LIQUIDATION OF PARTNERSHIP

continuation liquidation by lump sum, after this is the liquidation by installment.

ANOTHER EXAMPLE:

The following balance sheet is presented to you. partners A , B, C shares profit 5: 3: 2:

A drawing debit balance ( 12,000

B DRAWING 4,800
ACCTS. RECEIVABLE A ( 7,200
LOANS PAYABLE B 14,400
A CAPITAL 59,400
B CAPTAL 44,400
C. CAPITAL 39,000
ASSETS 147,000
CASH 64,200
OTHER LIAB. 68,400

TOTAL 211,200 211,200

AFTER THE LIQUIDATION, C, WILL RECEIVE 33,000.00

REQUIRED.
1. COMPUTE THE CAPITAL OF THE PARTNERS PRIOR TO THE SALE OF NON CASH ASSETS.

2. COMPUTE THE TOTAL LIABILITIES TO OUTSIDERS.

3. COMPUTE LOSS ON REALIZATION.
4. PREPARE LIQUIDATION STATEMENT.

ANSWER.

FOR NO. 1 QUESTION( what is capital before sale of non cash)

A B C
CAPITAL BEFORE OFFSET 59,400 44,400 39,000
OFFSET:
DEBIT BALANCE OF DRAWING (12,000
CREDIT BALANCE OF DRAW 4,800
ACCTS RECEIVABLE FROM A ( 7200)
LOANS PAYABLE B 14,400
TOTAL net equity before sale assets 40,200 58,800 43,800 142,800

IN COMPUTING THE NET EQUITY, THE FOLLOWING SHALL BE THE FORMULA

CAPITAL PER BOOKS 142800

PLUS: LOANS PAYABLE 14400
PLUS CREDIT BALANCE OF DRAW 4800
LESS: ACCTS RECEIVABLE PARTNERS (7200)
DEBIT BAL OF DRAWING (12000)
TOTAL NET EQUITY 142800

EXplanation: the net equity is computed as ff:

Balance of capital accounts xcxx
add: any loans payable to partners xxxx
credit balance of drawing xxxx
less: any advances to partners xxx
debit balance of drwings xxxx

NET EQUITY.......................................... XXXX

================================================================
Computation for question no.2( how much is liabilities)
TOTAL ASSETS 211,200
less NET
EQUITY.............................................................................................. 142,800
= liabilities to
outsiders......................................................................................... 68400

explanation:

By using the balance sheet equation of ASSETS LESS LIABILITES = CAPITAL OR CAPITAL LESS ASSETS IS
EQUAL TO LIABILITIES. OR LIABILITIES PLUS CAPITAL = ASSETS
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

ANSWER FOR NO. 3 (LOSS ON REALIZATION)

SINCE IT SAID THAT B WILL RECEIVED 33,000, WHICH IS OF COURSE 20% EQUIVALENT , THEREFORE
33,000 DIVIDE 20% = 88,800 WHICH IS THE NET CASH AVAILABLE FOR DISTRIBUTION, USING THIS
FIGURE A WORK BACK CAN BE USED TO ARRIVE AT THE LOSS ON REALIZATION AS FF:

NET CASH AFTER PAYING OF LIABILITIES 88,800 see above

ADD: LIABILITIES PAID 68,400 given
TOTAL CASH AFTER SELLING OF ASSETS 157,200cash bfore selling but include 64200 beg

LESS : cash before selling 64,200 deduct so can arrive purely

proceeds
EQUALS PROCEEDS OF THE SALE OF ASSETS 93,000 given
LESS: COST NON CASH ASSETS 147,000given
= LOSS ON SALE OF ASSETS 54,200
========================================================================
ANSWER FOR NO. 4

cash non A/R liab. loans draw A B C

BALANCES 64200 147000 7200 68400 14400 7200 59400 44,400 39000
OFFSET 7200 ( 12000) 4800
7200 14,400 ( 7200 ) 14400
balances 0 68400 0 0 40200 58800 43800

proceeds 93000 93000 68400

pay 68400 68400
loss on sale 54000 27000 16200 10800
balance 88800 0 13200 42600 33000
balance 88800 13200 42600 33000

