LUMP-SUM

The partnership of A, B, and C was liquidated on May 31, 2020 and the account balances after all
noncash assets are converted to cash on July 1, 2020, along with residual profit and loss ratios, are:

Cash 262,500 Accounts payable 630,000

*B, Capital (30%) 315,000 A, Capital (30%) 472,500

*C, Capital (40%) 525,000

*Left side, deficit

Personal assets and liabilities of the partners at July 1, 2020 are:

Personal Assets Personal Liabilities

A P 420,000 P 472,500

B 525,000 320,250

C 997,500 420,000

If C contributed 367,5001 to the partnership to provide cash to pay the creditors, what amount of

A’s 472,500 partnership equity would appear recoverable? Answer: 414,750

Personal Assets Personal liabilities NET personal assets

A - Insolvent 420,000 472,500 (52,500)

B – solvent 525,000 320,250 204,7502

(204,750) 2

C – solvent 997,500 420,000 577,500

157,5003

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 Cash Noncash Liabilities A, Capital B, capital C, capital

30% 30% 40%

Balance 262,500 0** 630,000 472,500 (315,000) (525,000)

C’s contri1 367,500 - - - - 367,500

Payment (630,000) - (630,000) - - -

of Liab

Balance 0 0 0 472,500 (315,000) (157,500)

204,7502 157,5003

***(110,250) 0

****(47,250) 110,250 ****(63,000)

Balance 425,250 0 (63,000)

*****(10,500) 52,5004

Balance (10,500)

10,500

Balance 414,750 0 0

** all noncash assets are converted to cash

*** since A and B is already insolvent when it comes to net personal assets, A and C’s capital will absorb
the deficit of B’s capital.

**** 110,250 x 30/70 = 47,250 ; 110,250 x 40/70 = 63,000

***** A has to absorb the deficiency of C

INSTALLMENT

A, B, and C are partners in a business being liquidated. The partnership has a cash of P22,000, noncash
assets with a book value of P264,00 and liabilities of P173,250. The following data relates to the partners
as of June 1, 2020:

• A has capital balance of P129,250, personal assets of P27,500, personal liabilities of P13,750.

• B extended a loan to the partnership in the amount of *P13,750, deficit of *38,500, personal
assets ofP41,250, personal liabilities of P16,500.

• C has a capital balance of P8,250, personal assets of P68,750 and personal liabilities of P41,250.

• Their profit and loss ratios is 3:1:1, A, B, and C, respectively.

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 On June 12, assets with a book value of **P82,500 were sold for P55,000 cash. The proceeds were used
to pay off all liabilities of the partnership. During the remainder of June, no additional assets were
realized, and outside creditors began to pressure the partnership for payment.

The partners agreed to contribute personal assets, to whatever extend possible, in order to eliminate
their respective deficits. Shortly thereafter, ****assets with book value of 55,000 and a fair value of
63,250 were *****distributed to A.

Assuming ******additional noncash assets with book value of P110,000 were sold in July for P148,500.

How much cash would be distributed to C? Answer: 8,800

Personal Assets Personal liabilities NET personal assets

A - Insolvent 27,500 13,750 13,750

B – solvent 41,250 16,500 24,7501

C – solvent 68,750 41,250 27,500

*Offset the liability to B to his deficit = (38,500) – 13,750 = (24,750) remaining deficit

** 82,500 – 55, 000 = 27,500 loss allocate to the partners according to P/L ratios

*** B has to invest additional cash to eliminate his deficits

**** Revalue the non-cash asset distributed and allocate any gain/loss to the partners using the P/L
ratios. Thus, 63,250 – 55,000 = 8,250 Gain

***** Distribute to A means deduct the FV of the noncash asset

****** Revalue and allocate the gain/loss. 148,500 -110,000 = 38,500 Gain

A (3) B (1) C (1)

Balance 129,250 (24,750) 8,250

Loss (16,500) (5,500) (5,500)

Balance 112,750 (30,250)*** 2,750

24,7501

(5,500)

Revaluation 4,950 1,650 1,650

(63,250) - -

Balance 54,450 (3,850) 4,400

Gain 23,100 7,700 7,700

Balance 77,550 3,850 12,100

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 Loss (9,900) (3,300) (3,300)

Adjusted Balance 67,650 550 8,800

In installment liquidation, you do not sell all the noncash assets. You still have a balance of noncash
assets. You will assume that the remaining noncash assets will be equal to zero or it s considered as loss.
Allocate it as loss to the partners 6/1/20 Book Value of noncash asset – 264,000

6/12/20 Book Value of noncash asset – (82,500)

Book Value of noncash asset – (55,000)

Book Value of noncash asset – (110,000)

Remaining book value 16,500 (assume that the this will be sold @ 0)

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