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8904 - Modification of An Information in Partnership Liquidation Problem 2
8904 - Modification of An Information in Partnership Liquidation Problem 2
expenses during the first installment on January. Stated in the problem is P50,000, but upon
further examination of the problem, the modified amount would have been P20,000. This is also
to reconcile the ending cash balance with the total cash withheld.
The concepts and techniques lectured in the live stream are TRUE and CORRECT, and can be
applied on the given problem to arrive at the correct answer after the modification has been
made. Below are the solutions for the given problem after applying the modification:
NOTE: Since this is the 1st installment, the personal net assets of solvent partner A in the
amount of 40,000 and the personal net assets of solvent partner B in the amount of 10,000
will not be applied. The deficiency of A in the amount of 400,000 will be absorbed by B and
C.
NOTE: At the end of the 1st installment, it is now very clear that all of the partners will not
receive any cash. Therefore the answer for the 1st question in the problem is still 0.
NOTE: Since we modified the amount of cash withheld for future liquidation expenses, the
modified answer for the 2nd question is 186,000 which is not in the choices.
Total cash withheld (Cash withheld for future liquidation expenses + Unpaid balance of
liabilities to outside creditors): 20,000 + (2,000,000 x 70%) = 1,420,000
NOTE: Since we modified the amount of cash withheld for future liquidation expenses, the
modified answer for the 3rd question is 1,420,000 which is not in the choices again.
Furthermore the ending cash balance and total cash withheld are RECONCILED.
A(50%) B(30%) C(20%)
Interest of partners 1st Installment 100,000 500,000 400,000
Loss on realization (150,000) (90,000) (60,000)
Liquidation expenses (40,000) (24,000) (16,000)
Gain on condoned liability - - -
Cash paid to partner - - -
Interest of the partners 2nd Installment (90,000) 386,000 324,000
NOTE: Since the capital balances of the partners after absorbing the gain on realization
and liquidation expenses are all positive, then the personal net asset in the amount of
40,000 of solvent partner A and the personal net asset in the amount of 10,000 of solvent
partner B are irrelevant. We will only use the personal net assets of A and B if their capital
balances are negative. Therefore the answer for the 4th and last question in the problem
still remains at 15,000.
PS.
We will provide an updated handout 8904 with the modified given for problem no. 2 and its
respective modified choices for question no. 2 and question no. 3.