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++==

ANOTHER PROBLEM:

a balance sheet for JOSH company are shown :

CASH 40,000 PAYABLE 73000

ACCTS REC 65000 LOANS PAY JAKE 5000
BAD DEBTS 5,000 JAKE CAP 42000
INVENTRY 80000 JACK 50,000
JOJO 10,000
TOTAL 180,000 180,000

the non cash was sold at 60,000. they share profits jake 55%, jack 15%, jojo 30%
CASE 1
JAKE AND JOJO ARE INSOLVENT. prepare journal entries.
CASE 2 : JAKE SOLVENT, JOJO INSOLVENT . PREPARE LIQUIDATION STATEMENT

CASE 1

ENTRY 1 SELLING OF ASSETS

CASH 60,000
ALLO. BDEBTS 5,000
LOSS ON REALI 80,000
A/R 65,000
INVENTORY 80,000
SALE OF ASSETS AT A LOSS.

JAKE CAPITAL 44,000

JACK 12000
JOJO 24000
LOSS ON REALIZATION 80000
charge capital due loss on realization

LOANS PAY 5000

CAPITAL JAKE 5,000

to transfer loans pay to JAKE TO HIS CAPITAL

JACK 43000
JAKE 39000
JOJO 4000
TO charge the capital of JACK FOR THE DEFICIT OF JAKE AND JOJO they being insolvent
======================================================================
CASE 2.

THE ANSWER IS FINALLY, JOJO WILL HAVE 14,000 DEFICIT , HE IS INSOLVENT, JAKE AFTER
SHARING ON TEH DEFICIT OF JOJO WILL HAVE CAPITAL DEFICIT OF 8,000 BUT HE IS SOLVENT SO HE
PAYS THE 8,000.
===========================================================================
ANOTHER PROBLEM

VIC, VICOR, VEN, VON, SHARE 3: 4 , 6,, 8 .= 21 TOTAL

BALANCES :OF CAPITAL vi vicor ven von

2500 62500 62500 22500 150,000

the non cash was sold at 58,000, after paying liabilities ,cash amount is only 7500. they had 55,500
cash to divide

required

1. cash balance before realization

2. total of non cash
3. loss on realization
4. liquidation statement

answer to no. 3

IF THE ENDING CASH AFTER PAYING PAYING 7500 liabilities , THAT MEANS , BEFORE PAYING LIAB. IT
HAS CASH OF 63,000 ( 55,500 plus 7500) BUT NO MORE NON CASH ASSETS BECAUSE ALREADY SOLD.
BUT THE LIAB, STILL 7500 AND CAPITAL IS 150,000.00 . PUTTING THAT INTO ACCOUNTING EQUATION
IT WOULD APPEAR LIKE THIS

CASH 63,000 LIAB. 7500

CAPITAL 150,000
TOTAL 63,000 157,500
take note the balance sheet is not balance by (94,500).
TOTAL 63,000 63000

CONSIDERING THE LOSS ON REALIZATION IS UNKNOWN , AND SINCE THE BALANCE SHEET IS NOT
BALANCE BY 94,500, IT IS ASSUMED THAT THERE IS A LOSS OF 94,500, SO THAT IF YOU WILL PUT NET
LOSS TO THE CAPITAL SIDE THE BALANCE SHEET WILL BALANCE,

HENCE, THE LOSS IS 94,500.00

answer to no. 2 WHAT IS TOTAL NON CASH

NOW , SINCE THE LOSS ON SALE IS 94,500 AND THE PROCEEDS IS 58,000, ADDING LOSS AND THE
PROCEEDS WOULD EQUAL TO 152,500.00 AS THE BOOK VALUE OF THE NON CASH ASSETS.

