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ADVANCED FINANCIAL ACCOUNTING & REPORTING PROF. ROEL E. HERMOSILLA

ACCOUNTING FOR PARTNERSHIP

PARTNERSHIP LIQUIDATION

A liquidation is the winding up of the partnership business. That is, it sells all of its noncash assets
called realization, pays its liabilities, and makes a final liquidating distribution to the remaining
partners.
There are four basic steps to a partnership’s liquidation.
1. Any operating income or loss up to the date of the liquidation should be computed and
allocated to the partner’s capital accounts on the basis of their P&L ratio.
2. All noncash assets are sold and converted to cash. The gain (loss) realized on the sale of
such assets is allocated to the partners’ capital account on the basis of their P&L ratio.
3. Any creditors’ claims, including liquidation expenses or anticipated future claims, are satisfied
through the payment or reserve of cash.
4. The remaining unreserved cash is distributed to the remaining partners in accordance with
the balance in their capital accounts. Note that this is not necessarily the P&L ratio.

Two factors that may complicate the liquidation process are the existence of loans or advances
between the partnership and one or more of the partners, or the creation of a deficit in a partner’s
capital account because of the allocation of a loss. When loans exist between the partnership and a
partner, the capital account and the loan(s) are combined to give a net amount. This is often
referred to as the right of offset. When a deficit exists, the amount of the deficit is allocated to the
remaining solvent partners’ capital accounts on the basis of their relative P&L ratio. Note here that if
the partner with capital deficit is personally solvent, he has a liability to the remaining partners for
the amount of the deficit.
There are two topics that appear with regularity on the CPA examination in regard to the
liquidation of a partnership. They are the statement of partnership liquidation and the determination
a “safe payment” in an installment liquidation.

a. Statement of Partnership Liquidation

The statement of partnership liquidation shows in detail all of the transactions associated with
the liquidation of the partnership. It should be noted here that the liquidation of a partnership can
take one of two forms: simple (lump-sum) or installment. A simple liquidation (illustrated below) is
one in which all of the assets are sold in bulk and all of the creditors’ claims are satisfied before a
single liquidating distribution is made to the partners. Because the assets are sold in bulk there is a
tendency to realize greater losses than if the assets are sold over a period time. As a result, many
partnership liquidate on an installment basis. In an installment liquidation the assets are sold over a
period of time and the cash is distributed to the partners as it becomes available.
Example: Statement of Partnership Liquidation - Simple Liquidation
Assume the following:
The capital balances are as given below.
The P&L ratio is 5:3:2 for A, B, and C, respectively.

Statement of Partnership Liquidation

Cash Other Assets Liabilities A B C
Balances P 50,000 P750,000 P450,000 P 120,000 P170,000 P60,000
Sale of assets 400,000 ( 600,000) (100,000) ( 60,000) (40,000)
450,000 150,000 20,000 110,000 20,000
Payment of liabilities (450,000) (450,000)
0 0
Sale of assets 100,000 ( 150,000) ( 25,000) ( 15,000) (10,000)
0 ( 5,000) 95,000 10,000
Distribution of A’s deficit 5,000 ( 3,000) ( 2,000)
0 92,000 8,000
 Page 2

Final distribution of cash (100,000) ( 92,000) ( 8,000)

Notice that after the noncash assets have been sold and the creditors satisfied, a P5,000 deficit
remains in A’s capital account. The deficit is allocated to the remaining solvent partners on the basis
of their relative P&L ratios, in this case, 3:2. A is liable to the partnership for the P5,000. If A is
personally solvent and repays the P5,000, then P3,000 will go to B and P2,000 will go to C.
If in the above example there had been liquidation expense or loans between the partnership
and partners these would have to be recognized in the statement prior to any distribution to
partners.
b. Installment Method of Cash Distribution
There are two keys to preparing a statement of partnership liquidation under the installment
method: the determination of the available cash balance at any given point in time and the
determination of which partner(s) is(are) to receive the payment of that cash. The reason that the
cash is not distributed in accordance with the P&L ratio is twofold: first the final cash distribution is
based upon the balance in each partner’s capital account, not the P&L ratio, and second, there will
be situations, as illustrated in the previous example, where one or more partners will have deficit
balances in their capital accounts. If this is the case, they should never receive a cash distribution,
even if the deficit does not arise until late in the liquidation process.

