Question

Villanueva and Santos are about to liquidate their partnership. They each have P200.000 capital balances and they share profit and losses in a 3:1 ratio, respectively. In addition, the partnership has P250,000 in cash, P450,000 non-cash assets, and P300,000 in accounts payable. Assuming that non-cash assets are sold for P170,000 and that both partners are personally solvent, prepare a statement of liquidation. VS Partnership Statement of Liquidation.

A. On December 31, 2019, the Modesto and Corpuz Partnership had the following assets, liabilities and partners' equity: 

Assets = Liabilities + Modesto, CapitalCorpuz, Capital 

1,200,000 = 150,000 + 600,000 450,000 

When partners agreed to liquidate the business, the assets were sold for P900,000 and the liabilities were paid. Modesto and Corpuz share profits and losses in a 2:1 ratio, respectively. 

Provide answers to the following questions:

 1. How much is the gain or loss on sale of non-cash assets? Indicate the amount and whether it is a gain or loss.  

2. How much is the share of Modesto in your answer in number 1? 

3. How much is the share of Corpuz in your answer in number 1 ?

 4. How much will Modesto receive as final cash settlement? 

5. How much will Corpuz receive as final cash settlement?

Answer 1

1. On sale of Assets, Loss was incurred for Modesto and Corpuz Partnership as

Book Value of Assets = 12,00,000, but sold for 9,00,000. Hence the difference of 3,00,000 is treated as LOSS.

2. Total Loss Incurred- 3,00,000

Share of Loss between Modesto and Corpuz in the ratio of 2:1 which is as follows:

Modesto- 3,00,000 x 2/3 =2,00,000

Corpuz- 3,00,000 x 1/3 = 1,00,000

3. Final Cash Proceedings after selling Assets & clearing Liabilities:

Sale proceeds of Assets - Liabilities paid

=9,00,000-1,50,000

=7,50,000

This 7,50,000 is shared between the partners as per their updated balance in capital accounts, which is as follows:

in the ration of (6,00,000-2,00,000) : (4,50,000-1,00,000) between Modesto and Corpuz

i.e 4,00,000 : 3,50,000

4. Final Settlement of Modesto:

7,50,000 x 4,00,000/7,50,000 = 4,00,000

5. Final Settlement of Corpuz:

7,50,000 x 3,50,000/7,50,000 = 3,50,000