Exercise 1

The partners plan a program of piecemeal conversion of assets to minimize liquidation losses. All
available cash, less an amount retained to provide for future expenses, is to be distributed to the
partners at the end of each month. A summary of liquidation transactions is as follows:

January 2021
1. Php51,000 was collected on accounts receivable; the balance is uncollectible.
2. Php38,000 was received for the entire inventory
3. Php2,000 liquidation expenses were paid.
4. Php 50,000 was paid to creditors, after offset of a Php3,000 credit memorandum
received on January 11, 2021.
5. Php10,000 cash was retained in the business at the end of the month for potential
unrecorded liabilities and anticipated expenses.

February 2021
6. Php4,000 liquidation expenses were paid
7. Php6,000 cash was retained in the business at the end of the month for potential
unrecorded liabilities and anticipated expenses.

March 2021
8. Php146,000 was received on sale of all items of machinery and equipment
9. Php5,000 liquidation expenses were paid
10. No cash was retained in the business.
Required: Prepare a Statement of Partnership Liquidation with a Schedule of Safe
Payments to Partners.

AA,BB and CC Partnership

Statement of Partnership Liquidation

Cash Other Accounts AA Capital BB Capital CC

Asset Payable (50%) (30%) Capital
(20%)

Balances before the 18,000 307,000 53,000 88,000 110,000 74,000

liquidation

January Transactions:

1. Collections of A/R at 51,000 (66,000) (7,500) (4,500) (3,000)

loss of 15,000(66k-51k)

2.Sale of inventory at 38,000 (52,000) (7,000) (4,200) (2,800)

loss of 14,000(52k-38k)

3.Liquidation expenses (2,000) (1,000) (600) (400)

paid

4.Sharing of credit (3,000) (1,500) (900) (600)

memorandum

5.Payment to creditors (50,000) (50,000)

Total after transactions 55,000 189,000 0 71,000 99,800 67,200

Sale payments to (39,000) (23,000) (16,000)

partners (refer to
schedule 1)

Balances 16,000 189,000 0 71,000 76,800 51,200

February transactions:

1.Liquidation expenses (4,000) (2,000) (1,200) (800)

paid
Total after transaction 12,000 189,000 0 69,000 75,600 50,400

Sale payments to 0 0 0 0
partners (refer to
schedule 2)

Balances 12,000 189,000 0 69,000 75,600 50,400

March Transactions

1.Sale of Mach. and 146,000 (189,000) (21,500) (12,900) (8,600)

Equipt. at loss of
43,000(189,000-146,000)

2.Liquidation expenses (5,000) (2,500) (1,500) (1,000)

paid

Balances 153,000 0 0 45,000 61,200 40,800

Payments to partners (153,000) (45,000) (61,200) (40,800)

Balances at the end of 0 0 0 0 0 0

liquidation
Partnership

Schedules of Safe Payments to Partners

Schedule 1. January 2021

AA(50%) BB(30%) CC(20%)

Capital balances 71,000 99,800 67,200

Possible loss: (99,500) (59,700) (39,800)

other assets and possible liquidation cost(189,000+10,000)

Balances (28,500) 40,100 27,400

Absorption of AA deficit balance 28,500 (17,100) (11,400)

BB=28,500x3/5=17,100
CC=28,500x2/5=11,400

Safe payments 0 23,000 16,000

Schedule 2. February 2021

AA(50%) BB(30%) CC(20%)

Capital balances 69,000 75,600 50,400

Possible loss: (97,500) (58,500) (39,000)

other assets and possible liquidation cost(189,000+6,000)

Balances (28,500) 17,100 11,400

Absorption of AA deficit balance 28,500 (17,100) (11,400)

BB=28,500x3/5=17,100
CC=28,500x2/5=11,400

Balances 0 0 0