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PARTNERSHIP LIQUIDATION: INSTALLMENT METHOD
On December 31, 2014, the balance sheet of CDO Partnership is as follows:

ASSETS LIABILITIES
Cash 15,360 Accounts Payable 51,200
Noncash 271,36 Salary Payable, 10,240
assets 0 Cherry
Loan to 10,240 Dorie, Loan 20,480
Oscar
Cherry, Capital 38,912
(30%)
Dorie, Capital 73,728
(30%)
Oscar, Capital 102,40
(40%) 0
Total 296,96 Total 296,96
0 0
Profit and losses were shared as follows; CHERRY, 30%; DORIE, 30%; OSCAR, 40%. It was decided to liquidate
the business. The following is a summary of the realization and liquidation activities.
BOOK CASH EXPEN LIABILITI CASH PAID
VALUE COLLECT SES ES TO
OF ASSET ED PAID PAID PARTNERS
REALIZED
1st 133,120 81,920 4,100 40,000 41,980
Period
2nd 76,800 51,200 4,800 11,200 40,000
Period
3rd 61,440 35,840 3,600 --- 38,640
Period
Total 271,360 168,960 12,500 51,200 120,620
Required:
1. Prepare a statement of liquidation, lump-sum.
2. Prepare a statement of liquidation for each period.
3. Prepare a program to show how cash is to be distributed to partners.
Solution:
Requirement #1: Lump-Sum Liquidation
CDO Partnership
Realization and Liquidation Activities
December 31, 2014
ASSETS LIABILITIES AND CAPITAL

Cash Non- Oscar, Accoun Salary Dorie, Cherry, Dorie, Oscar,
cash Loan ts Payabl Loan Capital Capital Capital
Assets Payabl e, (30%) (30%) (40%)
e Cherry
Balances 15,360 271,360 10,240 51,200 10,240 20,480 38,912 73,728 102,40
0
Sale of non-cash 168,960 (271,36 (30,72 (30,72 (40,96
assets 0) 0) 0) 0)
Payment of (12,500) (3,750) (3,750) (5,000)
expenses
Right of offset (10,24 (10,24 (20,48 10,240 20,480 (10,24
0) 0) 0) 0)
Payment of (51,200) (51,20
liabilities 0)
Balances 120,620 --- --- --- --- --- 14,682 59,738 46,200
Payment to (120,62 (14,68 (59,73 (46,20
partners 0) 2) 8) 0)
Balances --- --- --- --- --- --- --- --- ---
Balances derived from lump-sum liquidation (“cash received”):
CHERRY = 14,682; DORIE = 59,738; OSCAR = 46,200
Requirement #2: Installment Liquidation using Safe Payments Schedule
CDO Partnership
Realization and Liquidation Activities
December 31, 2014
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ASSETS LIABILITIES AND CAPITAL
Cash Non- Oscar, Accoun Salary Dorie, Cherry, Dorie, Oscar,
cash Loan ts Payabl Loan Capital Capital Capital
Assets Payabl e, (30%) (30%) (40%)
e Cherry
Balances 15,360 271,360 10,240 51,200 10,240 20,480 38,912 73,728 102,40
0
Right of offset (10,24 (10,24 10,240 (10,24
0) 0) 0)
Sale of noncash assets 81,920 (133,12 (15,36 (15,36 (20,48
PERIOD 1
0) 0) 0) 0)
Payment of expenses (4,100) (1,230) (1,230) (1,640)
Payment of liabilities (40,00 (40,00
0) 0)
Balances 53,18 138,24 --- 11,200 --- 20,48 32562 57,13 70,04
0 0 0 8 0
Payment to partners (see Safe (41,98 (20,48 (11,84 (9,653)
Payment #1) 0) 0) 7)
Balances 11,20 138,24 --- 11,200 --- --- 32,56 45,29 60,38
0 0 2 1 7
Sale of noncash assets 51,200 (76,800) (7,680) (7,680) (10,24
0)
PERIOD 2

