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