52

: rest
: 20
Liquidation

Here partners decided to close their partnership. They go to a specialized administrator

(Liquidator) to do that for a fee called “liquidation expense”.
But why do the partners go to a specialist who will take a fee from them?
Because the process is not easy, he should convert all assets into cash, so that the liquidator
takes his fees and then pays off the debts of strangers first (liabilities), and what remains is
allocated between partners according to their equities.
Also, when paying off liabilities, we will pay it with certain priorities and divide it into preferred
liabilities and ordinary liabilities.
So, when we want to do liquidation, we arrange balance sheet of the partnership as follows (with assumed numbers):

❶ Cash 500 ❸ Preferred (PL) 100

❷ Non-Cash 500 ❹ Ordinary (OL) 300

❺ A capital 200
B capital 400
1,000 1,000
Liquidation mean that all these balances should be zero.
To do that, Liquidator begins with selling non-cash assets, then using available cash to pay his
fees, pay preferred liabilities, pay ordinary liabilities, & finally pay capital.
So, we can summarize liquidation in 5 steps:
1- Selling non-cash assets.
2- Paying off liquidation expenses.
3- Paying off preferred liabilities.
4- Paying off ordinary liabilities.
5- Using the remaining cash (if any) to pay owner’s capital.
Assume in the previous balance sheet that liquidator sold non-cash assets by 900 &
his fees is 200. Assume also that A & B distribute profit & loss equally.
We can do the 5 steps in a systematic table called “Liquidation statement” as follows:
 Liquidation Statement Entries

Cash Non PL OL A1 B1
Cash 900
Balances before Liquidation 500 500 100 300 200 400 Assets 500
A capital 200
1- Selling Assets with gain 900 (500) 200 200 B capital 200
‘

New Balances 1,400 - 100 300 400 600 A capital 100

B capital 100
2- Paying Liquidation ex. (200) (100) (100) Cash 200

New Balances 1,200 - 100 300 300 500 Preferred L 100

Cash 100
3- Paying Preferred L (100) (100)
New Balances 1,100 - - 300 300 500 Ordinary L 300
Cash 300
4- Paying Ordinary L (300) (300) 300 500
New Balances 800 - - - 300 500 A capital 300
B capital 500
5- Paying Capital (800) (300) (500) Cash 800

Balances after Liquidation - - - - - -

Net Liquidation result = result from selling non-cash assets – liquidation expense.
Knowing that result from selling non-cash assets = selling price – its book value
Net Liquidation result = (900 – 500) – 200 = 200 (gain)
Reprepare liquidation statement if selling price of non-cash assets is 400.
Liquidation Statement Entries

Cash Non PL OL A1 B1
Cash 400
Balances before Liquidation 500 500 100 300 200 400 A capital 50
B capital 50
1- Selling Assets with loss 400 (500) (50) (50) Assets 500
‘

New Balances 900 - 100 300 150 350 A capital 100

B capital 100
2- Paying Liquidation ex. (200) (100) (100) Cash 200

New Balances 700 - 100 300 50 250 Preferred L 100

Cash 100
3- Paying Preferred L (100) (100)
New Balances 600 - - 300 50 250 Ordinary L 300
Cash 300
4- Paying Ordinary L (300) (300)
New Balances 300 - - - 50 250 A capital 50
B capital 250
5- Paying Capital (300) (50) (250) Cash 300

Balances after Liquidation - - - - - -

Net Liquidation result = (400 – 500) – 200 = (-) 300 (Loss)
 54
Liquidation problems
First: When selling non-cash assets

We sold it at once We sold it in batches

Immediate Liquidation Installment Liquidation
Second: When paying liabilities

Cash balance is enough Cash balance is not enough

No problem Take from general partners
Third: When dealing with partners

Limited General
Always begin with him, his balance shouldn’t When cash balance is not enough, start with
be negative partners whose balance is -ve (capital deficiency)
Here we will face one of two possibilities