Payment of liabilities (11,20 (11200
0) )
Balances 46,40 61,440 --- --- --- --- 23,44 36,17 48,22
0 2 1 7
Payment to partners (see Safe (40,00 (3,090) (15,81 (21,09
Payment #2) 0) 9) 1)
Balances 6,400 61,440 --- --- --- --- 20,35 20,35 27,13
2 2 6
Sale of noncash assets 35,840 (61,440) (7,680) (7,680) (10,24
PERIOD 3
0)
Balances 38,64 --- --- --- --- --- 11,59 11,59 15,45
0 2 2 6
Payment to partners (see Safe (38,64 --- --- --- --- --- (11,59 (11,59 (15,45
Payment #3) 0) 2) 2) 6)
Balances --- --- --- --- --- --- --- --- ---
CDO Partnership
Safe Payment Schedule – Period 1
CHERR DORIE OSCAR

Y (30%) (40%) TOTAL
(30%)
Capital balances 32,562 57,138 70,040 159,740
± Loan balances 20,480 20,480
Total interest 32,562 77,618 70,040 180,220
Hypothetical Loss:
(1) Book value of non-cash (41,47 (41,47 (55,29 (138,24
assets 2) 2) 6) 0)
Balances (8,910) 36,146 14,744 41,980
Hypothetical Loss:
(2) Insolvency 8,910 (3,819) (5,091) ---
Safe Payment --- 32,32 9,653 41,980
7
Apply to:
(1) Loan balances --- 20,480 20,480
(2) Capital --- 11,847 9,653 21,500
Total Payments --- 32,32 9,653 41,980
7
CDO Partnership
Safe Payment Schedule – Period 2
CHERR DORIE OSCAR

Y (30%) (40%) TOTAL
(30%)
Capital balances 23,442 36,171 48,227 107,84
0
Theoretical Loss:
(1) Book value of non-cash (18,43 (18,43 (24,57 (61,44
assets 2) 2) 6) 0)
(2) Cash withheld (1,920) (1,920) (2,560) (6,400)
Safe Payment 3,090 15,81 21,09 40,00
9 1 0
Safe Payment #3
There is no safe payment schedule to be done in Period 3 because the accounts payable has been paid and
non-cash assets are already realized. The remaining cash balance can now be distributed to the partners in
accordance with their profit and loss ratio.
Requirement #3: Installment Liquidation using Cash Priority Program
CDO Partnership
Schedule of Cash Received by the Partners
December 31, 2014
CHERR DORI OSCA TOTAL

Y E R
First Period --- 32,32 9,653 41,98
7 0
Second Period 3,090 15,81 21,09 40,00
9 1 0
Third Period 11,592 11,59 15,45 38,64
2 6 0
Total Cash 14,68 59,7 46,2 120,6
Received 2 38 00 20
CDO Partnership
Cash Priority Program
December 31, 2014
CHERR DORIE OSCAR CHERR DORI OSCA

Y (30%) (40%) Y E R
(30%) (30%) (30%) (40%)
Capital balances 38,912 73,728 102,40
0
± Loan balances 10,240 20,480 (10,24
0)
Total interests 49,152 94,208 92,160
Divide by P&L Ratio 30% 30% 40%
Loss Absorption Capacity 163,84 314,02 230,40
(LAC) 0 7 0
1st Priority (83,62 1st Priority 25,08
7) 8
Balances 163,84 230,40 230,40
0 0 0
2nd Priority (66,56 (66,56 2nd Priority 19,96 26,62
0) 0) 8 4
Balances 163,8 163,8 163,8 Total --- 45,0 26,6
40 40 40 56 24
Last Divide according to P&L
Priority Ratio
CDO Partnership
Safe Payments Schedule – Period 1
CHERR DORI OSCA

