Question

READING: PARTNERSHIP LIQUIDATION To-Do Date: Feb 18 at 11:59pm PARTNERSHIP LIQUIDATION BY LUMP-SUM METHOD Steps: 1. To record proceeds of sales of assets any loss on sales is debited to "loss on realization or credited "gain on realization 2. Any gain or loss on realization is is distributed to capital accounts 3. To record payment of liabilities 4. To record payment of partners loan 5. Cash distribution to partners. However, at the time of liquidation, partners loan need not be distinguished from partners capital. A partners loan should not be paid if he has a debit balance on capital or his capital credit is not sufficient IF AFTER THE DISTRIBUTION OF LOSS ON REALIZATION, A PARTNERS CAPITAL IS NOT SUFFICIENT TO COVER HIS SHARE ON LOSS, IT MAY BE COVERED BY: 1. Offset any loans payable to him to his negative capital and balance shall be paid by him if he is solvent. 2. In case he is insolvent the remaining partners shall transfer their share on that balance of capital deficiency of the other partner , so the deficient capital will become zero capital Illustration no. 1 Cash P43,000 Accounts Receivable Allowance for bad debts Inventory Fixed Assets Depreciation - Fixed Assets Notes Payable Accounts Payable Loans Payable Boy Boy Capital Pete Capital Tony Capital 155,000 (25,000) 250,000 320,000 (50,000) 40,000 97,000 6.000 50,000 200,000 300,000 All assets were sold for P476,000, and cash were distributed to partners. Assumption 1: Profits shared equally, deficient partners have personal money Assumption 2: Profits are shared 40%, 30% and 30% respectively. All partners are insolvent.

Answer 1

ILLUSTRATION 3
DATE	PARTICULARS		DEBIT	CREDIT
1	ACCOUNTS PAYABLE A/C		6,30,000.00
		TO REALIZATION A/C		6,30,000.00
	(BEING ACCOUNT PAYABLE TRANSFER TO REALIZATION ACCOUNT)
2	CASH A/C DR.		3,67,500.00
		TO Z'S A/C		3,67,500.00
	(BEING CASH RECEIVED FROM Z)
3	REALIZATION A/C DR.		6,30,000.00
		TO CASH A/C		6,30,000.00
	BEING PAYMENT MADE AGAINST ACCOUNT PAYABLE)
		CAPITAL A/C
		PARTICULAR	X	Y	Z	PARTICULAR	X	Y	Z
		TO BALANCE B/D		315000	525000	BY BALANCE B/D	472000
		TO CASH	472000			BY CASH (A/C PAYABLE)			367500
		TO Y'S A/C	57750		52500	BY X'S A/C		57750
						BY Z'S A/C		52500
						BY CASH	57750	204750	210000
			529750	315000	577500		529750	315000	577500
							0	0	0
		DEFICIENCY OF Y BRONE BY X & Z IN THE RATIO OF 3:4
		X =	110250 X 3/7	=	47250
		Z =	110250 X 4/7	=	63000	BUT MAXIMUM BRONE BY Z IS ONLY AVAILABLE BALANCE 52,500/-
				AVAILABLE CASH	52500
				BRONE BY X	10500
		STATEMENT OF PERSONAL ASSETS AND LIABILITIES
		PARTICULAR	X	Y	Z
		PERSONAL ASSETS	420000	525000	997500
		PERSONAL LIABILITIES	472500	320250	420000
		AVAILABLE FOR CONTRIBUTION	-52500	204750	577500
		ALREADY CONTIBUTED FOR ACCOUNTS PAYABLE			367500
		BALANCE FOR FINAL CONTIBUTION	-52500	204750	210000
		OWN DEFICIENCY PAID	0	204750	157500
		BALANCE	-52500	0	52500
		RECEIVED FROM FIRM	472000	0	0
		BALANCE AVAILBLE AFTER RCEIVING FROM FIRM	419500	0	52500
		DEFICIENCY OF Y ADJUSTED	57750		52500
		FINAL CASH BALANCE	361750	0	0