The determination of the available cash balance is generally very straightforward. The beginning
cash balance (cash on hand at the start of the liquidation process) is adjusted for the cash receipts
from receivables, sale of noncash assets, payment to creditors, and liquidation expenses incurred. A
situation may occur where a certain amount of cash is to be reserved for payment of future liabilities
that may arise. If this is the case, this cash should be treated as noncash asset which makes it
unavailable for current distribution to the partners.

The determination of which partner(s) is(are) to receive the available cash is somewhat more
difficult. There are a number of ways to make this computation, all of which are equally correct in
the eyes of the examiners. This determination can be made at the beginning of the liquidation
process or at the time of each payment. In making this determination there are two key assumptions
that must be made: (1) the individual partners are assumed to be personally insolvent, and (2) the
remaining noncash assets are deemed to be worthless (thus creating a maximum possible amount of
loss).

One method of determining the amount of the “safe payment” is the use of an Installment Cash
Distribution Schedule. This schedule is prepared by determining the amount of loss required to
eliminate each partner’s capital account. As noted above, all of the remaining noncash assets are to
be considered worthless at the time a safe payment is determined. Thus if we determine the amount
of loss required to eliminate each partner’s capital balance, we can determine the order in which the
partners should receive the cash payments.

When preparing this schedule it is important to make sure that the proper capital balance is
used. The capital balance used must be inclusive of any loans or advances between the partnership
and partners. Thus, the capital balance at the beginning of the liquidation process is increased by
any amount owed to the partner by the partnership, and decreased by any amount owed to the
partnership by the partner.

Example: Schedule of Possible Losses and Installment Cash Distribution

Assume the same data as used for the previous example.
A, capital B, capital C, capital Total
Capital balances P120,000 P170,000 P60,000 P350,000
Loss to eliminate A (120,000) ( 72,000) (48,000) 240,000
0 98,000 12,000
Additional loss to eliminate C ( 18,000) (12,000) 30,000
80,000 0
Additional loss to eliminate B ( 80,000) 80,000
0 P350,000

The total capital balance of P350,000 indicates that if the noncash assets are sold for P350,000
less than their book value, then none of the partners will receive a cash distribution. The purpose of
this schedule is to determine how much of a loss each partner’s capital account can withstand based
on that partner’s P&L ratio. In this example A’s capital would be eliminated if the partnership
incurred a P240,000 (P120,000/50%) loss, B’s would be eliminated by a P566,667 (P170,000/30%)
 Page 3

loss, and C’s by a P300,000 (P60,000/20%) loss. A is assumed to be eliminated first because it would
take the smallest amount of loss to eliminate his account Once A is eliminated as a partner, the P&L
ratios change to reflect the relative P&L ratio of the remaining partners, in this case B and C. Based
on the remaining capital balances and the relative P&L ratio, it would take a P163,333
(P98,000/60%) loss to eliminate B and a P30,000 (P12,000/40%) loss to eliminate C. Now that C is
eliminated, B will share all of the profits and losses as a sole partner (i.e., 100%). It will now take an
P80,000 loss to eliminate B’s capital. The resulting installment cash distribution schedule would
appear as follows (this schedule assumes that all creditors have already received full payment; thus,
the cash amount represents available cash):

Installment Cash Distribution Schedule

Partner A B C
First P 80,000 100%
Next 30,000 60% 40%
Next 240,000 50% 30% 20%
Any other 50% 30% 20%
While the example shown in the previous page was not an installment liquidation, the Installment
Cash Distribution Schedule shown above could still be used to determine how the available cash of
P100,000 is to be distributed. This is illustrated below.
Partner A B C
First P 80,000 P 80,000
Next 20,000 12,000 P8,000
P 100,000 P92,000 P8,000
The above amounts can also be determined by simply computing the loss absorption capacity of
each partner. The loss absorption capacity pertain to the amount of loss a partner’s capital can
absorbed. As already explained above, A’s capital can only absorb P240,000 loss (P120,000/50%),
whereas, B’s capital can absorb P566,667 loss (P170,000/30%) and C’s capital can absorb up to
P300,000 loss (P60,000/20%). In this case, B’s capital has the highest loss absorption capacity in
which the amount of cash to be paid to B before other partners can share should be P80,000
(P566,667 - P300,000) x 30%, known as priority 1 or allocation 1. After giving P80,000 to B his
capital balance will have a loss absorption capacity equal that of C P300,000, (P170,000 - P80,000 =
P90,000/30%).