LOSS ON SALES 94500

ADD PROCEEDS 58000
 TOTAL NON CASH 152500

answer for no. 1

NOW , IF THE CASH BALANCE AFTER REALIZATION IS 63,000 AND THE PROCEEDS OF SALE IF 58,000,
THEREFORE DEDUCTING TH 58,000 FROM 63,000, THE BEGINNING CASH IS 5000.00

5000 CASH BEG final cash end 55,500

58000 PROCEEDS add :liab. paid 7500
63000 cash after sale 63,000
7500 PAY LIAB less: proceeds 58,000
55,500 FINAL CASH equals cash beg 5,000
=================================================================

LIQUIDATION BY INSTALLMENT METHOD

.1. Under this method the sale of non cash are by piecemeal
2. liabilities are paid partial.
3. any cash balance is distributed to partners.

when payment are made partners in installments ,they received money before knowing losses will be
incurred.. if losses occurred and a deficits has resulted to their capital , the LIQUIDATOR HAS TO
REQUEST THE RETURN OF CASH PAID TO THE PARTNERS.

IF THE LIQUIDATOR CANNOT RECOVER THE CASH, HE WILL BE RESPONSIBLE BUT TO BE ABLE TO AVOID
SUCH A SITUATION , NO PARTNERS SHALL BE PAID MORE THAN TO WHICH THEY ARE ENTITLED .

AT EACH INTERVAL IN WHICH A CASH DISTRIBUTION IS MADE A SCHEDULE OF SAFE PAYMENTS IS

MADE . THAT MEANS IN CASE A DISTRIBUTION IS CALLED AFTER SELLING NON CASH....... A SAFE
PAYMENT SCHEDULE IS TO BE PREPARED AND THE AMOUNT FOR EACH PARTNER SHALL BE THE ONE TO
BE USED IN ALLOCATING PAYMENT TO HIM..

WHAT IS THE PURPOSE OF THE SAFE PAYMENT SCHEDULE

AS YOU KNOW, IT IS NOT AUTOMATIC THAT YOUR PROFIT AND LOSS SHARING RATIO IS THE SAME
WITH YOUR CAPITAL RATIO AGAINST THE TOTAL CAPITAL.'

EXAMPLE A B C
CAPITAL 36000 12.000 12000 60,000
CAPITAL RATIO 60% 20% 20% 100%
PROFIT LOSS SHARING RATIO 75% 15% 10% 100%

IN CASE A LOSS , SAY 80,000, THE SHARE OF PARTNER A IS 48,000 WHERE HIS CAPITAL IS ONLY
36,000, SO HE WILL HAVE AN INSTANT DEFICIT OF 12000.00., WHERE HIS CO PARTNER MAY ABSORB THE
12,000. IF THIS IS THE CASE OF PARTNER A , HE WILL NOT BE ENTITLED TO THE INITIAL CASH
DISTRIBUTION ( of course after all assets are sold he will have a share on cash), SO THAT THE
PARTNER WHOSE CAPITAL RATIO IS HIGHER THAN HIS SHARE RATIO LIKE B, C. CAN HAVE THE
PRIORITY IN THE CASH DISTRIBUTION.

SO THIS SAFETY PAYMENT SCHEDULE IS MADE SO THAT THOSE PARTNERS THAT HAS THE LEAST TO THE
LOSS , SHALL ALSO HAVE THE PRIORITY TO THE CASH DISTRIBUTION.

IF ONLY THE CAPITAL RATIO AND THE PROFIT SHARING RATIO IS THE SAME , THERE IS NO NEED TO MAKE
THIS SAFETY PAYMENT SCHEDULE BECAUSE ANYWAY ANY LOSS CAN BE ABSORB BY THE CAPITAL OF
EACH PARTNER.

