PARTNERSHIP

LIQUIDATION
(LUMP-SUM)
 Objective:

“ 1. Computation of gains or losses on

realization of assets
2. Payment of liabilities
3. Final distribution of cash to partners

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Causes of Liquidation:
▸ accomplishment of the purpose
▸ termination of the term/period
▸ bankruptcy of the firm
▸ mutual agreement

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1 Cash Distribution
Cash Distribution
▸ To outside Creditors
▸ To partners for loan
▸ To partners for capital accounts

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“ Always allocate and close gains or losses
to partners’ capital accounts prior to
distributing any cash to the partners,
including income or loss from operations
before liquidation.

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 Methods of Partnership
2 Liquidation
Methods of Partnership
Liquidation
1) Lump-Sum Liquidation
2) Installment Liquidation

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3 Lump-Sum Liquidation
Liquidation Process
Liquidation Process
1) Realization of noncash asset and distribution of
gains or loss on realization (P/L)
2) Payment of Expenses (liquidation
3) Payment of Liabilities
4) Elimination of partner’s capital deficiencies
5) Payment to partners
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4 Solution Format
Solution Format
Partners Capital (after closing all nominal accounts)
Add: Partners Loan to Partnership
Less: Partners Loan from Partnership
Adjusted Capital
Gain/(Loss on realization)
Cash Distribution
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Cash for Distribution

To compute for available cash for

distribution:
Cash beg. + proceeds – liquidation expense
– liabilities – cash withheld

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Terms with the same meaning:
Payable to partner is same as loan from partner,
loan to partnership, and if the partner loan is in the
asset side.

Receivable from partner is same as loan to

partner, loan from partnership, and if the partner
loan is in the liability side.

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Terms with the same meaning:
Payable to partner is same as loan from partner,
loan to partnership, and if the partner loan is in the
asset side.

Receivable from partner is same as loan to

partner, loan from partnership, and if the partner
loan is in the liability side.

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5 Illustration (scenarios)
Illustration 1:
The partners of DEF Partnership decide to liquidate the business
presented below:
Cash P20,000 Liabilities P28,000
Other Asset 80,000 D, Loan 2,000
D, Capital (40%) 9,000
E, Capital (40%) 21,000
F, Capital (20%) 40,000

All partners are solvent. The other asset is realized at P60,000.

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Illustration 2:
The partners of DEF Partnership decide to liquidate the business
presented below:
Cash P20,000 Liabilities P28,000
Other Asset 80,000 D, Loan 2,000
D, Capital (40%) 9,000
E, Capital (40%) 21,000
F, Capital (20%) 40,000

All partners are solvent. The other asset is realized at P55,000.

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Illustration 3:
The partners of DEF Partnership decide to liquidate the business
presented below:
Cash P20,000 Liabilities P28,000
Other Asset 80,000 D, Loan 2,000
D, Capital (40%) 9,000
E, Capital (40%) 21,000
F, Capital (20%) 40,000

All partners are solvent. The other asset is realized at P49,500.

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Illustration 4:
The partners of DEF Partnership decide to liquidate the business
presented below:
Cash P20,000 Liabilities P28,000
Other Asset 80,000 D, Loan 2,000
D, Capital (40%) 9,000
E, Capital (40%) 21,000
F, Capital (20%) 40,000

E and F are solvent while D is insolvent. The other asset is realized at

P49,500.
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Illustration 5:
The partners of DEF Partnership decide to liquidate the business
presented below:
Cash P20,000 Liabilities P28,000
Other Asset 80,000 D, Loan 2,000
D, Capital (40%) 9,000
E, Capital (40%) 21,000
F, Capital (20%) 40,000

All partners are insolvent. The other asset is realized at P30,000.

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Illustration 6:
The partners of DEF Partnership decide to liquidate the business
presented below:
Cash P20,000 Liabilities P28,000
Other Asset 80,000 D, Loan 2,000
D, Capital (40%) 9,000
E, Capital (40%) 21,000
F, Capital (20%) 40,000

All partners are solvent. If E receives P9,000 after liquidation, how

much is the realization of the noncash asset?
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Illustration 7:
The partners of DEF Partnership decide to liquidate the business
presented below:
Cash P20,000 Liabilities P28,000
Other Asset 80,000 D, Loan 2,000
D, Capital (40%) 9,000
E, Capital (40%) 21,000
F, Capital (20%) 40,000

All partners are solvent. If F share in the loss on realization is P8,000,

how much did E receive after liquidation?
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Illustration 8:
The partners of DEF Partnership decide to liquidate the business
presented below:
Cash P20,000 Liabilities P28,000
Other Asset 80,000 D, Loan 2,000
D, Capital (40%) 9,000
E, Capital (40%) 21,000
F, Capital (20%) 40,000

All partners are insolvent. If F receives P29,500, how much is the loss
on realization?
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Illustration 9:
The partners of DEF Partnership decide to liquidate the business
presented below:
Cash P20,000 Liabilities P28,000
Other Asset 60,000 D, Loan 12,000
F, Loan 20,000 D, Capital (40%) 9,000
E, Capital (40%) 21,000
F, Capital (20%) 30,000

All partners are insolvent. If noncash asset is realized at P15,000, how

much did F receive?
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