Solvent Insolvent
His Personal Assets > His Personal Assets <
Personal Liabilities Personal Liabilities
Collect from him. He can't pay. So, allocate
his -ve balance to other
Partners according to their
P & L Ratio
 ① Criteria for classifying liabilities
The law mentioned 4 items that have priority in payment (preferred liabilities):
1. Unpaid Salaries with maximum 6 months.
2. Unpaid Rent with maximum 2 years.
3. governmental debits.
4. Secured Loan within the Selling Price of the related asset.
Case (1): if total liabilities is 50,000 included secured loan of 40,000 guaranteed by land which its book value
60,000 and was sold for 45,000.
Preferred Ordinary
1) secured loan: SP of land 45,000 > Secured Loan 40,000 40,000 10,000
Case (2): if total liabilities is 120,000 included secured loan of 50,000 guaranteed by land which its book value
50,000 and was sold for 30,000.
Preferred Ordinary
1) secured loan: SP of land 30,000 < Secured Loan 40,000 30,000 90,000
Case (3): if liabilities include 50,000 Salaries Payable, 60,000 Rent Payable, and 40,000 AP. if the monthly Salary
is 5,000 and monthly Rent is 1,000.
Preferred Ordinary
1) Salaries: 6 months = 5,000 x 6 = 30,000 < salaries payable 50,000 30,000 20,000
2) Rent: 24 months = 1,000 x 24 = 24,000 < rent payable 60,000 24,000 36,000
3) AP - 40,000
54,000 96,000
Case (4): if liabilities include 25,000 Salaries Payable, 24,000 Rent Payable, and 11,000 AP. if the monthly Salary
is 5,000 and monthly Rent is 1,000.
Preferred Ordinary
1) Salaries: 6 months = 5,000 x 6 = 30,000 > salaries payable 25,000 25,000 -
2) Rent: 24 months = 1,000 x 24 = 24,000 = rent payable 24,000 24,000 -
3) AP - 11,000
49,000 11,000
Case (5): if liabilities include 15,000 Salaries Payable, 60,000 Rent Payable, and 40,000 AP. if the monthly Salary
is 3,000 and monthly Rent is 1,000.
Preferred Ordinary
1) Salaries: 6 months = 3,000 x 6 = 18,000 > salaries payable 15,000 15,000 -
2) Rent: 24 months = 1,000 x 24 = 24,000 < rent payable 60,000 24,000 36,000
3) AP - 40,000
39,000 76,000
Case (6): if liabilities include 50,000 Salaries Payable, 60,000 Rent Payable, 60,000 secured loan, and 40,000 AP.
if the monthly Salary is 5,000, monthly Rent is 1,000, and the loan is guaranteed by land which was sold by 80,000.
Preferred Ordinary
1) Salaries: 6 months = 5,000 x 6 = 30,000 < salaries payable 50,000 30,000 20,000
2) Rent: 24 months = 1,000 x 24 = 24,000 < rent payable 60,000 24,000 36,000
3) Secured Loan: SP 80,000 > loan 60,000 60,000 -
4) AP - 40,000
114,000 96,000
 56
② Discount of liabilities
Sometimes creditors give the company discount which have to be recorded as a gain for partners as follows:
Case (7): if liabilities include 50,000 Salaries Payable (covering 10 months), and 5,000 AP. if available cash after
selling non-cash assets & paid preferred liabilities is 102,000, creditors give the company a discount of 3,000.
Partners A & B divided profit or loss equally and their equities balances at this moment are 28,500 & 48,500.
While 50,000 covering 10 months. So, monthly salaries = 50,000/10 = 5,000
Preferred Ordinary
1) Salaries: 6 months = 5,000 x 6 = 30,000 < salaries payable 50,000 30,000 20,000
4) AP - 5,000
30,000 25,000
Liquidation Statement Entries

Cash Non PL OL A1 B1
OL 25
Balances 102,000 - - 25,000 28,500 48,500 A capital 1,5
B capital 1,5
1- paying 22,000 of OL. (22,000) (25,000) 1,500 1,500 Cash 22
‘

New Balances 80,000 - - - 30,000 50,000

③ Capital Deficiency for General partners
This is happened when the balance of any partner be negative (-)
Assume that AB partnership has the following balances after selling non-cash assets and paying liquidation ex.
Cash 30, Liabilities (PL + OL) 60, A capital (50), & B capital 20
here you should differentiate between 2 cases:
First: if Available cash > PL + OL
Ignore ne(-) capital balance.
According to the assuming numbers the available cash isn’t > liabilities
Second: Available cash (30) < PL + OL (60)
Here you should deal with the ne(-) partners as follows:

Case (8): If ne(-) partner is Case (9): If ne(-) partner is Insolvent Case (10): If all partners are
solvent but other partners are solvent. Insolvent (Bankruptcy)

Cash L A B Cash L A B Cash L A B

30 60 (50) 20 30 60 (50) 20 30 60 (50) 20
50 50 50 (50) (30) (60) 50 (20)
80 60 0 20 30 60 0 (30) 0 0 0 0
(60) (60) 30 30 Here we calculate the following ratio:
Available cash to Liabilities =
20 0 0 20 60 60 0 0 Remaining cash
/ Unpaid Liabilities = 30 / 60
(20) (20) (60) (60)
= 0.5
0 0 0 0 0 0 0 0
Sometimes we give you the personal assets & liabilities to judge the solvency of the partner and the limits of that solvency.
• If Personal assets for partner A 100 – his personal liabilities 30 = 70 he can pay until 70 (solvent limit is 70)
• If Personal assets for partner B 80 – his personal liabilities 90 = (-) 10 he can’t pay anything (insolvent)
If you have more than one partner with a ne(-) balance, start dealing with the insolvent partner.
 57
④ Capital Deficiency for Limited partner
His balance can’t be ne(-).
So, whenever you note that his balance will convert to ne(-), give him the number which make his balance = 0 then
complete with other partners.
Case (11): Assume that ABC limited partnership (C is the limited partner), they distribute profit or loss at a ratio
of 2 : 2 : 1, the company has the following balances:
Cash 50, Non-cash 150, PL 40, OL 40, A capital 50, B capital 50, C capital 20
If you know that the non-cash assets were sold by 100 & the liquidation expense was 35.
Liquidation Statement Notes