The next available cash to be distributed known as priority 2 or allocation 2 can be determined by
simply getting the difference between the loss absorption capacity of B or C and that of A multiply
by B and C’s P&L ratio. In this case, B’s share under priority 2 is P18,000 (P300,000 - P240,000) x
30% and C’s share is P12,000 (P300,000 - P240,000) x 20%. After giving P18,000 to B and P12,000
to C, their capital balances will be P72,000 for B (P90,000 - P18,000) and P48,000 for C (P60,000 -
P12,000). The partners capital balances after priority 2 will have the same amount of loss absorption
capacity in which case any additional cash distributed can be made based on the partners’ P&L ratio,
in this case, 50%;30%;20%.

ADDITIONAL ILLUSTRATIONS:

Example 1. Partners A, B, and C decided to liquidate their partnership. A balance sheet was prepared
on this date as follows:
ABC Partnership
Balance Sheet
As of March 1, 202A

Cash P 20,000 Accounts Payable P 25,000

Other Assets 180,000 Loan Payable, B 5,000
A, Capital 50,000
B, Capital 45,000
_______ C, Capital 75,000
P200,000 P200,000

Profits and losses are divided in the ratio of 2:3:1, respectively. The non- cash assets were sold for
P68,000. All the partners are solvent, except for B.

ABC Partnership
Statement of Partnership Liquidation
 Page 4

March 1, 202A
CAPITAL BALANCES
Other Loan
Cash Assets Liabilities Due to B A (2/6) B (3/6) C (1/6)
Balances before liquidation P20,000 P180,000 P 25,000 P5,000 P50,000 P45,000 P75,000
Sale of assets at a loss 68,000 (180,000) (37,333) (56,000) (18,667)
Balances after sale 88,000 -- 25,000 5,000 12,667 (11,000) 56,333
Payment of liabilities (25,000) (25,000)
Balances after payment 63,000 -- -- 5,000 12,667 (11,000) 56,333
Right of offset (5,000) 5,000
Balances after right of offset 63,000 -- -- -- 12,667
(6,000) 56,333
Deficiency balance of B
absorbed by A & C (4,000) 6,000 (2,000)
Balances P63,000 -- -- -- P8,667 -- P54,333
Payments to partners (63,000) (8,667) (54,333)

Since B’s share in the loss on realization is greater than his capital balance, a capital deficiency results.
The loan payable to B is not sufficient to absorb the deficiency, and since he is insolvent, the other
partners absorb the deficiency balance as a loss. This will decrease the payment to be received by
partners A and C.

Example 2. On December 31, 202A, the balance sheet of XX, YY, and ZZ is as follows:

XYZ Partnership
Balance Sheet
December 31, 202A

Cash P 15,000 Liabilities P 50,000

Non- cash Assets 265,000 Loan Payable, YY 20,000
Loan Payable, ZZ 10,000
XX, Capital 48,000
YY, Capital 72,000
________ ZZ, Capital 80,000
P280,000 P280,000

Profits and losses were shared as follows: XX, 30%; YY, 30%; and ZZ, 40%. It was decided to
liquidate the business. The following is a summary of the realization and liquidation:
Book Value
Of Asset Cash Expenses Liabilities
__Month_ _Realized_ Collected _Paid__ Paid__
January P 50,000 P 20,000 P 1,000 P 24,000
February 80,000 60,000 3,000 ---
March 75,000 50,000 4,000 26,000
April 60,000 30,000 2,000 ---

Required: Prepare a Statement of Partnership Liquidation. When necessary, this statement should
be supplemented by supporting schedules. In the general ledger, the loan accounts are
not to be closed into the capital account.

CASH PRIORITY PROGRAM

 Page 5

BALANCES PAYMENTS
XX YY ZZ XX YY ZZ TOTAL
Total Interests 48,000 92,000 90,000
Divide by: P/L 30% 30% 40%
ratio
Loss Absorption 160,000 306,667 225,000
Bal.
1st Priority – YY (81,667) -- P24,500 -- P24,500
Balances P160,000 P225,000 P225,000
2nd Priority – YY, (65,000) (65,000) -- 19,500 26,000 45,500
ZZ
Balances P160,000 P160,000 P160,000 30% 30% 40%

XYZ PARTNERSHIP
Statement of Partnership Liquidation
January 1 to April 30, 202A

CASH NON-CASH LIAB. L/P- YY L/P- ZZ XX,CAP. YY,CAP. ZZ,CAP.

