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 Difference Priority
BB P216,000 P540,000 P 360,000 1st BB 144,000
CC 36,000 180,000 2nd BB 24k
CC 12K
60,000 P36,000
AA 48,000 120,000 3rd prio P&L ratio

1st Installation 2nd Installation

Cash, Beginning P 160,000 75,000
Add: Proceeds 40,000 50,000
Liquidation Expense paid (2,000) (500)
Liquidation Expense- (3,000) (2,500)
Anticipated
Liabilities paid (108,000) (72,000)
Liabilities unpaid (72,000) -
Cash Available for distribution 15,000 50,000
 AA BB CC TOTAL
st st
1 priority (1 - 15,000 - 15,000
installment)
2nd Installment - 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 + P174,000

P44,000)
Total Liabilities 90,000
Total Assets P264,000
Less: Cash 40,000
Non-cash assets P224,000
Less: Loss on realization: (P55,200 - P67,600*) / 31,000
40%
Proceeds from sale P 193,000

* [P50,000 + (P44,000 x 40%)]

(P50,00 + P17,600)
P67,600
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 (16,800)
Remaining bal. 51,600 24,240 69,840 97,200
Loss on possible (28,800) (17,280) (11,520) (57,600)
unrealization of
noncash assets:
(P297,600-
P240,000)
Remaining 22,800 (41,520) 58,320 39,600
balance.
Absorption Loss (29,657) 41,520 (11,863) -
Remaining Bal. (6,857) 0 46,457 39,600
Absorption cost (6,875) 0 (6,875) -
Distribution to 0 0 39,600 39,600
partners
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?

AA BB CC Total
Interest 90,000 (60,000) (100,000) (70,000)
Investment of C 70,000 70,000
Balance 90,000 (60,000) (30,000)
Additional 39,000 39,000
Investment
Balance 90,000 (21,000) 79,000
Loss of absorption (9,000) 21,000 (12,000)
bal 81,000 0 (42,000) 39,000
Additional 42,000
Investment of CC
Distribution to 81,000 0 0 81,000
prtaners