Cash Non PL OL A2 B2 C1
loss = 150 – 100 = 50
Balances 50 150 40 40 50 50 20
C = 50 x 1/5 = 10 < his balance
1- Selling Non. 100 (150) (20) (20) (10) continue normal
New Balances 150 0 40 40 30 30 10
2- Pay Liq. Ex. (35) (14) (14) (7) C = 35 x 1/5 = 7 < his balance
continue normal
New Balances 115 0 40 40 16 16 3
Case (12): resolve previous case assuming that non-cash assets were sold by 75.
Liquidation Statement Notes

Cash Non PL OL A2 B2 C1
loss = 75 – 150 = (-) 75
Balances 50 150 40 40 50 50 20
C = 75 x 1/5 = 10 < his balance
1- Selling Non. 75 (150) (30) (30) (15) continue normal
New Balances 125 0 40 40 20 20 5
2- Pay Liq. Ex. (35) (15) (15) (5) C = 35 x 1/5 = 7 > his balance
Make him 0 & distribute the
New Balances 140 0 40 40 5 5 0 remaining between A & B
Case (13): resolve previous case assuming that non-cash assets were sold by 25. A & B were solvent.
Liquidation Statement Notes

Cash Non PL OL A2 B2 C1
loss = 25 – 150 = (-) 125
Balances 50 150 40 40 50 50 20
C = 125 x 1/5 = 25 > his balance
1- Selling Non. 25 (150) (52.5) (52.5) (20) Make him 0 & distribute the
remaining between A & B
New Balances 75 0 40 40 (2.5) (2.5) 0
2- Pay Liq. Ex. (35) (17.5) (17.5)
Continue without C.
New Balances 40 0 40 40 (20) (20) 0
 58
Example (1)
The following is Balance Sheet of ABC General Partnership (P & L ratio 2 : 2 : 1):
Cash 10 Salaries Payable (5 months) 40
Non-cash Assets 90 Account Payable 6
Capital (A) 32
Capital (B) 10
Capital (C) 12
100 100
If the partners agreed to liquidate the partnership and you have the following information:
1. Non-cash Assets were sold for $20.
2. liquidation expenses were $5.
3. The Partners have the following personal Assets and Liabilities: Start with determining
Partners Personal Assets Personal Liabilities solvent limits
Partner (A) 200 50 A = 200 – 50 = 150
Partner (B) 100 40 B = 100 – 40 = 60
Partner (C) 40 35 C = 40 – 35 = 5
Required: Prepare the Liquidation Table (Statement)

Liquidation Statement Notes

Cash Non PL OL A2 B2 C1
loss = 20 – 90 = (-) 70
Balances 10 90 40 6 32 10 12
A = 70 x 2/5 = 28, B = 70 x 2/5 = 28
1- Selling Non. 20 (90) (28) (28) (14) C = 70 x 1/5 = 14

New Balances 30 0 40 6 4 (18) (2)

2- Pay Liq. Ex. (5) (2) (2) (1) A = 5 x 2/5 = 28, B = 5 x 2/5 = 28
C = 5 x 1/5 = 14
New Balances 25 0 40 6 2 (20) (3)
3- Collect from B & C 23 20 3 Available cash 25 < L 46
New Balances 48 0 40 6 2 0 0
4- Pay PL (40) (40)
New Balances 8 0 0 6 2 0 0
5- Pay OL (6) (6)
New Balances 2 0 0 0 2 0 0
6- Pay A capital (2) (2)
New Balances 0 0 0 0 0 0 0
 59
Example (2)
The following is Balance Sheet of ABC General Partnership (P & L ratio 3 : 3 : 4):
Cash 10 Salaries Payable (10 months)
50
Non-cash Assets 90 Account Payable 10
Capital (A) 20
Capital (B) 15
Capital (C) 5
100 100
If the partners agreed to liquidate the partnership and you have the following information:
1. Non-cash Assets were sold for $55.
2. liquidation expenses were $5.
3. The creditors (AP) give the company a discount of $3.
4. All partners are Solvent except Partner (C) he is insolvent
Required: Prepare the Liquidation Table (Statement)

While 50 covering 10 months. So, monthly salaries = 50/10 = 5

Preferred Ordinary
1) Salaries: 6 months = 5 x 6 = 30 < salaries payable 50 30 20
2) AP - 10
30 30

Liquidation Statement Notes

Cash Non PL OL A3 B3 C4
loss = 55 – 90 = (-) 35
Balances 10 90 30 30 20 15 5 A = 35 x 3/10 = 10.5, B = 35 x 3/10 = 10.5
1- Selling Non. 55 (90) (10.5) (10.5) (14) C = 35 x 4/10 = 14

New Balances 65 0 30 30 9.5 4.5 (9)

2- Pay Liq. Ex. (5) (1.5) (1.5) (2) A = 5 x 3/10 = 1.5, B = 5 x 3/10 = 1.5
C = 5 x 4/10 = 2
New Balances 60 0 30 30 8 3 (11)
3- Pay PL (30) (30) Available cash 60 = L 60
New Balances 30 0 0 30 8 3 (11) A = 3 x 3/10 = 0.9, B = 3 x 3/10 = 0.9
4- Pay OL (27) (30) 0.9 0.9 1.2 C = 3 x 4/10 = 1.2