Balances P 15,000 P 265,000 P50,000 P20,000 P10,000 P48,000 P72,000 P80,000
JANUARY
Sale at a loss 19,000 (50,000) ______ _______ _______ ( 9,300) ( 9,300) (12,400)
Balances P34,000 P 215,000 P50,000 P 20,000 P10,000 P38,700 P62,700 P 67,600
Payment of
liabilities ( 24,000) ________ (24,000) _______ _______ _______ _______ _______
Balances P10,000 P 215,000 P 26,000 P 20,000 P10,000 P38,700 P62,700 P 67,600

FEBRUARY
Sale at a loss 57,000 ( 80,000) _______ _______ _______ ( 6,900) ( 6,900) ( 9,200)
Balances P67,000 P 135,000 P26,000 P 20,000 P10,000 P31,800 P55,800 P 58,400
Distribution to
partners (41,000) _______ _______ (20,000) ( 9,429) _______ (11,571) _______
Balances P26,000 P 135,000 P26,000 --- P 571 P31,800 P44,229 P 58,400

MARCH
Sale at a loss 46,000 ( 75,000) _______ _______ _______ ( 8,700) ( 8,700) (11,600)
Balances P72,000 P 60,000 P26,000 --- P 571 P23,100 P35,529 P 46,800
Payment of
Liabilities (26,000) ________ (P26,000) --- _______ _______ _______ _______
Balances P 46,000 P 60,000 --- --- P 571 P23,100 P35,529 P46,800
Distribution to
Partners (46,000) ________ ________ _______ ( 571) ( 5,100) (17,529) (22,800)
Balances --- P60,000 --- --- --- P 18,000 P 8,000 P24,000

APRIL
Sale at a loss 28,000 ( 60,000) ________ _______ _______ ( 9,600) ( 9,600) (12,800)
Balances P 28,000 --- --- --- P 8,400 P 8,400 P11,200
Payments to
Partners ( 28,000) --- --- --- --- ( 8,400) ( 8,400) (11,200)

SCHEDULE OF CASH DISTRIBUTION

Total XX, Cap. YY, Loan YY, Cap. ZZ, Loan ZZ, Cap.
 Page 6

FEBRUARY
Payment to partners P 41,000
1st priority (full) ( 24,500) P 20,000 P 4,500
2nd priority (partial) ( 16,500) _____ 7,071 P 9,429
Cash distribution in February P 20,000 P 11,571 P 9,429
MARCH
Payment to partners P 46,000
2nd priority (balance) (29,000) P 12,429 P 571 P 16,000
3rd priority (17,000) P 5,100 5,100 6,800
Cash distribution in March P 5,100 P 17,529 P 571 P 22,800

The supporting computation in the preceding example is the Cash Priority Program, which can be
prepared before the start of the liquidation process. It is then, supported by the Schedule of Cash
Distribution for a clearer presentation of how the distribution to the partners were arrived at. Another
supporting computation that may be used is the Schedule of Safe Payments. This schedule is done on a
monthly basis with the same purpose in mind. And that is to determine the proper distribution of cash
among the partners. Using the same example, we are now going to prepare a Schedule of Safe
Payments:

SCHEDULE OF SAFE PAYMENTS

FEBRUARY XX YY ZZ__
Total Interests* P31,800 P75,800 P68,400
Less: Possible Loss** ( 40,500) ( 40,500) ( 54,000)
Balances P( 8,700) P35,300 P14,400
Absorption of Deficit 8,700 ( 3,729) ( 4,971)
Payments P31,571 P 9,429
MARCH
Total Interests P23,100 P35,529 P47,371
Less: Possible Loss ( 18,000) ( 18,000) ( 24,000)
Payments P 5,100 P17,529 P23,371

* TOTAL INTERESTS = CAPITAL + PAYABLE TO PARTNER -- RECEIVABLE FROM PARTNER.

** POSSIBLE LOSS = NON-CASH ASSET BALANCE+CASH WITHHELD FOR FUTURE EXPENSES.

Short cut technique of determining the amount of cash available to a partner or all partners will be
discussed inside the classroom. These are the common questions asked in the CPA board exam.
Examinees are no longer required to prepare in good form a statement of liquidation or a safe
payment schedule. The questions normally focuses on distribution of available cash to partners as to
how much will be their share and determination of the total liquidation loss. Hence, an examinee
should give his/her answer within the time limit required.

