ADVACC 1: PARTNERSHIP FORMATION (TAKE HOME QUIZ)

ABRAHAM and SARAH formed a partnership. The following as their contribution:

ABRAHAM SARAH
Cash 800,000 -
Accounts Receivable 400,000 -
Inventory 640,000 -
Land - 400,000
Building - 960,000
Note Payable 480,000 -
ABRAHAM, Capital 1,360,000 -
SARAH, Capital - 1,360,000

Additional information:

 Included in accounts receivable is an account amounting to P160,000 which is deemed uncollectible.

 An unpaid mortgage of P80,000 on the Land is assumed by the partnership.
 The building is under depreciated by P200,000.
 The building also has an unpaid mortgage amounting to P120,000, but the mortgage is not assumed by the
partnership. SARAH agreed to settle the mortgage using her personal funds.
 The note payable is stated at face amount. A proper valuation requires the recognition of a P120,000 discount
on note payable.
 ABRAHAM and SARAH shall share profits and losses 60% and 40%, respectively.

1. If the partners agree that their capital balances to be proportionate to their respective P&L ratios, how
much is to be invested by ABRAHAM if SARAH’s Capital will be the basis?

On June 11, 2011, May and Nora formed a partnership. May is to invest assets at fair value which are yet to be
agreed upon. She is to transfer her liabilities and is to contribute sufficient cash to bring her total capital to P210,000
which is 70% of the total capital of the partnership.

Details regarding the book values of May’s business assets and liabilities and their corresponding valuations are:

Book values Agreed Valuation

Accounts receivable P58,000 P58,000
Allowance for doubtful accounts 4,200 5,000
Merchandise inventory 98,400 107,000
Store equipment 32,000 32,000
Accumulated depreciation – Store equipment 19,000 16,400
Office equipment 27,000 27,000
Accumulated depreciation – Office equipment 14,200 8,600
Accounts payable 56,000 56,000

2. Nora agrees to invest cash of P42,000 and merchandise valued at current market price. The value of the
merchandise to be invested by (1) Nora and the cash to be invested by (2) May are?