New Balances 3 0 0 0 8.9 3.9 (9.8) A = 9.8 x 3/6 = 4.9

5- Allocate C to A & B (4.9) (4.9) 9.8 B = 9.8 x 3/6 = 4.9

New Balances 3 0 0 0 4 (1) 0

6- Collect from B 1 1
New Balances 4 0 0 0 4 0 0
7- Pay A capital (4) (4)
New Balances 0 0 0 0 0 0 0
 60
Example (3)
The following is Balance Sheet of ABC General Partnership (P & L ratio 5 : 3 : 2):
Cash 60 Salaries Payable (5 months)
85
Non-cash Assets 930 Account Payable 125
Capital (A) 450
Capital (B) 210
Capital (C) 120
990 990
If the partners agreed to liquidate the partnership and you have the following information:
1. Non-cash Assets were sold for $130.
2. liquidation expenses were $50.
3. All partners are Insolvent.
Required: Prepare the Liquidation Table (Statement)

Liquidation Statement Notes

Cash Non PL OL A5 B3 C2
loss = 130 – 930 = (-) 800
Balances 60 930 85 125 450 210 120 A = 800 x 5/10 = 400, B = 800 x 3/10 = 240
1- Selling Non. 130 (930) (400) (240) (160) C = 800 x 2/10 = 160

New Balances 190 0 85 125 50 (30) (40)

2- Pay Liq. Ex. (50) (25) (15) (10) A = 50 x 5/10 = 25, B = 50 x 3/10 = 15
C = 50 x 2/10 = 10
New Balances 140 0 85 125 25 (45) (50)
3- Pay PL (85) (85)
New Balances 55 0 0 125 25 (45) (50) Available cash 55 < OL 125
4- Close books (55) (125) (25) 45 50 & all partners insolvent
New Balances 0 0 0 0 0 0 0
Remaining cash 55
Available cash to Liabilities = / Unpaid Liabilities = / 125 = 0.44
 61
Example (4)
The following is Balance Sheet of ABC Limited Partnership (P & L ratio 2 : 3 : 4, C is limited):
Cash 45 Rent Payable (3 years)
36
Non-cash Assets 800 Account Payable 139
Capital (A) 265
Capital (B) 245
Capital (C) 160
845 845
If the partners agreed to liquidate the partnership and you have the following information:
1. Non-cash Assets were sold for $260.
2. liquidation expenses were $75.
3. Partner A is Insolvent wile partner B is solvent.
Required: Prepare the Liquidation Table (Statement)

While 36 covering 3 years. So, annually rent = 36/3 = 12

Preferred Ordinary
1) Rent: 2 years = 12 x 2 = 24 < Rent payable 36 24 12
2) AP - 139
24 151

Liquidation Statement Notes

Cash Non PL OL A2 B3 C4
loss = 260 – 800 = (-) 540
Balances 45 800 24 151 265 245 160
C = 540 x 4/9 = 240 > his balance
1- Selling Non. 260 (800) (152) (228) (160) make him 0 (540 – 160 = 380 A2 & B3)

New Balances 305 0 24 151 113 17 0

2- Pay Liq. Ex. (75) (30) (45) A = 75 x 2/5 = 30, B = 75 x 3/5 = 45

New Balances 230 0 24 151 83 (28) 0

3- Pay PL (24) (24)
New Balances 206 0 0 151 83 (28) 0
4- Pay OL (151) (151)
New Balances 55 0 0 0 83 (28) 0
5- Collect from B 28 28
New Balances 83 0 0 0 83 0 0
6- Pay A capital (83) (83)
New Balances 0 0 0 0 0 0 0

Resolve previous example assuming that selling price of Non-cash assets was 620,000 & Liquidation ex. 90,000
 62
⑤ Installment Liquidation
Here, liquidator can’t sell Non-cash assets at once, rather, he sells them in batches.

The problem is that after selling the first batch, of course we will pay “Liq. Ex., PL, & OL”. Probably after all this
is paid off, there will still be a balance available in cash.

The problem is concerning with this available cash.

Naturally, we used to distribute it to the owners.

But now, there are non-cash assets not sold yet, and they are exposed to incurring additional losses in the future
when selling other batches.

So, we assume the worst hypothesis, which is:

The remaining assets will sell at a price 0 (all remaining assets will be loss) and all partners are insolvent.

We distribute this loss between partners in an additional table called “Safe Payment Schedule”.

Example (5)
The following is Balance Sheet of ABC General Partnership (P & L ratio 3 : 2 : 1):
Cash 45 Salaries Payable (5 months) 24
Non-cash Assets 800 Account Payable 151
Capital (A) 264
Capital (B) 246
Capital (C) 160
845 845
If the partners agreed to liquidate the partnership and Non-cash assets were sold as follows:
month cost selling price Liquidation expenses
January 200 170 12
February 240 150 18
Marth The remaining 120 42
Required: Prepare the Liquidation Table (Statement) for the period from January to march.
 63

Cash Non PL OL A3 B2 C1
loss = 170 – 200 = (-) 30
Balances 45 800 24 151 264 246 160
A = 30 x 3/6 = 15, B = 30 x 2/6 = 10
1- Selling Non. In Jan. 170 (200) (15) (10) (5) C = 30 x 1/6 = 5