IF THERE IS NO PAYMENT SAFETY SCHEDULE, PARTNER A WILL STILL HAVE A SHARE ON THE INITIAL
CASH DISTRIBUTION THOUGH HE SHOULD NOT HAVE BECAUSE OTHER PARTNERS HAS THE PRIORITY
BECAUSE OF THEIR HIGH CAPITAL RATIO.

HOW IS DONE:

1. AN assumption has to be made on non cash assets as worthless and distribute this as possible loss
.
2. to retain sufficient amount of cash for liabilities and include this amount as part of possible loss.
3. retain sufficient amount for expected liquidation expenses and include as possible loss.
4. if partner has debit balance of after , 1,2,3 steps allocate debit balance to the remaining partners
5, any cash in excess of the amount reserved in 2, 3, can then be distributed t those partners with
creidit balance up to the amount of such credit balance.

EXAMPLE:

GREG, JUN, ABEL, BONN shares profit 2,1,1,1 .

non cash 606,000 liabilities 280,000

loans greg 20,000
loans bon 10,000
GREG CAP 88,000
JUN CAP 86,000
ABEL CAP 68,000
BON CAP 54,000
total 606,000 t0tal 606,000
TAKE NOTE NO CASH IS AVAILALBE. , NONE TO DISTRIBUTE YET.

below is the liquidation

period assets proceeds loss liquidation exp. liab. paid paid partners remain
july 300,000 240,000 60000 4000 220,000 16000
aug 240,000 112,000 128,000 9200 60000 54,800 4,000
sept 66,000 16000 50,000 6400 13600
238000
===================================================================
statement of liquidation
cash non cash liab. loans greg loans bon greg jun abel bon
BAL 0 606,000 280000 20000 10000 108000 86000 68000 64000
sale/loss
dist 240,000 300000 (24000 12000 12000 12000) \
liq.exp 4000) ( 1600 800 800 800)
pay liab 220,000 220,000
 bal 16000 306000 60000 82400 73200 55200
51200
sale.loss dist 112000 240000 51200 25600 25600 25600
liq.ex 9200 3680 1840 1840 1840
payliab 60000 60,000
balance 58800 66000 27520 45760 27760 23760
PAYMENT 54800 see sch of safe payment 0 31600 13600 9600
BALANCE 4000 66000 27520 14160 14160 14160
sale 16000 66000
loss 50000 20000 10000 10000 10000
liq.exp 6400 2560 1280 1280 12
80
bal distribute
13,600 4960 2880 2880 2880

TAKE NOTE THAT WHEN THE SALE OF ASSETS WERE MADE , THERE IS NO AUTOMATIC DISTRIBUTION OF
PROCEEDS, BECAUSE THEY WISH TO DO IT IN AUG , AND THAT DISTRIBUTION STARTED AFTER SELLING
THE 240000 WORTH OF ASSETS , THEREBY THE SCHEDULE OF SAFE PAYMENTS IS MADE SHOWN BELOW
. HOWEVER IF THEY WANTED TO DISTRIBUTE CASH AT THE ONSET OF CONVERTING NONCASH ASSETS
TO CASH, A SCHEDULE OF SAFE PAYMENT SHALL ALSO BE MADE.

when a distribution of cash to partners is called , a schedule of safe payment is made, before the
calling of payment amounting to 54800, there still a 66,000 worth of unsold assets, which should be
presumed to be a total loss or considered unsaleable or gone for scrap for purposes of allocating
payment of 54800 and after paying 54800 a remaining cash on hand of 4000.00 , will also be
untouchable therefore the total to be considered loss is 70,000 (66,000 ;plus 4000.00 or 70,000.
as shown below. In view of that DISTRIBUTION OF ASSUMED LOSS OF 70,000 , GREG CAPITAL BECAME
DEFICIENT IF THE NON CASH OF 66000 WILL BE PRESUMED a total loss , HENCE HE RECEIVES NO CASH
PAYMENT as shown above AND AS PROVEN by THE SCHEDULE OF SAFE PAYMENTS BELOW.

