PARTNERSHIP LIQUIDATION
PROBLEM M:
The following condensed statement of financial position is presented for the partnership of AA,
BB and CC, who share profits and losses in the ratio of 4:4:2, respectively:
Cash
P160,000
Other
assets
Total
Liabilities P180,000
AA, capital 48,000
BB, capital
216,000
CC, capital
Total
The partners agreed to dissolve the partnership after selling the other assets for P200,000.
Requirements:
1. How much should each partner receive upon liquidation?
AA : 4
BB : 4
CC: 2
Total
Capital/Interest
48,000
216,000
36,000
300,000
+/- Gains & Losses (48,000)
(48,000)
(24,000)
(120,000)
Realization
(200,000 –
320,000)
Remaining
0
168,000
12,000
180,000
Interest
2.
Assume instead that the other assets were sold for P10,000 and that
deficient partners, if any, are solvent. How much should each partner receive
upon liquidation?
AA:4
BB:4
CC:2
Total
Capital/Interest
48,000
216,000
36,000
300,000
+/- Gain & Losses (124,000)
(124,000)
(62,000)
(310,000)
Realization 10,000
– 320,000
Remaining
(76,000)
92,000
(26,000)
(10,000)
Interest
Investment
76,000
26,000
102,000
Distribution to
0
92,000
0
92,000
partners
3. Assume instead that the other assets were sold for P50,000 and that deficient
partners, if any, are insolvent. How much should each partner receive upon
liquidation?
AA
BB
CC
Total
Capital/Interest
48,000
216,000
36,000
300,000
+/- Gains & Losses (108,000)
(108,000)
(54,000)
(270,000)
50,000-320,000
Remaining
(60,000)
108,000
(18,000)
30,000
Interest
Absorption of loss 60,000
(78,000)
18,000
0
Distribution to
0
30,000
0
30,000
Partners
4. Assume instead that the partnership is dissolved and liquidated by installments.
The first realization of P40,000 cash is on the sale of other assets with book value
of P80,000. 60% of the liabilities were liquidated. Liquidation expenses paid
amounted to P2,000 while future liquidation expenses are estimated to be P3,000.
How much should each partner receive on the first installment?
5. Using information in item 4, assume that in the second realization of P50,000 cash
is on the sale of other assets with book value of P95,000. The remaining liabilities
were liquidated. Liquidation expenses paid amounted to P500 with P2,500
estimated to be incurred in the future. How much should each partner receive on
the second installment?
ANSWER TO 4-5 CASH PRIORITY PROGRAM
Interest
LAP
BB
P216,000
P540,000
CC
36,000
180,000
Difference
P 360,000
60,000
AA
48,000
Cash, Beginning
Add: Proceeds
Liquidation Expense paid
Liquidation ExpenseAnticipated
Liabilities paid
Liabilities unpaid
Cash Available for distribution
120,000
Priority
1st BB 144,000
2nd BB 24k
CC 12K
P36,000
3rd prio P&L ratio
1st Installation
P 160,000
40,000
(2,000)
(3,000)
2nd Installation
75,000
50,000
(500)
(2,500)
(108,000)
(72,000)
15,000
(72,000)
50,000
st
st
1 priority (1
installment)
2nd Installment
AA
-
BB
15,000
CC
-
TOTAL
15,000
-
50,000
-
50,000
PROBLEM N:
AA, BB and CC decided to liquidate their partnership on November 30, 2021. Their capital
balances and profit ratio, before closing entries were made, follow:
AA, capital (40%) P50,000
BB, capital (30%)
60,000
CC, capital (30%)
20,000
The net income from January 1 to November 30 is P44,000. On date of liquidation, the cash
and liabilities are P40,000 and P90,000, respectively.
Requirements:
1. How much must be realized from the sale of the non-cash assets in order for AA to
receive P55,200 in full settlement of his interest in the firm?
Total Capital ( P50,000 + P60,000 + P20,000 +
P44,000)
Total Liabilities
Total Assets
Less: Cash
Non-cash assets
Less: Loss on realization: (P55,200 - P67,600*) /
40%
Proceeds from sale
* [P50,000 + (P44,000 x 40%)]
(P50,00 + P17,600)
P67,600
P174,000
90,000
P264,000
40,000
P224,000
31,000
P 193,000
PROBLEM O
AA, BB and CC are partners in ABC Partnership and share profits and losses 50%, 30% and
20%, respectively. The partners have agreed to liquidate the partnership and some liquidation
expenses to be incurred. Prior to the liquidation, the partnership statement of financial position
reflects the following book values:
Cash
P 25,200)
Non-cash assets
297,600)
Payable to CC
38,400)
Other liabilities
184,800)
AA, capital
72,000)
BB, capital
( 12,000)
CC, capital
39,600)
Actual liquidation expenses are P16,800 and that the non-cash assets with a book value of
P240,000 were sold for P216,000.
Requirements:
1. How much cash should each partner receive?
AA: 5
BB: 3
CC: 2
Total
Capital/Interest
72,000
(12,000)
39,600
99,600
Payable to CC
38,400
38,400
Total Interest/
72,000
(12,000)
78,000
138,000
Capital
+/- Gains or
(24,000)
Losses
240,000-216,000
(20,400)
(12,240)
(8,160)
Liquidation
expense
Remaining bal.
51,600
24,240
69,840
(16,800)
97,200
Loss on possible
unrealization of
noncash assets:
(P297,600P240,000)
Remaining
balance.
Absorption Loss
Remaining Bal.
Absorption cost
Distribution to
partners
(28,800)
(17,280)
(11,520)
(57,600)
22,800
(41,520)
58,320
39,600
(29,657)
(6,857)
(6,875)
0
41,520
0
0
0
(11,863)
46,457
(6,875)
39,600
39,600
39,600
PROBLEM P:
The partnership of AA, BB and CC was liquidated on June 30, 2021 and account balances
after non-cash assets were converted into cash on September 1, 2021 are:
Cash
P50,000
Accounts payable
P120,000)
AA, capital (30%)
90,000)
BB, capital (30%)
(60,000)
CC, capital (40%)
(100,000)
Personal assets and liabilities of the partners at September 1, 2021 are:
Personal Personal
Assets
Liabilities
AA
P80,000
P90,000
BB
100,000
61,000
CC
190,000
80,000
CC contributes P70,000 to the partnership in order to have sufficient cash to pay partnership
creditors.
Requirements:
1. How much should each partner receive as a result of liquidation?
Interest
Investment of C
Balance
Additional
Investment
Balance
AA
90,000
BB
(60,000)
90,000
(60,000)
39,000
90,000
(21,000)
CC
(100,000)
70,000
(30,000)
Total
(70,000)
70,000
39,000
79,000
Loss of absorption (9,000)
bal
81,000
Additional
Investment of CC
Distribution to
81,000
prtaners
21,000
0
(12,000)
(42,000)
42,000
39,000
0
0
81,000