New Balances 215 600 24 151 249 236 155

2- Pay Liq. Ex. In Jan. (12) (6) (4) (2) A = 12 x 3/6 = 6, B = 12 x 2/6 = 4
C = 12 x 1/6 = 2
New Balances 203 600 24 151 243 232 153
3- Pay PL (24) (24)
New Balances 179 600 0 151 243 232 153
4- Pay OL (151) (151)
New Balances 28 600 0 0 243 232 153
5- Pay to C (table 1) (28) ❶ (28)
New Balances 0 600 0 0 243 232 125
loss = 150 – 240 = (-) 90
6- Selling Non. In Feb. 150 (240) (45) (30) (15)
A = 90 x 3/6 = 45, B = 90 x 2/6 = 30
New Balances 150 360 0 0 198 202 110 C = 90 x 1/6 = 15
7- Pay Liq. Ex. In Feb. (18) (9) (6) (3) A = 18 x 3/6 = 9, B = 18 x 2/6 = 6
New Balances 132 360 0 0 189 196 107 C = 18 x 1/6 = 3

8- Pay to A, B, & C (table 2) (132) ❷ (9) (76) (47)

loss = 120 – 360 = (-) 240
New Balances 0 360 0 0 180 120 60
A = 240 x 3/6 = 120, B = 240 x 2/6 = 80
9- Selling Non. In Mar. 120 (360) (120) (80) (40) C = 240 x 1/6 = 40

New Balances 120 0 0 0 60 40 20

10- Pay Liq. Ex. In Mar. (42) (21) (14) (7) A = 42 x 3/6 = 21, B = 42 x 2/6 = 14
New Balances 78 39 26 13 C = 42 x 1/6 = 7

8- Pay to A, B, & C (78) (39) (26) (13)

0 0 0 0 0 0 0
❶ Safe Payment Schedule for Jan.
A3 B2 C1
loss = 170 – 200 = (-) 30
Balances 243 232 153
A = 600 x 3/6 = 300, B = 600 x 2/6 = 200
1- Assume all assets remaining is loss (600) (300) (200) (100) C = 600 x 1/6 = 100

New Balances (57) 32 53

2- Assume A insolvent 57 (38) (19) B = 57 x 2/3 = 38, C = 57 x 1/3 = 19

New Balances 0 (6) 34

3- Assume B insolvent 6 (6)
Available cash 0 0 28

❷ Safe Payment Schedule for Jan.

A3 B2 C1 Notes
loss = 170 – 200 = (-) 30
Balances 189 196 107
A = 360 x 3/6 = 180, B = 360 x 2/6 = 120
1- Assume all assets remaining is loss (360) (180) (120) (60) C = 360 x 1/6 = 60

Available cash 9 76 47
 64
Example (6)
The following is Balance Sheet of ABC General Partnership (P & L ratio 2 : 2 : 1):
Cash 15 Salaries Payable (5 months)
15
Non-cash Assets 305 Account Payable 60
Capital (A) 72
Capital (B) 123
Capital (C) 50
320 320
If the partners agreed to liquidate the partnership and distribute All Cash on hand except for a $10
contingency balance. If you know the assets with a book value of $105 is sold for $77. And the
Liquidation expenses is $2
Required: Prepare the Liquidation Table (Statement).

Cash Non PL OL A2 B2 C1
loss = 77 – 105 = (-) 28
Balances 15 305 15 60 72 123 50
A = 28 x 2/5 = 11.2, B = 28 x 2/5 = 11.2
1- Selling part of Non. 77 (105) (11.2) (11.2) (5.6) C = 28 x 1/5 = 5.6

New Balances 92 200 15 60 60.8 111.8 44.4

2- Pay Liq. Ex. (2) (0.8) (0.8) (0.4) A = 2 x 2/5 = 0.8, B = 2 x 2/5 = 0.8
C = 2 x 1/5 = 0.4
New Balances 90 200 15 60 60 111 44
3- Pay PL (15) (15)
New Balances 75 200 0 60 60 111 44
4- Pay OL (60) (60)
New Balances 15 200 0 0 60 111 44
5- Pay to B (table 1) (5) ❶ (5)
New Balances 10 200 0 0 60 106 44
❶ Safe Payment Schedule for Jan.
A2 B2 C1
loss = 170 – 200 = (-) 30
Balances 60 111 44
A = 210 x 2/5 = 84, B = 210 x 2/5 = 84
1- Assume all assets remaining is loss (210) (84) (84) (42) C = 210 x 1/5 = 42

New Balances (24) 27 2

2- Allocate A balance between B & C 24 (16) (8) B = 24 x 2/3 = 16, C = 24 x 1/3 = 8

New Balances 0 11 (6)

3- Transfer C balance to B (6) 6
Available cash 0 5 0

Remaining assets = Non-cash 200 + 10 cash contingency balance

 65
Example (7)
Given the following balances after selling part of the non-cash assets and paying all the liabilities:

Balances Cash Non-Cash Preferred Ordinary A B C

50 ??? 0 0 120 193 137

The Profit and Loss ratio is 5 : 3 : 2.
Required: show how to distribute the cash between partners and the capital balances after distribution

