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Partnership Liquidation

The document discusses liquidation of partnerships including defining liquidation, distinguishing dissolution from liquidation, explaining right of offset, differentiating lump-sum and installment liquidation methods, determining cash distribution using safe payment schedules or cash priority programs, and preparing liquidation entries and statements.

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Shanah Gomez
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6 views28 pages

Partnership Liquidation

The document discusses liquidation of partnerships including defining liquidation, distinguishing dissolution from liquidation, explaining right of offset, differentiating lump-sum and installment liquidation methods, determining cash distribution using safe payment schedules or cash priority programs, and preparing liquidation entries and statements.

Uploaded by

Shanah Gomez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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PARTNERSHIP

LIQUIDATION
LEARNING OBJECTIVES
1. Define liquidation.
2. Distinguish dissolution from liquidation.
3. Explain the concept of right of offset.
4. Differentiate lump-sum method from installment method of liquidation.
5. Determine cash distribution to partners using schedule of safe payments or a cash priority
program.
6. Prepare entries for lump-sum liquidation.
7. Prepare entries for installment liquidation.
8. Prepare a statement of liquidation.
◦ ARTICLE 1839. In settling accounts between the partners after dissolution, the following rules shall be
observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified in
No. 2.

(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
◦ (3) The assets shall be applied in the order of their declaration in No. 1 of this article to the
satisfaction of the liabilities.
◦ (4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy
the liabilities.
◦ (5) An assignee for the benefit of creditors or any person appointed by the court shall have the
right to enforce the contributions specified in the preceding number.
◦ (6) Any partner or his legal representative shall have the right to enforce the contributions
specified in No. 4, to the extent of the amount which he has paid in excess of his share of the
liability.
◦ (7) The individual property of a deceased partner shall be liable for the contributions specified
in No. 4.
◦ (8) When partnership property and the individual properties of the partners are in possession
of a court for distribution, partnership creditors shall have priority on partnership property and
separate creditors on individual property, saving the rights of lien or secured creditors.

◦ (9) Where a partner has become insolvent or his estate is insolvent, the claims against his
separate property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution. (n)
LIQUIDATION PROCESS

REALIZATIO LIQUIDATIO DISTRIBUTIO


N N N
BASIC CONCEPTS ON LIQUIDATION

UNLIMITED - RIGHT OF OFFSET


LIABILITY
METHODS OF PARTNERSHIP
LIQUIDATION

LUMP-SUM - INSTALLME
NT
INSTALLMENT LIQUIDATION

SAFE PAYMENTS - CASH PRIORITY


SCHEDULE PROGRAM
PARTNERSHIP ASSETS (GP)
1. Those owing to creditors other than partners.
2. Those owing to partners other than for capital and profits.
3. Those owing to partners in respect of capital.
4. Those owing to partners in respect of profits.
PERSONAL ASSET
1. Those owing to separate creditors.
2. Those owing to partnership creditors.
3. Those owing to partners by way of contribution.
Personal Assets vs Personal Liabilities

PA > PL PA < PL PA = PL
◦ Capital xx
◦ Add: Payable xx
◦ Less: Receivable xx
◦ Equity/Interest xx
Receivable vs. Payable
RECEIVABLE PAYABLE
LOAN To From
ADVANCES To From Partner
DUE From To
LOAN From To
ADVANCES From To Partnership
DUE To From

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