Y E R
First Period
(30%) (30% (40%
) )
Payment to Partners 41,980
1st Priority (see Cash Priority (25,08 25,08
Program) 8) 8
Balance 16,892
To Dorie: (16,892 × 3/7) (7,239) 7,239
To Oscar: (16,892 × 4/7) (9,653) 9,653
Total cash received --- --- 32,3 9,65
27 3
CDO Partnership
Safe Payments Schedule – Period 2
CHERR DORI OSCA

Y E R
Second Period
(30%) (30% (40%
) )
Payment to Partners 40,000
2nd Priority (see Cash Priority
Program)
To Dorie: (19,968 – 7,239) (12,72 12,72
9) 9
To Oscar: (26,624 – 9,653) (16,97 16,97
1) 1
Balance – last priority 10,300
To Cherry: (10,300 × 30%) (3,090) 3,090
To Dorie: (10,300 × 30%) (3,090) 3,090
To Oscar: (10,300 × 40%) (4,120) 4,120
Total cash received --- 3,090 15,8 21,0
19 91
The accounts of the partnership of PBA at December 31, 2014 are as follows:
Cash 132,000 Liabilities 100,000
Non-cash 1,166,0 Loan from 32,000
assets 00 B
Loan to P 24,000 P, Capital 330,000
B, Capital 586,000
A, Capital 274,000
Total 1,322,0 Total 1,322,0
00 00
They divide the profits and losses 3:5:2 to P, B, and A respectively. They have decided to liquidate the
partnership at this date.
Required:
1) Determine the amount payable to Partner A if cash is paid just before the start of liquidation on
December 31, 2014.
2) Determine the amount Partner P and Partner B would have received by the time Partner A would have
received a cumulative amount of P72,000.
Solution:
Requirement #1: Safe Payments Schedule
ANSWER = 28,286
P (30%) B (50%) A (20%)
± Loan balances (24,000) 32,000
Total interests 306,000 618,000 274,000
Hypothetical Loss:
(1) Book value of non-cash (349,80 (583,00 (233,20
assets 0) 0) 0)
Balances (43,800) 35,000 40,800
(2) Insolvency 43,800 (31,286) (12,514)
Safe Payments --- 3,714 28,286
Requirement #2: Safe Payments Schedule patterned under Cash Priority Program
ANSWER: P = 3,000; B = 113,000
PBA Partnership
December 31, 2014
P, B, A, P, B, A,
CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL
(30%) (50%) (20%) (30%) (50%) (20%)
± Loan balances (24,000) 32,000
Total interests 306,000 618,000 274,000
Divide by P&L Ratio 30% 50% 20%
Loss Absorption Capacity 1,020,00 1,236,00 1,370,00
(LAC) 0 0 0
)
Balances 1,020,00 1,236,00 1,236,00
0 0 0
2nd Priority (216,000 (216,000 2nd Priority 108,000 43,200
) )
Balances 1,020,0 1,020,0 1,020,0 Total --- 108,000 70,000
00 00 00
Last Divide according to P&L ratio
Priority
CDO Partnership
Safe Payments Schedule
P B A
(30%) (50%) (20%)
1st Priority (see Cash Priority 26,800
Program)
2nd Priority (see Cash Priority 108,00 43,200
Program) 0
Balance – last priority --- 108,00 70,000
0
P&L Ratio [(2,000 ÷ 20%) × 30%; 3,000 5,000 2,000
50%]
Total cash received 3,000 113,00 72,00
0 0
72,000 is the total amount of cash received by Partner A. The prioritized cash of A is 70,000. Therefore 2,000
(72,000 – 70,000) is the amount received by A from P&L sharing ratio for the balance.
On January 1, 2014, the partners CARLO, DIEGO, and EDGAR, who share profits and losses in the ratio of 5:3:2,
respectively, decided to liquidate their partnership. On this date the partnership condensed balance sheet was
as follows:
Cash 80,000 Liabilities 96,000
Other 400,00 Carlo, 128,00
assets 0 Capital 0
Diego, 144,00
Capital 0
Edgar, 112,00
Capital 0
Total 480,00 Total 480,00
0 0
On January 15, 2014, the first cash sale of other assets with a carrying amount of P240,000 realized P192,000.
Safe installment payments were made the same date.
Required: How much cash should be distributed to each partner?
Solution:
Requirement: Safe Payments Schedule
ANSWER = 24,000, 81,600, 70,400
CARLO, DIEGO, EDGAR
CAPITA CAPITA ,
L L CAPITA
(50%) (30%) L
(20%)
0 0 0
Loss on realization (192,000 – (24,00 (14,40 (9,600)
240,000) 0) 0)
Balances 104,00 129,60 102,40
0 0 0
Hypothetical Loss: Loss on sale of (60,00 (48,00 (32,00
NCA 0) 0) 0)
Safe Payments 24,00 81,60 70,40
0 0 0
ASSER, JING, and TONY are in the process of liquidating their partnership. They have the following capital
balances and profit and loss percentages:
Capital Profit and Loss
balance %
ASSE 8,000 debit 20%
R
JING 28,800 50%
credit
TONY 9,600 credit 30%
The partnership balance sheet shows cash of P8,000, non-cash assets of P22,400, and no liabilities. Assuming
no liquidation expenses, what safe payments could be made?
a. P8,000 split between JING and TONY by a ratio of 5:3, respectively
b. P8,000 to JING only
c. P1,600 to ASSER, P4,000 to JING, and P2,400 to TONY
d. P28,800 to JING only
Solution:
Requirement: Safe Payments Schedule
ANSWER: B. P8,000 to JING only.
ASSER JING TONY
(20%) (50%) (30%)
Capital balances (8,000) 28,800 9,600
Hypothetical Loss: Loss on sale of (4,480) (11,20 (6,72
noncash assets 0) 0)
Balances (12,48 17,600 2,880
0)
Hypothetical Loss: Insolvency 12,480 (7,800) (4,68
0)
Balances --- 9,800 (1,80
0)
Hypothetical Loss: Insolvency (1,800) 1,800
Balances --- 8,000 ---
Partners DIEGO, ELMO, and FRANCO have capital balances of P64,000, P144,000, and P48,000, respectively,
immediately prior to liquidation. Total remaining assets have a book value of P256,000, the liabilities having
been paid. Among these remaining assets is a machine with a fair value of P56,000. The partners split profits
and losses equally. ELMO covets the machine and is willing to accept it for P56,000 in lieu of cash. The other
partners have no desire on specific assets, only cash in liquidation.
Required:
How much cash in addition to the machine, would first be distributed to ELMO, before any of the other partners
received anything?
Solution:
Requirement: Cash Priority Program
ANSWER: 24,000
DEF Partnership
December 31, 2014
DIEGO ELMO FRANC DIEG ELMO FRANC