Noncash assets = (120 +193 +120) – 50 = 400

Cash Non PL OL A5 B3 C2
Balances 50 400 0 0 120 193 137
5- Pay to C (table 1) (50) ❶ (25) (25)
New Balances 10 200 0 0 120 168 112
❶ Safe Payment Schedule for Jan.
A5 B3 C2
loss = 170 – 200 = (-) 30
Balances 120 193 137
A = 400 x 5/10 = 200, B = 400 x 3/10 = 120
1- Assume all assets remaining is loss (400) (200) (120) (80) C = 400 x 2/10 = 80

New Balances (80) 73 57

2- Allocate A balance between B & C 80 (48) (32) B = 80 x 3/5 = 48, C = 24 x 2/5 = 32

Available cash 0 25 25
 66

Exercise (1):The following Balance Sheet of ABC Partnership is given as follows:

Cash 10,000 Salaries Payable (10 Months) 50,000
Non Cash Assets 90,000 Accounts Payable 10,000
Capital (A) 20,000
Capital (B) 15,000
Capital (C) 5,000

If the partners agreed to liquidate the Company and they share P & L in ratio 30%, 30%, 40%:
On 1/5 the Assets were sold for $55,000.
On 1/6 the company paid liquidation expenses of $5,000.
The creditors (A/P) give the company a discount of $3,000
All partners are Solvent except Partner (C) whose Personal Assets $45,000 and Personal Liabilities
$42,600 (he is solvent with Limit 45,000 – 42,600 = 2,400)
Required: Prepare the Liquidation Table (Statement).
Exercise (2)following Balance Sheet of ABC Partnership is given as follows:
Cash 45,000 Rent Payable (3 years) 36,000
Non Cash Assets 800,000 Accounts Payable 139,000
Capital (A) 265,000
Capital (B) 245,000
Capital (C) 160,000
If the partners agreed to liquidate the Company and they share P & L in ratio 2, 3, 4
On 1/5 the Assets were sold for $260,000. On 1/6 the company paid liquidation expenses $75,000.
The partner (C) is limited, partners (A &B) are Insolvent.
Required: Prepare the Liquidation Table (Statement).
(3)Given the following balances after several steps of Liquidation:
Balances Cash Non-Cash Preferred loan A B C

200,000 -- -- 30,000 70,000 (50,000) 150,000

The Profit and Loss ratio is 1:1:1 & All Partners are solvent. By the next step of Liquidation:
a) Cash will increase by $50,000 and Capital (B) by $50,000
b) Company will receive $50,000 Cash from Partner (B)
c) Loan (B) will be debited by $30,000 and cash will be credited by $30,000
d) Capital (A) & (C) will decrease by $25,000 each and Capital (B) will increase by $50,000
e) Cash Balance will be $250,000
(4)Given the following balances after several steps of Liquidation:
Balances Cash Non-Cash Preferred Ordinary A B C

200,000 -- -- -- 70,000 (20,000) 150,000

The Profit and Loss ratio is 1:1:1 & Partners (A & C) are solvent, but Partner (B) is Solvent with Limit
$30,000. By the next step of Liquidation:
a) Cash will increase by $20,000 and Capital (B) by $20,000
b) Company will receive $20,000 Cash from Partner (B)
c) Capital (A) & (C) will decrease by $25,000 each and Capital (B) will increase by $50,000
d) Cash Balance will be $250,000
 67
(5)Given the following balances after several steps of Liquidation:
Balances Cash Non-Cash Preferred Ordinary A B C

200,000 -- -- -- 70,000 (20,000) 150,000

The Profit and Loss ratio is 1:1:1 & All Partners are solvent. By the next step of Liquidation:
a) Cash will be debited by $20,000 and Capital (B) will be debited by $20,000
b) Cash will increase by $20,000 and Capital (B) by $20,000
c) Capital (A) & (C) will decrease by $10,000 each and Capital (B) will increase by $20,000
d) Cash Balance will be $200,000
e) Cash Balance will be $180,000
(6)Given the following balances after several steps of Liquidation:
Balances Cash Non-Cash Preferred Ordinary A B C

200,000 -- -- -- 70,000 (20,000) 150,000

The Profit and Loss ratio is 1:1:1 & Partners (A & C) are solvent, but Partner (B) is Solvent with Limit
of $10,000. By the next step of Liquidation:
a) Cash will increase by $20,000 and Capital (B) will decrease by $20,000
b) Partner (B) will pay $10,000 to the Company.
c) Cash will increase by $10,000 and Capital (B) will decrease by $10,000
d) Capital (A) & (C) will decrease by $5,000 each and Capital (B) will increase by $10,000
e) Cash Balance will be $220,000
(7)Given the following balances after several steps of Liquidation:
Balances Cash Non-Cash Preferred Ordinary A B C

200,000 -- -- -- 70,000 (20,000) 150,000

The Profit and Loss ratio is 1:1:1 & Partners (A & C) are solvent, but Partner (B) is Insolvent. By the
next step of Liquidation:
a) Cash will increase by $20,000 and Capital (B) will increase by $20,000
b) Partner (B) will pay $20,000 to the Company.
c) Capital (A) & (C) will decrease by $10,000 each and Capital (B) will decrease by $20,000
d) Capital (A) & (C) will decrease by $10,000 each and Capital (B) will increase by $20,000
e) Cash Balance will be $220,000
(8)Given the following balances before the Liquidation of ABC Company:
Balances Cash Non Cash Preferred Ordinary A B C

