PARTNERSHIP LIQUIDATION
Illustration 1
Shown below is the condensed Balance Sheet of ABC Partnership just before liquidation.
ASSETS
Cash ₱ 18,000
Other Assets 82,000
Total ₱ 100,000
LIABILITIES & CAPITAL
Accounts Payable ₱ 25,000
Loan Payable to A 3,000
A, Capital 22,000
B, Capital 30,000
C, Capital 20,000
Total ₱ 100,000
The partners share profits and losses in the ratio of 5:3:2 for A, B, and C, respectively.
The working paper and journal entries required for the different independent cases below
will be illustrated.
Case 1 - The other assets are sold for ₱90,000.
Case 2 - The other assets are sold for ₱50,000.
Liquidation expenses of ₱1,000 are paid.
Case 3 - The other assets are sold for ₱34,000.
Case 4 - The other assets are sold for ₱20,000.
a. The deficient partner is solvent.
b. The deficient partner is insolvent.
Case 1 - There is gain on realization.
Working Paper for the Statement of Liquidation
Cash Other Assets Accounts Payable A, Loan A, Capital
Balances before liquidation 18,000 82,000 25,000 3,000 22,000
Sale of other assets 90,000 (82,000) 4,000
Balances 108,000 - 25,000 3,000 26,000
Payment of accounts payable (25,000) (25,000)
Balances 83,000 - 3,000 26,000
Payment of loan balances (3,000) (3,000)
Balances 80,000 - 26,000
Cash distribution (80,000) (26,000)
Balances - -
Journal Entries
a. Cash 90,000
Other Assets 82,000
Gain on Realization (90,000 - 82,000) 8,000
b. Gain on Realization 8,000
A, Capital (8,000 x 50%) 4,000
B, Capital (8,000 x 30%) 2,400
C, Capital (8,000 x 20%) 1,600
c. Accounts Payable 25,000
Cash 25,000
d. Loan Payable to A 3,000
Cash 3,000
e. A, Capital 26,000
B, Capital 32,400
C, Capital 21,600
Cash 80,000
B, Capital C, Capital
30,000 20,000
2,400 1,600
32,400 21,600
32,400 21,600
32,400 21,600
(32,400) (21,600)
- -
Case 2 - There is loss on realization. No capital deficiency.
Working Paper for the Statement of Liquidation
Cash Other Assets Accounts Payable A, Loan A, Capital
Balances before liquidation 18,000 82,000 25,000 3,000 22,000
Sale of other assets 50,000 (82,000) (16,000)
Balances 68,000 - 25,000 3,000 6,000
Liquidation expenses (1,000) (500)
Balances 67,000 25,000 3,000 5,500
Payment of accounts payable (25,000) (25,000)
Balances 42,000 - 3,000 5,500
Payment of loan balances (3,000) (3,000)
Balances 39,000 - 5,500
Cash distribution (39,000) (5,500)
Balances - -
Journal Entries
a. Cash 50,000
Loss on Realization (82,000 - 50,000) 32,000
Other Assets 82,000
b. A, Capital (32,000 x 50%) 16,000
B, Capital (32,000 x 30%) 9,600
C, Capital (32,000 x 20%) 6,400
Loss on Realization 32,000
c. Liquidation Expenses 1,000
Cash 1,000
d. A, Capital (1,000 x 50%) 500
B, Capital (1,000 x 30%) 300
C, Capital (1,000 x 20%) 200
Liquidation Expenses 1,000
e. Accounts Payable 25,000
Cash 25,000
f. Loan Payable to A 3,000
Cash 3,000
g. A, Capital 5,500
B, Capital 20,100
C, Capital 13,400
Cash 39,000
B, Capital C, Capital
30,000 20,000
(9,600) (6,400)
20,400 13,600
(300) (200)
20,100 13,400
20,100 13,400
20,100 13,400
(20,100) (13,400)
- -
Case 3 - There is loss on realization with capital deficiency. The loan is sufficient to cover the deficiency.
Working Paper for the Statement of Liquidation
Cash Other Assets Accounts Payable A, Loan A, Capital
Balances before liquidation 18,000 82,000 25,000 3,000 22,000
Sale of other assets 34,000 (82,000) (24,000)
Balances 52,000 - 25,000 3,000 (2,000)
Loan offset (2,000) 2,000
Balances 52,000 25,000 1,000 -
Payment of accounts payable (25,000) (25,000)
Balances 27,000 - 1,000
Payment of loan balances (1,000) (1,000)
Balances 26,000 -
Cash distribution (26,000)
Balances -
Journal Entries
a. Cash 34,000
Loss on Realization (82,000 - 34,000) 48,000
Other Assets 82,000
b. A, Capital (48,000 x 50%) 24,000
B, Capital (48,000 x 30%) 14,400
C, Capital (48,000 x 20%) 9,600
Loss on Realization 48,000
c. Loan Payable to A 2,000
A, Capital 2,000
d. Accounts Payable 25,000
Cash 25,000
e. Loan Payable to A 1,000
Cash 1,000
f. B, Capital 15,600
C, Capital 10,400
Cash 26,000
B, Capital C, Capital
30,000 20,000
(14,400) (9,600)
15,600 10,400
15,600 10,400
15,600 10,400
15,600 10,400
(15,600) (10,400)
- -
Case 4-a - There is loss on realization with capital deficiency. The loan is insufficient to cover the deficiency. The deficient pa
Working Paper for the Statement of Liquidation
Cash Other Assets Accounts Payable A, Loan A, Capital
Balances before liquidation 18,000 82,000 25,000 3,000 22,000
Sale of other assets 20,000 (82,000) (31,000)
Balances 38,000 - 25,000 3,000 (9,000)
Loan offset (3,000) 3,000
Balances 38,000 25,000 - (6,000)
Additional investment of A 6,000 6,000
Balances 44,000 25,000 -
Payment of accounts payable (25,000) (25,000)
Balances 19,000 -
Cash distribution (19,000)
Balances -
Journal Entries
a. Cash 20,000
Loss on Realization (82,000 - 20,000) 62,000
Other Assets 82,000
b. A, Capital (62,000 x 50%) 31,000
B, Capital (62,000 x 30%) 18,600
C, Capital (62,000 x 20%) 12,400
Loss on Realization 62,000
c. Loan Payable to A 3,000
A, Capital 3,000
d. Cash 6,000
A, Capital 6,000
e. Accounts Payable 25,000
Cash 25,000
f. B, Capital 11,400
C, Capital 7,600
Cash 19,000
he deficiency. The deficient partner is solvent.