PROBLEMS
1. D, E and F are partners sharing profits in the ratio of 40:35:25, respectively. On December 31,
202A, they agree to liquidate. A balance sheet prepared on this date follows:

DEF Partnership
Balance Sheet
As of December 31, 202A
Cash P 2,000 Liabilities P 6,000
Other Assets 46,000 E, Loan 5,000
F, Loan 2,500
D, Capital 14,450
E, Capital 12,550
F, Capital 7,500
P48,000 P48,000

The results of liquidation are summarized below:

 Page 7

Book Cash Expenses of Cash W/held at end of month Liability

Value Realized Realization for estd. Future exps. paid
Realizations
January P12,000 P10,500 P500 P2,000 P4,000
February 7,000 6,000 750 1,250 2,000
March 15,000 10,000 600 500
April 12,000 4,000 400 ---

All cash available, except the amount withheld for future expenses, is distributed at the end of each
month.

Required: Determine the share of each partner every month of distribution.

2. The balance sheet of J, K and L Partnership shows the following information as of December 31,
202A:
Cash P 2,000 Liabilities P 5,000
Other Assets 28,000 J, Loan 2,500
J, Capital 12,500 J, Capital 12,500
K, Capital 7,000
L, Capital 3,000
P30,000 P30,000

Profit and loss ratio is 3:2:1,respectively, for J, K, and L. Other assets were realized as follows:
Date Cash Received Book Value
January, 202A P 8,000 P 9,000
February, 202A 3,500 7,700
March, 202A 12,500 11,300

Cash is distributed as assets are realized.

A) How much is the total loss to J?
B) How much is the total cash received by K?
C) How much cash does L receive in January?

3. Partners Allan, Benjamin, Charlie, and David have been operating TVN Partnership for ten years.
Due to a significant reduction in the demand for their product over recent years, the partners have
agreed to liquidate the partnership. At the time of liquidation, balance sheet accounts consisted of
cash, P103,500; noncash assets, P300,000; liabilities to outsiders, P60,000; capital credit balances
for partners Allan, Benjamin, and Charlie, P90,000, P150,000, and P120,000, respectively; and a
debit capital balance for partner David of P16,500.

Partners share equally in income and loss. It is estimated that the administrative cost of liquidation
will total P4,500. While preparing for liquidation, an unrecorded liability of P7,500 was discovered.

A) Assuming the available cash of P103,500 was distributed, how much must be the share of
partner Benjamin?
B) In order for partner David to receive at least P5,000, how much should the non cash assets
be sold for?

4. Balance sheet data for the firm of W, X, and Y as of January 1, 202A, follow:
Assets P1,225,000 Liabilities P 675,000
W, capital 200,000
_________ X, capital 200,000
P1,225,000 Y, capital ___200,000
P1,225,000
Partners share profits equally after the allowance of a salary to Y, the managing partner, of P7,500
monthly. As a result of operation losses sustained at the beginning of 202A, W advanced P150,000 to
the firm on April 1; it was agreed that he would be allowed interest at 6%. With continued losses,
the members decided to liquidate. Y agreed to take over partnership equipment in part settlement of
his interest, the transfer being made at an agreed value of P40,000. On November 1, P200,000 cash
was available for distribution to partners after sale of remaining assets and payment of partnership
obligations to outsiders. Y had withdrawn his salary for January and February but had not received
 Page 8

his salary for the period March 1 to November 1; no other cash payments had been made to
partners. Available cash was distributed on November 1 and the firm was declared dissolved.

How much cash should W received in the distribution of P200,000 cash available?

5. The accounts of the partnership of Dianne, Farrah and Ismael at the end of its fiscal year on
November 30, 202A are as follows:
Cash P 103,750 Loan from Farrah P 20,000
Other Non cash assets 707,500 Dianne, capital (30%) 266,250
Loan to Dianne 15,000 Farrah, capital (50%) 136,250
Liabilities 262,500 Ismael, Capital (20%) 141,250

If in the first distribution, Farrah received P 50,000, which of the following is incorrect?
A. Total amount distributed to partners is P 336,250
B. Total amount paid to creditors is P 262,500
C. Total amount realized from the non – cash assets is P 598,750.
D. Dianne received an amount equal to P 187,500.

6. The partnership of Daniel, Keith, and Ross is to be liquidated as soon as possible after December
31, 202A, and all cash on hand except for P20,000 contingency balance is to be distributed at the
end of each mon th until the liquidation is complete. Profits and losses are shared 30%, 50%,
and 20% to Daniel, Keith, and Ross, respectively.

