Question

Cash P20,000; Accounts Receivable P60,000; Inventory P120,000; Equipment P300,000; Accounts Payable P30,000; Payable to B P20,000; A Capital (20%) P100,000; B Capital (30%) P150,000; C Capital (50%) P200,000

Installment liquidation

Use the fact pattern above but assume that the partnership will be liquidated over a prolonged period of time. Distribution to the partners will be made as cash becomes available. Information on the conversion of non-cash assets is as follows:

a. 75% of the accounts receivable was collected for only P30,000

b. Half of the inventory was sold for P40,000

c. Equipment with carrying amount of P200,000 was sold for P120,000

d. Actual liquidation expenses of P2,000 were paid.

e. Estimated future liquidation expenses totaled P1,000

f. P9,000 cash was retained in the business for potential unrecorded liabilities and anticipated expenses.

Requirement: Determine the amounts of cash distributed to the partners from the partial realization of partnership assets.

Answer 1

Particulars	Cash	Accounts payable	Payable to B	A capital	B capital	C capital
Balance	20000	30000	20000	100000	150000	200000
(-) Paid to accounts payable	(20000)	(20000)
Balance b/d	0	10000	20000	100000	150000	200000
(+)Cash realized from account receivable	30000
(-)paid to account payable and B	(30000)	(10000)	(20000)
Balance b/d	0	0	0	100000	150000	200000
(+)Cash realized from inventory	40000
(-)Amount distributed to partners	(40000)			(8000)	(12000)	(20000)
Balance b/d	0	0	0	92000	138000	180000
(+)Cash realized from equipment	120000
(-)Liquidation expense	(3000)
	117000
(-) Amount distributed to partners	(117000)			(23400)	(35100)	(58500)
Balance b/d	0	0	0	68600	102900	121500
(+) Reserves	9000
(-) Amount distributed to partners	(9000)			(1800)	(2700)	(4500)
Balance b/d	0	0	0	66800	100200	117000

Note 1 - Any amount realized will be first distributed to the outside liabilities then to the loan given by partner and finally for the partners capital.

Note 2- Expected realization expenses will be deducted and if the actual expenses are low then the difference will be added back.