100,000 300,000 130,000 90,000 120,000 20,000 40,000

If Non-Cash Assets were sold for $200,000 and All Partners are General. The profit & loss ratio is 1:1:2.
By the next step of Liquidation:
a) Non-Cash Assets should be decreased by $200,000.
b) Capital (B) should be credited by $25,000
c) Capital (A) Balance will be $125,000
d) Capital (C) will decrease by $40,000
e) Capital (A) Balance will be $95,000
 68
(9)Given the following balances before the Liquidation of Alex Company:
Balances Cash Non Cash Preferred Ordinary A B C

100,000 300,000 130,000 90,000 120,000 20,000 40,000

If Non Cash Assets were sold for $200,000 and Partner (C) is Limited Partner. The profit & loss ratio is
1:1:2. By the next step of Liquidation:
a) Capital (A) will be $95,000
b) Capital (A) will decrease by $30,000
c) Capital (B) should be credited by $25,000
d) Capital (A) will be $125,000
e) Capital (C) will decrease by $50,000
(10)Given the following balances before the Liquidation of Alex Company:
Balances Cash Non Cash Preferred Ordinary A B C

150,000 300,000 130,000 90,000 120,000 20,000 90,000

If Non Cash Assets were sold for $200,000 and Partner (C) is Limited Partner. The profit & loss ratio is
1:1:2. By the next step of Liquidation:
a) Capital (A) will be $95,000
b) Non Cash Assets should decrease by $200,000
c) Cash should be debited by $300,000
d) Capital (A) will be $115,000
e) Capital (B) will decrease by $25,000
(11)Given the following balances after selling non Cash Assets:
Balances Cash Non Cash Preferred Ordinary L/P (C) A B C

235,000 -- 50,000 170,000 10,000 25,000 (10,000) --

If the company paid Liquidation Expenses $40,000 in Cash and All Partners are General Partners. The
profit & loss ratio is 1:1:2. By the next step of Liquidation:
a) Decreasing Capital, A, B & C by $8,000, $8,000 and $16,000 respectively
b) Decreasing Capital, A, B & C by $10,000, $10,000 and $20,000 respectively
c) Decreasing Capital, A, B & C by $15,000, $15,000 and $10,000 respectively
d) Decreasing Capital, A & B by $20,000, $20,000 respectively
e) Decreasing Capital, A & C by $10,000, $30,000 respectively
(12)Given the following balances after selling non Cash Assets:
Balances Cash Non Cash Preferred Ordinary A B C

235,000 -- 50,000 17,0000 25,000 (10,000) --

If the company paid Liquidation Expenses $40,000 in Cash and Partner (C) is Limited Partner. The profit
& loss ratio is 1:1:2. By the next step of Liquidation :
a) Decreasing Capital, A, B & C by $8,000, $8,000 and $16,000 respectively
b) Decreasing Capital, A, B & C by $10,000, $10,000 and $20,000 respectively
c) Decreasing Capital, A, B & C by $15,000, $15,000 and $10,000 respectively
d) Decreasing Capital, A & B by $20,000, $20,000 respectively
e) Decreasing Capital, A & C by $10,000, $30,000 respectively
 69
(13)Given the following balances after selling non-Cash Assets:
Balances Cash Non-Cash Preferred Ordinary A B C

235,000 -- 50,000 170,000 25,000 -- (10,000)

If the company paid Liquidation Expenses $60,000 in Cash and Partner (B) is Limited Partner. The profit
& loss ratio is 1:1:2. By the next step of Liquidation:
a) Decreasing Capital, A, B & C by $12,000, $12,000 and $36,000 respectively
b) Decreasing Capital, A, B & C by $15,000, $15,000 and $30,000 respectively
c) Decreasing Capital, A & B by $30,000, $30,000 respectively
d) Decreasing Capital, A & C by $50,000, $10,000 respectively
e) Decreasing Capital, A & C by $20,000, $40,000 respectively
(14)Given the following balances after selling non-Cash Assets:
Balances Cash Non-Cash Preferred Ordinary A B C

245,000 -- 50,000 170,000 25,000 (10,000) 10,000

If the company paid Liquidation Expenses $40,000 in Cash and Partner (C) is Limited Partner. The profit
& loss ratio is 1:1:2. By the next step of Liquidation:
a) Decreasing Capital, A, B & C by $10,000, $10,000 and $20,000 respectively
b) Decreasing Capital, A, B & C by $15,000, $15,000 and $10,000 respectively
c) Decreasing Capital, A & B by $20,000, $20,000 respectively
d) Decreasing Capital, A & C by $50,000, $10,000 respectively
e) Decreasing Capital, A by $40,000
(15)Given the following balances after several steps of Liquidation:
Balances Cash Non-Cash Preferred Ordinary A B C

275,000 -- -- 210,000 25,000 10,000 30,000

If the creditors give the Company discount of $20,000. Partner (B) is Limited Partner. The profit & loss
ratio is 1:1:2. By the next step of Liquidation:
a) Decreasing Cash by $180,000 and Ordinary Liabilities by $180,000
b) Capital (B) Balance will be $15,000
c) Capital (C) will be debited by $10,000
d) Capital (A) Balance will be $20,000
e) The Balance of Ordinary Liabilities will be $20,000