A balance sheet of the partnership at December 31, 202A contains the following accounts and
balances:
Cash P 240,000 Accounts Payable P 300,000
Accounts Receivable 280,000 Notes Payable 200,000
Loan to Ross 40,000 Loan from Keith 20,000
Inventories 400,000 Daniel, Capital 340,000
Land 100,000 Keith, Capital 340,000
Equipment (net) 300,000 Ross, Capital 200,000
Goodwill 40,000
P1,400,000 P 1,400,000

In January, 202B, the loan to Ross was offset against his capital balance and the goodwill is written
off. P200,000 is collected on account, inventory items that cost P160,000 are sold for P200,000,
and cash is distributed.

A) If available cash is distributed on January 31, 202B, Daniel, Keith, and Ross, respectively, should
receive:

B) If a cash distribution plan is developed as of January 1, 202B, the vulnerability ranks (1 is most
vulnerable) for Daniel, Keith, and Ross is:

7. After all partnership assets were converted into cash and all available cash were distributed to
creditors, the following were determined:
Ledger Balances Personal Assets Personal Liabilities
Accounts Payable P 20,000
Rose, Capital (30%) 10,000 P 50,000 P 45,000
Sol, Capital (30%) 60,000 50,000 40,000
Taz, Capital (40%) (90,000) 100,000 40,000

The partnership creditors proceed against Taz for recovery of their claims, and the partners settle
their claims against each other. The amount recovered by Sol from Taz is:
A. P 55,000
B. P45,000
C. P40,000
D. P60,000

8. Capital balances of partners Q, R and S are the following before liquidation: 87,000, 95,500 and
106,250 each respectively. The partnership has a loan from partner Q in the amount of 8,000; loan
 Page 9

to partner R in the amount of 4,500, advances to partner S in the amount of 6,500. The partners’
profit and loss ratio is 25:40:35 each respectively.

A) In the first installment sale, the total cash paid to partners is 57,000, how much did partner S
receive?
A. 0 C. 13,854
B. 19,396 D. 20,125

B) If partner Q received 20,000 in the first installment and partner S received 12,396 in the
second installment, how much is received by partner Q as of the second installment and how
much is the total cash paid to the partners in the second installment?
A. 12,604 and 25,000 C. 23,750 and 30,000
B. 8,854 and 30,000 D. 32,604 and 25,000

9. The following is the Financial Position of IKR Partnership as of December 31, 202A.

Assets Liabilities & Equity

Cash 15,000 Loan from K 6,000
Non-Cash 95,000 Liabilities 20,000
Receivable from I 5,000 I, Capital (15%) 33,000
Loan to R 4,000 K, Capital (55%) 25,000
R, Capital (30%) 35,000
Total Assets 119,000 Total Liabilities & Equities 119,000

A) If 40,000 of the book value of the non-cash assets are sold for 18,000, additional liquidation
expenses of 2,500 are incurred and paid, cash withheld is 5,400, and all of the outside creditors
are paid, how much is the total cash paid to partners during the first installment?
A. 15,265 C. 5,100
B. 5,530 D. 10,500

B) During the first installment the following data are relevant: 56,000 of the book value of the non-
cash assets are sold for 38,000; additional liquidation expenses of 12,000 are incurred and paid;
all of the outside creditors are also paid. If I received 11,000 during the first installment, how
much is the cash withheld?
A. 8,500 C. 9,500
B. 10,000 D. 10,500

10. The balance sheet of the partnership of Gerald, Derek and Luis are shown below:
GMA Partnership
Balance Sheet
December 31, 202A
Cash 50,000 Liabilities 80,000
Non-Cash 250,000 Gerald, Capital (50) 100,000
Derek, Capital (25) 75,000
Luis, Capital (25) 45,000
Total 300,000 Total 300,000

On January 202B, certain non-cash assets were sold for a certain amount. Liquidation expenses
and liabilities of 4,000 and 25,000 were paid. Future liquidating expenses of 5,000 are
anticipated. Derek received 42,750 from the first distribution of available cash.

