit and loss ratio, were as follows: Assets at cost, P216,000; Bee, Capital (20%) P56,400; Cee, Capital (20%) P46,800 and Dee, Capital (60%) P108,000. Bee had decided to retire from the partnership. By mutual agreement, the assets are to be adjusted to their fair value of P259,200 at Sept. 30, 3019. It was agreed that the partnership will pay Bee P73,440 cash. No goodwill is to be recorded. After Bee’s retirement, what is the balance of Dee’s capital account? ANSWER: P127,620 Assets: P216,000-259,200=P43,200 Bee (P43,200x20%= P8,640) + cap. P56,400= P65,040 Cee (P43,200x20%= P8,640) + cap. P46,800=P55,440 Dee (P43,200x60%= P25,920) + cap P108,000=P133,920 P254,400 ======= Payment to Bee P73,440-Bee’s cap. P65,040=P8,400 bonus to old partners Cee Capital : P55,440 + (P8,400x20/80=P2,100) = P53,340 Dee Capital: P133,920 + (P8,400x60/80= P6,300)= P127,620 P180,960 ======= XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

DEATH OF A PARTNER ( with profit & loss agreement) 11. The condensed statement of financial position of the partnership of Bee, Cee and Dee as of December 31, 2019 showed the following: Total assets P400,000; Bee, Capital- P120,000; Cee, Capital-P180,000 and Dee, CapitalP100,000. The partnership has average monthly sales of P150,000 and monthly expenses of P100,000. And the partners profit & loss ratio is 50:25:25. On March. 31, Dee died because of heart attack. Before the payment to the heirs of Dee, the remaining partners agreed that the assets are undervalued by P100,000. The partnership paid the heirs of Dee on Dec. 31. What is the amount paid to the heirs of Dee?

Sales P150,000- ExpensesP100,000= P50,000 x 3=P150,000 profit Share of Dee: P150,000 x 25% = P37,500 Undervaluation of assets; P100,000 x 25% = P25,000 Dee capital balance P100,000 + P37,500 +P25,000=P162,500 Amount to be paid to the heirs of Dee = P162,500 DEATH OF A PARTNER ( NO profit & loss agreement) 12. The condensed statement of financial position of the partnership of Bee, Cee and Dee as of December 31, 2019 showed the following: Total assets P430,000; Total Liabilities P90,000; Bee, Capital- P120,000; Cee, CapitalP140,000 and Dee, Capital-P80,000. There is no profit and loss agreement. The partnership has average monthly sales of P150,000 and monthly expenses of P100,000. On July 1, Dee died because of heart attack. The partnership paid the heirs of Dee. What is the amount paid to the heirs of Dee? ANSWER P150,588 Sales P150,000- ExpensesP100,000= P50,000 x 6=P300,000 profit Share of Dee: P300,000 x 80/340 = P70,588 Dee capital balance P80,000 + P70,588 = P150,588 Amount to be paid to the heirs of Dee = P150,588

Presentation / table used by Shannen Arrabis (BSA1-A) that I used to present the solution below:

13. The condensed statement of financial position of the partnership of Bee, Cee and Dee as of December 31, 2019 showed the following: Total assets P440,000; Total Liabilities P100,000; Bee, Capital- P120,000; Cee, CapitalP140,000 and Dee, Capital-P80,000. The partnership has average monthly sales of P150,000 and monthly expenses of P100,000. And the partners profit & loss ratio is 30:30:40. On Sept. 30, Dee died because of heart attack. Before the payment to the heirs of Dee, the remaining partners agreed that the assets are overvalued by P75,000. The partnership paid the heirs of Dee on Dec. 31. What is the amount paid to the heirs of Dee? ANSWER: P230,000 Sales P150,000- ExpensesP100,000= P50,000 x 9=P450,000 profit Share of Dee: P450,000 x 40% = P180,000 Share of Dee in overvaluation of assets = P75,000 x 40%=P30,000 Dee capital balance P80,000 + P180,000 - P30,000 = P230,000 Amount to be paid to the heirs of Dee = P230,000

Presentation / table used by Shannen Arrabis (BSA1-A) that I used to present the solution below:

14. The condensed statement of financial position of the partnership of Bee, Cee and Dee as of December 31, 2019 showed the following: Total assets P400,000; Bee, Capital- P120,000; Cee, Capital-P140,000 and Dee, CapitalP140,000. The partnership has average monthly sales of P150,000 and monthly expenses of P100,000. And the partners profit & loss ratio is 40:30:30. On Sept. 30, Dee died because of heart attack. Before the payment to the heirs of Dee, the remaining partners agreed that the assets are undervalued by P100,000. The partnership paid the heirs of Dee on Dec. 31. What is the amount paid to the heirs of Dee? ANSWER: P155,000 Sales P150,000- ExpensesP100,000= P50,000 x 3=P150,000 profit Share of Dee: P150,000 x 30% = P45,000 Share in assets :P100,000 x 30% = P30,000 Dee capital balance P80,000 + P45,000 + P30,000=P155,000

INCORPORATION OF THE PARTNERSHIP NOTES / THINGS TO REMEMBER A. If the books of accounts are still open (there are balances in the nominal accounts), you have to closed the books in order to compute for the profit or loss. In short update the capital balances of the partners. B. Update the capital balances to reflect under or overvaluation of the assets and liabilities. C. The net assets / total partners’ capital is to be converted to ordinary shares (based on the number of shares and par value and number of partners). D. Any excess is to be credited to share premium.

15. The condensed statement of financial position of the partnership of Bee, Cee and Dee as of December 31, 2019 showed the following: Total assets P300,000; Total Liabilities P120,000; Bee, Capital- P80,000; Cee, CapitalP60,000 and Dee, Capital-P40,000. On this date, the partnership was dissolved and its net assets transferred to a newly formed corporation. The fair value of the assets was P50,000 less than the carrying value of the firm’s books. Each of the partners was issued 10,000 shares of the corporation’s P2 par ordinary share. How much is the ordinary share capital and share premium? ANSWER: Ordinary share capital P60,000, share premium P70,000 JOURNAL ENTRY APPROACH Assets (300,000-50,000)………. 250,000 Liabilities…………………………………... Ordinary shares (10,000 shares x 3 partners x P2 par value) Share Premium – ordinary …………………

120,000 60,000 70,000

16. The condensed statement of financial position of the partnership of Bee, Cee and Dee as of December 31, 2019 showed the following: Total assets P400,000; Bee, Capital- P120,000; Cee, Capital-P140,000 and Dee, CapitalP140,000. The partnership has average monthly sales of P125,000 and monthly expenses of P150,000. And the partners profit & loss ratio is 40:30:30. On Sept. 30, Dee died because of heart attack. Before the payment to the heirs of Dee, the remaining partners agreed that the assets are undervalued by P100,000. The partnership paid the heirs of Dee on Dec. 31. What is the amount paid to the heirs of Dee?

ANSWER : P102,500 Sales P125,000- ExpensesP150,000= (P25,000) x 9 ( Jan. to Sept.)=P225,000 loss Share in LOSS of Dee: P225,000 x 30% = (P67,500) Share in undervaluation: P100,000 x 30%=P30,000 Dee capital balance P140,000 - P67,500 + 30,000=P102,500 Amount to be paid to the heirs of Dee = P102,500

DO NOT FORGET TO MASTER THE CONCEPTS.

** God bless**...