The Liquidation of the partnership)2)

Example 2
A, B and C are partners in a general partnership. They share net
income on a ratio of 5:3:2. They agree to liquidate the business. The
balance sheet at the date of liquidation is as follows:

Cash 100000 Capital:

AR 40000 A 150000
Inventory 110000 B 40000
Cars(net) 130000 C 110000
Biuldings (net) 120000 300000
AP 35000
NP 165000

500000 500000
 If you know that:
1- the selling price for other non-cash assets and the collected amount
from AR were 350,000.
2-The liquidation expenses and liquidator fees are 10000.
Required:
Prepare the liquidation statement.
 To prepare the liquidation statement we have to calculate the
following:
1) Cash : = 100000
2) Non-cash assets:
= The assets except cash.
=( 40000 AR +110000 Inventory + 130000 Cars +120000 Buildings)
= 400000
3) Liabilities:
= (35000 AP + 165000 NP = 200000
4)The partners’ capital:
A 150000 , B 40000 and C 110000.
Then we prepare the statement as follows:
 Title Cash Non-cash Liabiliti A 's B 's C's
assets es capital capital capital

5 3 2
Bal.abefore liquidation 100,000 400,000 200000 150000 40,000 110000
1) Selling of assets 350,000 (400,000) ( 25000) (15000) (10,000)

Balances 450000 ---------- 200000 125000 25000 100000

2) Paying the Liquid. fees (10000) (5000) (3000) (2000)

Balances 440000 - 200000 120000 22000 98000

3) Paying liabilities (200000) (200000)
Balances 240000 - ------- 120000 22000 98000
4 ) Paying the P’ capital (240000) (120000) (22000) (98000)

-------- ---------- -------- --------- ---------- ---------

How do you prepare the liquidation statement ??

We apply the following steps to prepare the statement:

 (1) Selling Non-cash assets:

- Non-cash
+ Cash assets
The difference is
by selling (closed) loss
price by B.V. 50000 ( we decrease the capital
350000 400000
balances by the ratio 5:3:2)

- Capital C
- Capital A - Capital B
(50000 x2/10(
(50000 x 5/10) (50000 x 3/10)
=
= =
10000
25000 15000
(2) Paying the liquidation fees :

- The capital
balances
- Cash 10000 by ratio 5:3:2

- Capital C
- Capital B
- Capital A 10000 x (2/10)=
10000 x (3/10) =
10000 x (5/10) = 5000 2000
3000
 (3) Paying Liabilities:

- Cash - Liabilities
by the paid amount
200000 by 200000
 (4) Paying the capital balances of partners:

- Cash
We decrease the capital balances by the
by the balance
240000 balance of each partner

- Capital C
- Capital A - Capital B
98000
120000 22000
 Example 3
The same facts in ex. 2 but :
1) The selling price of non- cash assets is 160000.
2) The partner B is solvent.
Required:
Prepare the liquidation statement.
 Title Cash Non-cash Liabilitie A 's B 's C's
assets s capital capital capital

5 3 2

Bal. before liquidation 100,000 400,000 200000 150000 40,000 110000

1) Selling of assets 160,000 (400,000) ( 120000) (72000) (48,000)

Balances 260000 ---------- 200000 30000 (32000) 62000

2) Paying the Liquid. fees (10000) (5000) (3000) (2000)

Balances 250000 - 200000 25000 (35000) 60000

3) Collecting the P. B ‘s Capital 35000 35000
Balances 285000 - 200000 25000 ---------- 60000
4) Paying liabilities (200000) (200000)

Balances 85000 - ------- 25000 -------- 60000

5) Paying the P’ capital (85000) (25000) (60000)

-------- ---------- -------- --------- ---------- ---------

 (1) Selling Non-cash assets:

- Non-cash
+ Cash assets
The difference is
by selling (closed) loss
price by B.V. 240000 ( we decrease the capital
160000 400000
balances by the ratio 5:3:2)

- Capital B - Capital C
- Capital A (240000 x (50000 x2/10(
(240000 x 3/10) =
5/10) =
= 48000
120000
72000
(2) Paying the liquidation fees :

- The capital
balances
- Cash 10000 by ratio 5:3:2

- Capital C
- Capital B
- Capital A 10000 x (2/10)=
10000 x (3/10) =
10000 x (5/10) = 5000 2000
3000
(3) The treatment of the negative balance (deficit) of P. (B):
If the general partner has a negative capital ,he has to pay his negative
balance but we have 2 cases as follows :

The partner is solvent The partner is insolvent

It means that he has personal money
(his personal assets more than his
personal liabilities)
So ,he has to pay cash to the co.
from his personal money to cover his
negative Capital .
So, we increase cash and
increase his capital
It means that he has not personal
money ( his personal assets less than his
personal liabilities).
So ,he can't pay to cover his negative
capital
Here his negative capital balance should
be allocated to the capital of the other
partners (by their P&L ratio) . So, we
increase capital of insolvent partner
and
decrease the capital of other partners.
(3) Colleting the negative bal. of solvent partner:

+ Cash + Capital ‘s B
by the collected amount (closed)
35000 by 35000
 (4) Paying Liabilities:

- Cash
- Liabilities
by the paid amount
by 200000
200000
 (5) Paying the capital balances of partners:

- Cash
We decrease the capital balances by
by the balance the balance of each partner
85000

- Capital C
- Capital A

25000 60000
 Example 4
The same facts in ex. 3 but :
The partner B is insolvent.
Required:
Prepare the liquidation statement.
 Title Cash Non-cash Liabilities A 's B 's C's
assets capital capital capital

5 3 2

Bal. before liquidation 100,000 400,000 200000 150000 40,000 110000

1) Selling of assets 160,000 (400,000) ( 120000) (72000) (48,000)

Balances 260000 ---------- 200000 30000 (32000) 62000

2) Paying the Liquid. fees (10000) (5000) (3000) (2000)

Balances 250000 - 200000 25000 (35000) 60000

3) Allocating the P. B ‘s Capital (25000) 35000 (10000)
on P(A) and (C).
Balances 250000 - 200000 ---------- ---------- 50000
4) Paying liabilities (200000) (200000)

Balances 50000 - ------- ----------- -------- 50000

5) Paying the P ( C)’s capital (50000) (50000)

-------- ---------- -------- --------- ---------- ---------

(3) Allocating the capital balance of partner (B) on
partners(A) and (C):

We decrease the capital balances of

+ Capital B
partners(A) and (C) by the ratio of them
by the balance
35000
- Capital C
- Capital A 35000x (2/7) =
35000x (5/7) =
25000 10000
 (4) Paying Liabilities:

- Cash - Liabilities
by the paid amount
200000 by 200000
(5) Paying the capital balances of partners:

- Cash
We decrease the capital
by the balance balance of (C) only
50000

- Capital C

50000
 Example 5
The following are the balances after selling non-cash assets and
paying liquidation fees and liabilities:
Cash 50000
Capital (A) : 100000
Capital (B) : (26000)
Capital (C) : (24000)
If you know that:
The partners are solvent.
Required:
Complete the liquidation statement.
 Title Cash Non-cash Liabilities A 's B 's C's
assets capital capital capital

5 3 2

Balances 50,000 100000 (26000) (24,000)

1) Collecting the negative 50000 26000 24000
Capital of P(B) and (C).

Balances 100000 - ------- 100000 -------- ----------

2) Paying the P ( A)’ s capital (100000) (100000)

-------- ---------- -------- --------- ---------- ---------

 Example 6
The following are the balances after selling non-cash assets and
paying liquidation fees and liabilities:
Cash 50000
Capital (A) : 100000
Capital (B) : (26000)
Capital (C) : (24000)
If you know that:
The partners are insolvent.
Required:
Complete the liquidation statement.
 Title Cash Non-cash Liabilities A 's B 's C's
assets capital capital capital

5 3 2

Balances 50,000 100000 (26000) (24,000)

1)Deducting the negative (50000) 26000 24000
Capital of P(B) and (C) from P.
(A).

Balances 50000 - ------- 50000 -------- ----------

2) Paying the P ( A)’s capital (50000) (50000)

-------- ---------- -------- --------- ---------- ---------

 Example 7
The following are the balances after selling non-cash assets and
paying liquidation fees and liabilities:
Cash 50000
Capital (A) : 100000
Capital (B) : (26000)
Capital (C) : (24000)
If you know that:
The partner (B) is solvent and the partner (C) is insolvent.
Required:
Complete the liquidation statement.
 Title Cash Non-cash Liabilities A 's B 's C's
assets capital capital capital

5 3 2

Balances 50,000 100000 (26000) (24,000)

1)Allocating the negative (15000) ( 9000) 24000
Capital of insolvent(C) on P. (A)
and (B).

Balances 50000 - ------- 85000 (35000) ----------

2) Collecting the P ( B)’s 35000 35000
negative capital

Balances 85000 - ------- 85000 --------- ----------

2) Paying the P ( A)’s capital (85000) (85000)

-------- ---------- -------- --------- ---------- ---------

What is the treatment if we have 2 partners one of them
solvent and the second is insolvent??
Firstly, we allocate the balance of insolvent partner on other partners and
then collect the balance of solvent partner as follows:
1) Allocating the balance of insolvent partner (C) :
(A) (B) Total
5 3 8
The share of P. (A) = 24000 X (5/8) =15000
The share of P. (B) = 24000 X (3/8) =9000
So, we increase capital of (C)
decrease capital of (A) and (B).
2) Collecting the balance of solvent partner (B):
increase cash
increase capital of (B).