A) How much is the cash received from the realization of the NCAs?
A. 120,000 C. 130,000
B. 140,000 D. 75,000

B) Assuming that on February 202B, the remaining non-cash assets were sold for 75,000 and
liquidating expenses of 5,000 are paid, how much is the total cash received by Gerald from
the two distributions of cash?
A. 37,500 C. 75,000
B. 73,000 D. 74,000
 Page 10

11. On December 31, 202A, the Statement of Financial Position of IWP Partnership shows the following
data with profit or loss sharing of 2:3:5.
Cash 15,000,000 Liabilities 20,000,000
Other Noncash assets 40,000,000 I, Capital 15,000,000
K, Capital 12,500,000
R, Capital 7,500,000

On January 1, 202B, the partners decided to wind up the partnership affairs. During the winding
up, liquidation expenses amounting to P2,000,000 were paid. Non-cash assets with book value of
P30,000,000 were sold during January. 40% of total liabilities were also paid during January.
P3,000,000 cash was withheld during January for future liquidation expenses. On January 31,
202B, partner I received P10,000,000.

A) What is the amount received by partner K on January 31, 202B?

A. 2,500,000 C. 5,000,000
B. 7,500,000 D. 3,000,000

B) What is the net proceeds from the sale of non-cash assets during January 1, 202B?
A. 25,000,000 C. 22,000,000
B. 20,000,000 D. 23,000,000

12. On December 31, 202A Caleb Adrian Miles partners Caleb, Adrian and Miles have capital balances
of P252,000; P368,000 and P305,000 respectively. The partnership has P275,000 liabilities
including a loan from Adrian amounting to P20,000 and cash of P175,000.

On June 1, 202B, the partnership decided to liquidate. Its net income from January to June 1
amounted to P348,000. The partnership’s profit and loss distribution calls for annual salaries of
P134,400; P158,400 and P115,200 for Caleb, Adrian and Miles respectively. Any remainder will be
distributed as follows: 25% to Caleb 25% to Adrian and 50% to Miles. The partnership’s cash as
of this date amounted to P250,000 and its total liabilities amounted to P307,000 excluding the loan
from Adrian.

For the month of June, noncash assets with a book value of P400,000 were sold for a certain
amount. The partnership paid P67,000 of its liabilities to outside creditors. Liquidation expenses
amounting to P44,000 were paid and cash will be withheld for the payment of its remaining
liabilities to outsiders.

A) How much were the noncash assets sold for in order for Adrian to receive the amount of
priority due to him and an additional P7,500?
A. P540,000
B. P520,000
C. P519,000
D. P419,000

For the month of July, noncash assets were sold for P432,000 resulting to a loss of P18,000.
Remaining liabilities to outsiders were paid and P425,000 were distributed to the partners. P5,000
were paid for liquidation expenses.

B) What is Miles share in the maximum possible loss after the July sale of noncash assets?
A. 231,000
B. 250,000
C. 251,000
D. 225,000

C) What is Caleb’s capital balance after the second cash distribution?

A. 125,500
B. 101,250
C. 106,250
D. 85,000
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13. H & C partnership provided you with the following account balances as of December 31, 202D:
Cash 390,000 Liabilities 310,000
Noncash assets 1,100,000 Loan from Hector 25,000
Loan to Sunshine 10,000 Hector Capital (20) 450,000
Charlene Capital (20) 325,000
Sunshine Capital(60) 390,000
On December 31, 202D Charlene decides to leave the partnership and he got paid 80% of his
balance.
After four months of an attempt to carry on with the partnership, Hector and Sunshine decided to
liquidate. A net loss amounting to P124,000 was realized. In connection with this, P84,000 was the
net cash inflow during the first four months of 202E and the partnership’s liabilities increased by
P40,000. Half of the noncash assets were sold at a loss of P120,000.

Liquidation expenses of P35,000 are expected to be incurred in due course of liquidating the
partnership. P275,000 of the total liabilities to outside creditors were paid. Available cash was
distributed to partners.

How much is Hector’s total interest after the first cash distribution?
A. P279,250
B. P364,250
C. P255,250
D. P125,250

14. Following is the Statement of Financial Position of QRST Partnership at March 31, 202A when the
partnership is to be liquidated:
Assets Liabilities and Capital
Cash P41,250.00 Liabilities P85,250.00
Other Assets 866,250.00 Q, Loan 82,500.00
R, Loan 99,000.00
T, Loan 66,000.00
Q, Capital (25%) 111,375.00
R, Capital (25%) 82,500.00
S, Capital (25%) 259,187.50
T, Capital (25%) 121,687.50

During the month of April, 202A, assets having a book value of 123,750 are sold at a loss of
P16,500. Liquidation expenses of P4,125 are paid as well as P49,500 of the liabilities. Of the
liabilities shown in the statement of financial position, P1,650 represents salaries payable to T and
P1,100 represents salaries payable to S.