(1/3) (1/3) O O (1/3) O
(1/3) (1/3) (1/3)
Divide by P&L Ratio 1/3 1/3 1/3
Loss Absorption Capacity 192,00 432,000 144,00
(LAC) 0 0
0) 00
Balances 192,00 192,000 144,00
0 0
2nd Priority (48,00 (48,000) 2nd Priority 16,00 16,00
0) 0 0
Balances 144,0 144,00 144,0 Total 16,0 96,0 ---
00 0 00 00 00
Last Divide according to P&L
Priority Ratio
First distribution (cash priority 80,000

program)
Less: Fair value of the machine (56,00
0)
Total cash received by Elmo 24,00
0
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PARTNERSHIP LIQUIDATION: INSTALLMENT METHOD

On December 31, 2014, the balance sheet of CDO Partnership is as follows:

ASSETS LIABILITIES AND CAPITAL

Payment of expenses (4,800) (1,440) (1,440) (1,920)

CHERR DORIE OSCAR

CHERR DORIE OSCAR

CHERR DORI OSCA TOTAL

CHERR DORIE OSCAR CHERR DORI OSCA

CHERR DORI OSCA

CHERR DORI OSCA

DIEGO ELMO FRANC DIEG ELMO FRANC

First distribution (cash priority 80,000

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