B, Capital C, Capital
30,000 20,000
(18,600) (12,400)
11,400 7,600
11,400 7,600
11,400 7,600
11,400 7,600
(11,400) (7,600)
- -
Case 4-b - There is loss on realization with capital deficiency. The loan is insufficient to cover the deficiency. The deficient pa
Working Paper for the Statement of Liquidation
Cash Other Assets Accounts Payable A, Loan A, Capital
Balances before liquidation 18,000 82,000 25,000 3,000 22,000
Sale of other assets 20,000 (82,000) (31,000)
Balances 38,000 - 25,000 3,000 (9,000)
Loan offset (3,000) 3,000
Balances 38,000 25,000 - (6,000)
Capital offset 6,000
Balances 38,000 25,000 -
Payment of accounts payable (25,000) (25,000)
Balances 13,000 -
Cash distribution (13,000)
Balances -
Journal Entries
a. Cash 20,000
Loss on Realization (82,000 - 20,000) 62,000
Other Assets 82,000
b. A, Capital (62,000 x 50%) 31,000
B, Capital (62,000 x 30%) 18,600
C, Capital (62,000 x 20%) 12,400
Loss on Realization 62,000
c. Loan Payable to A 3,000
A, Capital 3,000
d. B, Capital (6,000 x 3/5) 3,600
C, Capital (6,000 x 2/5) 2,400
A, Capital 6,000
e. Accounts Payable 25,000
Cash 25,000
f. B, Capital 7,800
C, Capital 5,200
Cash 13,000
e deficiency. The deficient partner is insolvent.
B, Capital C, Capital
30,000 20,000
(18,600) (12,400)
11,400 7,600
11,400 7,600
(3,600) (2,400)
7,800 5,200
7,800 5,200
(7,800) (5,200)
- -
PARTNERSHIP LIQUIDATION
Illustration 1
Ledger balances of DEF Partnership prior to liquidation are as follows:
Cash ₱ 2,000
Non-cash assets 98,000
Liabilities 80,000
D, Capital 10,000
E, Capital 7,000
F, Capital 3,000
The partners divide profits and losses as follows:
D 10%
E 40%
F 50%
100%
The non-cash assets were sold for ₱58,000.
The working papers and journal entries necessary to liquidate the partnership under
2 independent cases are shown on the next sheets.
Case 1: Only D is solvent.
Case 2: D and E are solvent and F is a limited partner.
Case 1 - Only D is solvent.
Working Paper for the Statement of Liquidation
Cash
Non-cash Assets
Liabilities D, Capital E, Capital F, Capital
Balances before liquidation 2,000### 80,000 10,000 7,000 3,000
Sale of non-cash assets 58,000### (4,000) (16,000) (20,000)
Balances 60,000### 80,000 6,000 (9,000) (17,000)
Capital offset (26,000) 9,000 17,000
Balances 60,000 80,000 (20,000) - -
Additional investment of D 20,000 20,000
Balances 80,000 80,000 -
Payment of liabilities (80,000) (80,000)
Balances - -
Journal Entries
a. Cash 58,000
Loss on Realization (98,000 - 58,000) 40,000
Other Assets 98,000
b. D, Capital (40,000 x 10%) 4,000
E, Capital (40,000 x 40%) 16,000
F, Capital (40,000 x 50%) 20,000
Loss on Realization 40,000
c. D, Capital 26,000
E, Capital 9,000
F, Capital 17,000
d. Cash 20,000
D, Capital 20,000
e. Liabilities 80,000
Cash 80,000
Case 2 - D and E are solvent and F is a limited partner.
Working Paper for the Statement of Liquidation
Cash
Non-cash Assets
Liabilities D, Capital E, Capital F, Capital
Balances before liquidation 2,000### 80,000 10,000 7,000 3,000
Sale of non-cash assets 58,000### (4,000) (16,000) (20,000)
Balances 60,000### 80,000 6,000 (9,000) (17,000)
Capital offset (3,400) (13,600) 17,000
Balances 60,000 80,000 2,600 (22,600) -
Additional investment of E 22,600 22,600
Balances 82,600 80,000 2,600 -
Payment of liabilities (80,000) (80,000)
Balances 2,600 - 2,600
Cash distribution (2,600) (2,600)
Balances - -
Journal Entries
a. Cash 58,000
Loss on Realization (98,000 - 58,000) 40,000
Other Assets 98,000
b. D, Capital (40,000 x 10%) 4,000
E, Capital (40,000 x 40%) 16,000
F, Capital (40,000 x 50%) 20,000
Loss on Realization 40,000
c. D, Capital (17,000 x 1/5) 3,400
E, Capital (17,000 x 4/5) 13,600
F, Capital 17,000
d. Cash 22,600
E, Capital 22,600
e. Liabilities 80,000
Cash 80,000
f. D, Capital 2,600
Cash 2,600
