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Partnership Liquidation Do It Yourself

The partnership of A and B was being liquidated. They sold some non-cash assets for $50,000 in a lump-sum liquidation, resulting in a $30,000 loss. This loss was allocated to A and B proportionately to their capital balances, with A receiving $6,000 and B receiving $29,000 after offsetting loans payable. In an installment liquidation, they sold 3/4 of assets for $45,000, resulting in a $35,000 loss allocated to partners and amounts distributed of $2,000 to A and $28,000 to B.

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339 views3 pages

Partnership Liquidation Do It Yourself

The partnership of A and B was being liquidated. They sold some non-cash assets for $50,000 in a lump-sum liquidation, resulting in a $30,000 loss. This loss was allocated to A and B proportionately to their capital balances, with A receiving $6,000 and B receiving $29,000 after offsetting loans payable. In an installment liquidation, they sold 3/4 of assets for $45,000, resulting in a $35,000 loss allocated to partners and amounts distributed of $2,000 to A and $28,000 to B.

Uploaded by

BC qpLAN CrOw
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Use the following information for the next two cases:

A and B decided to liquidate their partnership. The partnership’s records show the following
information:

Cash -

Non-cash assets 80,000

Total assets 80,000

Liabilities 15,000

Loan payable to Partner A 10,000

Loan payable to Partner B 17,000

A, capital (80%) 20,000

B, capital (20%) 18,000

Total liabilities and equity 80,000


Case #1: Lump-sum liquidation
All the non-cash assets are sold for ₱50,000.
Requirement: Determine the amounts distributable to A and B in the liquidation.

Step 1: Compute for the gain or loss on the sale

NON-CASH ASSETS ₱50,000

NET CASH PROCEEDS ₱50,000

LESS: CARRYING AMOUNT OF NON-CASH ASSETS ₱80,000

TOTAL LOSS ON SALE (₱30,000)

STEP 2: ALLOCATE THE GAIN OR LOSS TO THE PARTNERS’ CAPITAL BALANCES (INCLUDE THEIR RIGHT OF
OFFSET)

A (80%) B (20%) TOTAL

Capital balances 20,000 18,000 38,000

Payable to A (right of offset) 10,000 10,000

Payable to B (right of offset) ________ 17,000 17,000

Total 30,000 35,000 65,000

Allocation of loss

(30,000 X (80%; 20%) (24,000) (6,000) (30,000)

Amts. received by the partners 6,000 29,000 35,000


Case #2: Installment liquidation

The non-cash assets are sold in installments. Settlement of partners’ claims shall be made
in installments as cash becomes available. In the first sale, three-fourths (3/4) of the non-
cash assets are sold for ₱45,000.
Requirement: Determine the amounts distributable to A and B after the first installment sale.

Step 1: Compute for the gain or loss on the sale

NON-CASH ASSETS ₱45,000

NET CASH PROCEEDS ₱45,000

LESS: CARRYING AMOUNT OF NON-CASH ASSETS ₱80,000

TOTAL LOSS ON SALE (₱35,000)

STEP 2: ALLOCATE THE GAIN OR LOSS TO THE PARTNERS’ CAPITAL BALANCES (INCLUDE THEIR RIGHT OF
OFFSET)

A (80%) B (20%) TOTAL

Capital balances 20,000 18,000 38,000

Payable to A (right of offset) 10,000 10,000

Payable to B (right of offset) ________ 17,000 17,000

Total 30,000 35,000 65,000

Allocation of loss (28,000) (7,000) (35,000)

(35,000 X (80%; 20%)

Amts. received by the partners 2,000 28,000 30,000

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