The cash to be distributed to Q, R, S and T would be:

A. P0; P0; P0; P13,406.25
B. P13,406.25 for each partner
C. P0; P0; P61,875; P0
D. P0; P0; P0; P61,875

15. The partnership of X, S, and W decided to liquidate their partnership on May 31, 202A. Before
liquidating and sharing net income, their capital balances are as follows: X(30%) 250,000; S(30%)
180,000 and W(40%)220,000. Net income from January 1 to May 31 is 120,000. Liabilities of the
partnership amounted to 210,000 and its total assets include cash amounting to 70,000.

Unsettled liabilities are 110,000. X invested additional cash enough to settle their partnership’s
indebtedness. S is personally solvent, and W becomes insolvent after investing the cash needed by
the partnership.

A) How much were the partnership’s non-cash assets sold for?

A. 45,000
B. 30,000
C. 880,000
D. 150,000

B) How much cash will S invest in the partnership?

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A. 90,000
B. 84,000
C. 48,000
D. 20,000

C) How much will X receive as a result of their liquidation?

A. 0
B. 132,000
C. 110,000
D. 90,000

16. On January 1, 202A, Grapple Co entered into liquidation. The partners’ capital balances on this date
are as follows: A(25%) P125,000; B(35%) P270,000 and C (40%) P185,000. The partnership has
liabilities amounting to P220,000 including a loan from B(30,000). Cash on hand before the start of
liquidation is P40,000. With the information given, answer the following independent situations:

A) Certain assets were sold for P370,000 and the rest of the noncash assets were sold at a loss of
210,000. How much cash will be distributed to the partners?
A. 220,000
B. 590,000
C. 400,000
D. 370,000

B) If B received 112,750, how much was the loss from the realization of the noncash assets?
A. 497,250
B. 535,000
C. 262,750
D. 526,250

17. Capital balances of partners after exhausting their non-cash assets are as follows:
A(20) U(10) B(10) R(10) I(20) O(10) N(20)
(54,000) 20,000 (66,000) (12,000) 35,000 10,000 (40,000)

Partners R, I, O and U are personally solvent. How much cash must O contribute to the
partnership? (Round off your answer to the nearest peso)
A. 29,000
B. 12,000
C. 0
D. 22,000

18. JKL is entering into liquidation and you are given the following account balances:

Cash 155,000 Liabilities 220,000

Noncash 1,350,000 Loan from Jemma 30,000
Kiara, Capital (20) 255,000
Lily, Capital (20) 325,000
Jemma, Capital (60) 675,000

During September, noncash assets with a book value of 375,000 were sold for 320,000. The
partnership paid 35,000 for the liquidation expenses it incurred and it also paid half of its liabilities
to outside creditors. Creditors whose account balances amount to 30,000 decided to condone the
partnership’s liabilities and ¾ of the cash received from the sale of noncash assets were distributed
to partners.

How much is (1) Kiara’s share in the maximum possible loss? (2) Jemma’s capital after the first cash
distribution?
A. 197,000; 621,000
B. 195,000; 561,000
C. 195,000; 591,000
D. 197,000; 591,000

19. After all partnership assets were converted into cash and al available cash were distributed to
creditors, the following were determined:
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Ledger Balances Personal Assets Personal Liabilities

Accounts Payable P 30,000
R, capital (30%) 15,000 P 75,000 P 67,500
S, capital (30%) 90,000 75,000 60,000
T, capital (40%) (135,000) 150,000 60,000

The partnership creditors proceed against T for recovery of their claims, and the partners settle
their claims against each other. The amount recovered by S from T is:
A. P 82,500
B. P 67,500
C. P 60,000
D. P 90,000

20. The partnership of B, O and Y was dissolved on October 30, 2018, and the account balances after
all noncash assets are converted to cash on November 1, 2018, along with residual profit and loss
sharing ratios, are:
Cash P 50,000
Accounts payable P120,000
B, capital (30%) 90,000
O, capital (30%) (60,000)
Y, capital (40%) (100,000)
Personal assets and liabilities of the partners at November 1, 2018 are:
Personal assets Personal liabilities
B P 80,000 P 90,000
O 100,000 61,000
Y 100,000 80,000
If Y contributed P70,000 to the partnership to provide cash to pay the creditors, what amount of B’s
P90,000 partnership equity would appear to be recoverable?

/cde