UNLIKE WHEN THERE IS a distribution by LUMP SUM OR A NO SCHEDULE OF SAFE PAYMENTS, , GREG
WILL HAVE A SHARE ON THE PROCEEDS AND SAME TIME SHARE ON THE LOSS, WHICH GREG MAY LATER
ON BECOMES DEFICIENT AND ALSO THAT THE REST OF THE PARTNER WHO HAS BIG CAPITAL MAY
RECEIVE A LESSER CASH DISTRIBUTION, . SO TO PREVENT SUCH THING TO HAPPEN A SCHEDULE OF SAFE
PAYMENT IS MADE...

THEREFORE WHEN A SAFE PAYMENT SCHEDULE IS BEING USED , THE PARTNERS WHOSE ACTUAL
CAPITAL RATIO VS TOTAL CAPITAL IS SMALLER SAY IN CASE Of GREG 22% CAPITAL RATIO , THAN HIS
PROFIT AND LOSS SHARE OF 40%, IS PREVENTED FROM RECEIVING A SHARE ON THE CASH AVAILABLE
BECAUSE WHAT WILL HAPPEN WHEN THE SCHEDULE OF PAYMENT IS MADE, HIS CAPITAL WILL
BECOME DEFICIENT BECAUSE HIS SHARE RATIO IS 40% ON THE COST OF THE TOTAL LOSS OF 50,000
WHILE HIS CAPITAL RATIO IS ONLY 22% , NATURALLY HAVING 40% SHARE , WILL HAVE A BIGGER SHARE
ON THE LOSS OF 50,000. EVEN THE NEXT PARTNER HAVING A BIG GAP ON HIS ACTUAL CAPITAL RATIO
VS. HIS PROFIT AND LOSS SHARING RATIO LIKE PARTNER VON 19%,CAPITAL RATIO, BUT SHARE RATIO
IS 20%.

ON THE OTHER HAND IF THERE IS NO SCHEDULE OF SAFE PAYMENTS AND A STATEMENT OF LIQUIDATION
IS MADE . GREG WILL HAVE A SHARE OF 21920 COMPUTED 54800 X 40%. WHILE WITH SAFE PAYMENT
SCH. HE HAS NO SHARE ON THE 54800 BECAUSE IT WAS FOUND OUT THAT HE WILL BE
DEFICIENT.
 SCHEDULE OF SAFE PAYMENTS

. greg jun abel bon total

balances before dist 27520 45760 27760 23760 124800
possible loss :
unsold assets 66000
remain cash 4000
70000 28000 14000 14000 14000 70000
balance (480 31760 13760 9760 54800
transfer deficit 480 160) 160) 160 )
FREE INTEREST 0 31600 13600 9600 54800

THE 70,000 SHALL BE ALLOCATED OR DEDUCTED TO THEIR CAPITAL , BUT GREG CAPITAL NOT
SUFFICIENT AND LACKS 480.00 HENCE HE WILL NOT RECEIVE ALLOCATION AS SHOWN ON LIQUIDATION
STATEMENT.

THIS FREE INTEREST of 54800 NOW WILL USED TO ALLOCATE CASH DISTRIBUTION TO PARTNERS AS
AGREED. ON THE STATEMENT OF LIQUIDATION.

any subsequent proceeds on sale of non cash occurred and no schedule of payments is announced that
proceeds shall not be alllocated meantime untill the whole non cash was sold. What will be allocated
is the loss on realization of sales as shown in the schedule of liquidation above.

