accounting for partnership liquidation_jan 12
TRANSCRIPT
Chapter 6Presented by: Ms. Rheichelle C. Antonio, CPA,MBA
Reference: Simplified Accounting for Partnership & Corporation Vol. 2, 2010 Edition
By: Nelson S. Abeleda
Dissolution◦ Refers to the termination of the partnership
contract Liquidation
◦ Refers to the termination of the business Realization
◦ When non-cash assets are sold
1. Lump Sum Liquidation If the realization process will take only a short
period of time
2. Installment Liquidation If the realization process will take a long time
Note: whichever method is used, the total cash settlement (return of capital) among partners will be the same
The cash settlement is made once, that is, after all non-cash assets are sold
The cash settlement is on installment basis as soon as cash becomes available, and the liabilities are fully paid,
Partial payments will be made to the partners based on their capital balances if any, after subtracting their share in the losses on realization whether actual or theoratical
Offset his loan to the partnership Pay for his capital deficiency if he is solvent Absorbed or charged against the capitals of
the other partners if he is insolvent
1. Creditor’s claim2. Partner’s loan to the partnership3. Return of capital
page 141
Shown Below is the condensed Balance Sheet of ABC Partnership:
ASSETSCash 18,000 Other Assets 82,000
Total 100,000
LIABILITIES & CAPITALAccounts Payable 25,000 Loan Payable to A 3,000 A, Capital 22,000 B, Capital 30,000 C, Capital 20,000
100,000
The partners share profits and losses in the ratio of 5:3:2for A, B, and C repaectively.
The working paper and journal entries required for the different indefendent cases below will be illustrated
Case 1 The other assets are sold for P90,0002 The other assets are sold for P50,000
Liquidation expenses of P1,000 are paid3 The other assets are sold for P34,0004 The other assets are sold for P20,000
a. The deficient partner is solventb. The deficient partner is insolvent
Working Paper for the Statement of Liquidation
Activities CashNon-cash Assets Liabilities
Loan from a Partner
Partner's Capital
Partner's Capital
Partner's Capital
Balances before LiquidationSale of Other Assets