PARTNERSHIP LIQUIDATION
A PARTNERSHIP IS LIQUIDATED WHEN
BUSINESS OPERATIONS ARE COMPLETELY
TERMINATED OR ENDED.
Assets are sold
Creditors are paid
Remaining assets are distributed to the partners
CAUSES OF LIQUIDATION
Accomplishment of the purpose for which the
partnership was organized
Termination of the term period covered by the
partnership contract
Bankruptcy of the firm
Mutual agreement among the partners
ACCOUNTING PROBLEMS
Determination of profit or loss from the
beginning of the accounting period to the
date of liquidation and he distribution of the
profit and loss
Closing of the partnership books
Correction of prior period error
Overstatement/understatement of
inventories
ACCOUNTING PROBLEMS
Excessive depreciation charges
Inadequate provision for unollectible
accounts
Liquidation of the business
MARSHALING OF ASSETS
EXTERNAL CREDITORS
INTERNAL CREDITORS
PARTNERS BASED ON THE CREDIT BALANCES
OF THEIR CAPITAL ACCOUNTS
LIQUIDATION PROCEDURES
1. Realization of assets converting all assets into cash
When assets are sold at less than book value, a loss is
incurred.
Cash xxx
Loss on realization xxx
Assets xxx
When assets are sold at more than book value, a gain is
realized.
Cash xxx
Gain on realization xxx
Assets xxx
The gains or the losses are distributed among
the partners according to profit and loss ratio.
A, capital xxx
B, capital xxx
Loss on realization xxx
Gain on realization xxx
A, capital xxx
B, capital xxx
If the distribution of losses result to a
partners debit capital balance, he is called a
deficient partner .
A deficient partner must cover his deficiency
out of his personal assets.
If a deficient partner cannot cover his
deficiency out of his personal assets, he is
considered an insolvent partner
Insolvency = Assets<Liabilities
Solvency = Assets>Liabilities
When a partner is insolvent, the other
partners will have to absorb the insolvency
2. Payment to external creditors
Liabilities xxx
Cash xxx
3. Distribution of remaining cash to partners
A, capital xxx
B, capital xxx
Cash xxx
OTHER AMANDA ARIEL ARIANNE
CASH ASSETS LIABILITIES CAPITAL CAPITAL CAPITAL
25,000 180,000 52,000 40,000 65,000 48,000
Realization of assets 250,000 (180,000) 28,000 28,000 14,000
275,000 - 52,000 68,000 93,000 62,000
OTHER AMANDA ARIEL ARIANNE
CASH ASSETS LIABILITIES CAPITAL CAPITAL CAPITAL
25,000 180,000 52,000 40,000 65,000 48,000
Realization of assets 250,000 (180,000) 28,000 28,000 14,000
275,000 - 52,000 68,000 93,000 62,000
Payment to creditors (52,000) (52,000)
223,000 - - 68,000 93,000 62,000
OTHER AMANDA ARIEL ARIANNE
CASH ASSETS LIABILITIES CAPITAL CAPITAL CAPITAL
25,000 180,000 52,000 40,000 65,000 48,000
Realization of assets 250,000 (180,000) 28,000 28,000 14,000
275,000 - 52,000 68,000 93,000 62,000
Payment to creditors (52,000) (52,000)
223,000 - - 68,000 93,000 62,000
Distribution of remaining (223,000) (68,000) (93,000) (62,000)
cash - - - - - -
CASH OTHER
ASSETS
LIABILITIES
DARRYL
CAPITAL
EVELYN
CAPITAL
FREDRICK
CAPITAL
Balances
prior to
realization
87,500 675000 325,000 212,500 137,500 87,500
Sale of
non cash
assets
247,500 (675,000) (213,750) (128,250) (85,500)
335,000 - 325,000 (1,250) 9,250 2,000
Absorptio
n of
deficiency
1,250 (750) (500)
335,000 325,000 - 8,500 1,500
Payment
of
liabilities
(325,000) (325,000)
Balances
after
payment
of lia
Bilities
10,000 8,500 1,500
DRICK DONNA
CASH LAND CAPITAL CAPITAL
Balances before realization 50,000 175,000 25,000 75,000
Realization of assets 125,000 (175,000) (15,000) (15,000)
175,000 - 10,000 60,000
Payment to creditors
175,000 - 10,000 60,000
Distribution of remaining (175,000) (10,000) (60,000)
cash - - - -
DRICK DONNA DAISY
CASH LAND CAPITAL CAPITAL CAPITAL
Balances before realization 50,000 175,000 25,000 75,000 125,000
Realization of assets 125,000 (175,000) (15,000) (15,000) (20,000)
175,000 - 10,000 60,000 105,000
Payment to creditors
175,000 - 10,000 60,000 105,000
Distribution of remaining
cash (175,000) (10,000) (60,000) (105,000)
- - - - -
RECEIVABLE- OTHER ACCOUNTS LOAN NOEL, ADRIAN MJ
CASH NOEL ASSETS PAYABLE PAYABLE - MJ CAPITAL CAPITAL CAPITAL
45,000 15,000 410,000 105,000 20,000 150,000 100,000 95000
Realization of assets 435,000 (410,000) 10,000 7,500 7500
480,000 15,000 - 105,000 20,000 160,000 107,500 102,500
Payment to creditors (105,000) (105,000)
375,000 15,000 - - 20,000 160,000 107,500 102,500
Distribution of remaining (375,000) (15,000) (20,000) (160,000) (107,500) (102,500)
cash - - - - - - - -
Noel will receive P145,000 computed as follows:
Noel, capital 160,000
Receivable-Noel (15,000)
Due to Noel 145,000