If all has been sold, the remaining cash now will be distributed in accordance with their sharing ratio.

journal entry:

CASH 240,000
LOSS ON REALIZATION 60,000
NON CASH ASSETS 300,000
to record sale of assets at a loss.

liquidation exp 4,000

cash 4000
to record liquidation exp.

accts pyable 220,000

cash 220,000
To pay outside creditor

CAPITAL GREG 25600

CAP JUN 12800
CAP ABEL 12800
CAP VON 12800
LOSS ON REALIZATION 60,000
LIQUIDATION EXP 4,000
to charge the capital accounts for the loss and expenses.
========================================================================

2nd month
entry 1
CASH 112,000
LOSS 128000
NON CASH 240000
sale at a loss of non cash

entry 2
liq. exp 9200
cash 9200
liq. exp.

entry 3
CAP GREG 54880
CAP JUN 27440
CAP ABEL 27440
CAP VON 27440
LOSS LIQ 128000
LIQ. EXP 9200

To charge capital due to n lossess

entry 4
APAY 60,000
CASH 60000
to pay outside creditors.

entry 5
CAP GREG
CAP JUN 31600
CAP ABE 13600
CAP VON 9600
CASH 54800
To distribute cash to partners.
===================================================================
3rd month
CASH 16000
LOSS 50,000
NON CASH 66000

LIQ. EXP 6400

CASH 6400

CAP GREG 22560

JUN 11280
ABEL 11280
VON 11280
LOSS REAL. 50,000
LIQ. EXP 6400

LOANS PAYABLE GREG 20000

LOANS VON 10,000
 CAP GREG 20,000
CAP VON 10000
to transfer the loans payable to capital account.

CAPITAL GREG 4960

JUN 2880
ABEL 2880
VON 2880
CASH 13600
to pay the partners.

===================================================================

HOW TO PREPARE SCHEDULE OF SAFE PAYMENTS

WHEN IT IS TIME TO DISTRIBUTE CASH TO PARTNERS.AND THE
SALE OF ASSETS HAS NOT YET STARTED.

This is a schedule shows the capital balances which include the loan payables but would automaticaaly
deduct an amount from it the excess of capital as against the CASH AVAILABLE FOR DISTRIBUTION. iN
EFFECT , CASH BALANCE LESS . CAPITAL IS A presumed CASH DEFICIENCY to pay the capital of the
partners , shortage IS AUTOMATICALLY DEDUCTED FROM THE CAPITAL that would result to the cash
balance.

Since that cash shortage will be deducted to their capital , there will be a tendency that some ofthe
partners will have a negative capital afterwards.

Any NEGATIVE capital balances after deducting this CASH DEFICIENCY VS. CAPITAL shall be transferred
to the partners whose capital is still credit balance .

After having transferred their share on the deficient partner , their capital may in turn becomes
deficient then the partners with positive capital balance will again shoulder those deficient partner
AND THIS PROCESS WILL NOT STOP UNTIL THERE IS A DEFICIENT PARTNER.

THAT MEANS THIS SCHEDULE WILL SHOW THE TOTAL CASH END ALWAYS AND FINALLY THIS WILL BE
APPLIED TO THE LOAN OF THE PARTNERS IF any, AND TO GET THEIR INDIVIDUAL SHARE ON THE END
CASH

A COMPANY OF A, B C, D has the following balances , sharing 5, 3,1,1,

A B C D TOTAL
ADVANCES 18000 10000 28000
LOANS 20000 40000 60000
CAPITAL 160000 120000 60000 100000 440000

BUT THERE IS AN AVAILABLE CASH OF 72,000.00 AVAILABLE FOR DISTRIBUTION.

Since the the non CASH but saleable assets are not given, it can be computed as ff:

USING ACCOUNTING EQUATION:

 CAPITAL 440,000
LOANS PAYABLE 60,000
TOTAL LIAB AND CAP 500,000
LESS : GIVEN ASSETS 72000
ADVANCES 28000 100,000
== OTHER ASSETS 400,000

Now therefore the non cash items that is subject for sale is 400,000 which shall be meantime assumed
to be A TOTAL LOSS, SCRAPPED , BURNED ETC. and therefore automatically absorbed or deducted to
the capital of the partners

this example OF SAFE PAYMENTS is where the sales of non cash has not started yet but there is a cash
available..