(16)Given the following balances after several steps of Liquidation:

Balances Cash Non-Cash Preferred Ordinary A B C

275,000 -- -- 210,000 25,000 10,000 30,000

If the Ordinary Liabilities include $100,000 A/P by which its creditors give the Company discount 10%.
Partner (B) is Limited Partner. The profit & loss ratio is 1:1:2. By the next step of Liquidation :
a) Decreasing Cash by $180,000 and Ordinary Liabilities by $200,000
b) Capital (B) Balance will be $15,000
c) Capital (C) will be credited by $5,000
d) Capital (A) Balance will be $30,000
e) Cash Balance will be $95,000
 70
(17)Given the following balances after several steps of Liquidation:
Balances Cash Non Cash Preferred Ordinary A B C

120,000 -- -- 110,000 60,000 (20,000) (30,000)

The Profit and Loss ratio is 1:1:2. All Partners are solvent. By the next step of Liquidation:
a) Cash will decrease by $110,000 and Ordinary Liabilities will be decrease $110,000
b) Cash will increase by $20,000 and Capital (B) will increase by $20,000
c) Cash will increase by $30,000 and Capital (C) will increase by $30,000
d) Partner (C) will pay $30,000 to the company.

(18)Given the following balances after several steps of Liquidation:

Balances Cash Non Cash Preferred Ordinary A B C

70,000 -- -- 100,000 10,000 (20,000) (20,000)

The Profit and Loss ratio is 1:1:2. Partners (A & B) are solvent, but Partner (C) has personal assets of
$50,000 and Personal Liabilities of $35,000. By the next step of Liquidation:
a) Cash will increase by $20,000 and Capital (B) will increase by $20,000
b) Partner (C) will pay $15,000 to the company.
c) Capital (A) & (B) will decrease by $2,500 each and Capital (C) will increase by $5,000.
d) Partner (B) will pay $20,000 Cash to the company.
e) Capital (A) will decrease by $40,000 and Capital (B) & (C) will increase by $20,000 each.
(19)Given the following balances after several steps of Liquidation:
Balances Cash Non-Cash Preferred Ordinary A B C

70,000 -- -- 100,000 10,000 (20,000) (20,000)

The Profit and Loss ratio is 1:1:2. Partners (A & B) are solvent, but Partner (C) is Insolvent. By the
next step of Liquidation:
a) Cash will increase by $20,000 and Capital (B) will increase by $20,000
b) Partner (C) will pay $20,000 to the company.
c) Capital (A) & (B) will decrease by $10,000 each and Capital (C) will increase by $10,000.
d) Partner (B) will pay $20,000 Cash to the company.
e) Cash Balance will be $90,000.

(20)Given the following balances after several steps of Liquidation:

Balances Cash Non-Cash Preferred Ordinary A B C

80,000 -- -- 100,000 10,000 (30,000) --

The Profit and Loss ratio is 1:1:2. All Partners are solvent. By the next step of Liquidation:
a) Cash will decrease by $80,000 and Ordinary Liabilities will decrease by $80,000
b) Cash will increase by $30,000 and Capital (B) will increase by $30,000
c) Capital (A) will decrease by $30,000 and Capital (B) will increase by $30,000.
d) Capital (B) will increase by $30,000 and Capital (A) & (C) will decrease by $10,000 & $20,000.
e) Capital (A) will be debited by $30,000
 71
Exercise (1):
The following Balance Sheet of ABC Partnership is given as follows:
Cash 15,000 salaries Payable (5 months) 15,000
Non Cash Assets 305,000 account Payable 60,000
Capital (A) 72,000
Capital (B) 123,000
Capital (C) 50,000
If the partners agreed to liquidate the Company and distribute All Cash on hand except for a $2,000
contingency balance and they share P & L in ratio 2:2:1.
If you know the assets with a book value of $105,000 is sold for $77,000. And the Liquidation expenses
is $2,000
Required: Prepare the Liquidation Table (Statement).

Exercise (2):
The following Balance Sheet of ABC Partnership is given as follows:
Cash 45,000 salaries Payable (5 months) 25,000
Non Cash Assets 800,000 account Payable 150,000
Capital (A) 275,000
Capital (B) 235,000
Capital (C) 160,000

If the partners agreed to liquidate the Company and they share P & L in ratio 3, 3, 1
On 1/5 the Assets were sold for $100,000. On 1/6 the company paid liquidation expenses $35,000.
The partner (C) is limited, partner (A) is solvent, and partner (B) is Insolvent.
Required: Prepare the Liquidation Table (Statement).

Exercise (3):
Given the following balances after selling part of the non-cash assets and paying all the liabilities
steps of Liquidation:

Balances Cash Non-Cash Preferred Ordinary A B C

50,000 ??? 0 0 120,000 193,000 137,000

If the partners agreed to liquidate the Company and distribute All Cash on hand except for a $10,000
contingency balance and they share P & L in ratio is 5:3:2

Required:
show how to distribute the cash between partners and the capital balances after distribution