EXAMPLE: SCHEDULE OF SAFE PAYMENTS

A B C D TOTAL

CAPITAL 160,000 120,000 60,000 100,000 440,000

LOANS 20,000 40,000 60,000
ADVANCES 18,000 10,000 28000
BALANCES 180000 160,000 42,000 90,000 472,000
Less: shortage of
cash vs. capital 200,000 120,000 40,000 40,000 400000
balances ( 20000) 40000 2000 50000 72000
share of deficiency A 20000 (12000 (4000 (4000 -
balance - 28000 (2000) 46000 72000
share of deficiency C (1500 2000 500
FREE BALANCE 26,500 45,500 72000

Distribute as ff:
to loans 26,500 - 26,500
to capital 45,500 45,500
26500 45500 72000

explanations:

Since A CAPITAL became short of 20,000 because his capital is not sufficient to cover for his share on
the cash deficiency , B, C. D Shall reduced their capital and transferred to A. so A CAPITAL WILL
SHOW NO MORE NEGATIVE IN accordance with their sharing ratio as ff:

A 5 50%
B 3 30% 3 divide 5 60% X 20,000 =12,000
C 1 10% 1 div 5 20% X 20,000 4000
D 1 10% 1 div 5 20% 4000
TOTAL 10 100% 5 100% 20,000

ANOTHER DEFICIENCY OCCURED THIS TIME TO C. FOR 2000

B 3 75% X 2000 1500

C 1 25% X 2000 500
 total 2000

SINCE THERE IS NO MORE DEFICIENT PARTNER , THE CASH BALANCE CAN BE DISTRIBUTED TO
THE PARTNER HAVING positive CAPITAL BALANCES .
SINCE B HAS A REMAINING CAPITAL BUT HE HAS LOANS RECEIVABLE FROM THE FIRM , THAT REMAINING
CASH BALNCE FOR HIM OF 26,500 WILL BE USED TO PAY HIS LOANS RECEIVALBE to THE FIRM AND
D WILL RECEIVE 45,500. THE CASH BALANCE OF 72000 AT THE BEGINNING IS SHARE BY B AND D.

IN THE EVENT THAT PART OF THE 400,000 WILL BE SOLD LATER , THE PROCEEDS SHALL BE
DISTRIBUTED IF THEY WANTED AND THE LOSS on sale SHALL AGAIN BE DISTRIBUTED.UNTIL ALL THE
400,000 IS SOLD. IF ANY WILL BECOME DEFICIENT AS A CONSEQUENCE OF THE LOSS , THEN THE
REMAINING partner SHALL ABSORB THAT DEFICIENCY If THE PARTNER with deficiency IS INSOLVENT.

JOURNAL ENTRY:

LOANS PAYABLE 26,500

C. CAPITAL 45,500
CASH 72000
to distribute the cash balance prior to realization in accordance with the safe payments schedule.
==============================================================
ANOTHER EXAMPLE.

HENRY, JOHN, PAUL, has the following balance. sharing. 40%, 35%, 25%

cash 12,000 paybles 36,000

non cash 276,000 loan jonh 30,000
loan PAUL 15000
HENRY 86700
JOHN 75300
PAUL 45,000

THE LIQUIDATION
BOOK VALUE PROCEEDS LIQ. COST RETAINED CASH
APRIL 72000 63000 3000 12000
MAY 42000 36000 4500 7500
JUN 90000 60000 3600 3000
JULY 72000 24000 2400
TOTAL 276000

SCHEDULE OF SAFE PAYMENTS.

PROFIT SHARE RATIO 40% 35% 25%
CAPITAL RATIO 34.4% 41.8% 23.8%
BALANCES HENRY JOHN PAUL TOTAL
86700 75300 45000 207000
LOANS BALANCES 30000 15000 45000
TOTAL 86700 105300 60000 252000
ASSUMED LOSS 240000