St.

Vincent College of Cabuyao

Brgy. Mamatid, City of Cabuyao, Laguna

Advance Financial Accounting and Reporting

PARTNERSHIP: LIQUIDATION
Problem I
Jacky, Kharla and Lynda are partners with profit and loss ratio of 50%, 30% and 20%, respectively. The partners
decided to liquidate the partnership effective January 1, 2014. The partnership trial balance on December 31,
2014 was as follows:

Debit Credit
Cash P 50,000
Non-cash assets 450,000
Liabilities to Creditors P135,000
Loan payable – Lynda 15,000
Jacky, Capital 180,000
Kharla, Capital 120,000
Lynda, Capital 50,000
Totals P500,000 P500,000

REQUIRED: Prepare a statement of liquidation. The non-cash assets are sold for P112,500 and liquidation
expenses of P7,500 are paid. Linda is insolvent and is unable to repay the partnership for the debit balance.

Problem II

On December 31, 2014, the accounting records of MMM, NNN, and OOO Partnership (a general partnership)
included the following ledger account balances:
(Dr.) Cr.
MMM, drawing P( 60,000)
OOO, drawing ( 22,500)
NNN, loan 75,000
MMM, capital 307,500
NNN, capital 251,250
OOO, capital 270,000

Total assets of the partnership amounted to P1,196,250, including P131,250 cash, and partnership liabilities
totaled P375,000. The partnership was liquidated on December 31, 2011, and OOO received P208,125 cash
pursuant to the liquidation. MMM, NNN, OOO shared net income and losses in a 5:3:2 ratios, respectively.

What is (1) the amount realized from the sale of non-cash assets; (2) the cash balance after payment of liabilities.

Problem III

Flamingo, Durango and Mortero are partners in a wholesale business. On January 1, 2014 the total capital was
P240,000 and drawings presented as follows:

Capitals Drawings
Flamingo P 50,000 P 30,000
Durango 40,000 20,000
Mortero 150,000 10,000

Partners agree that profit and loss ratio are shared equally. Because of the failure of some debtors to pay their
outstanding accounts, the partnership loss heavily and the partners are compelled to liquidate the partnership.
After exhausting the partnership assets, including those arising from an operating profit of P36,000 in 2014, they
still owe P42,000 to creditors on December 31, 2014. Flamingo has no personal assets but the others are well off.

What are the (1) partnership liquidating loss, and (2) the amount that Mortero will receive as a result of the
liquidation?

Problem IV

Following is the balance sheet of Arami, Portho and Artagna Partnership on June 4, 2014, immediately prior to its
liquidation:
Assets Liabilities and Partnership Capital
Cash P 12,000 Liabilities P 40,000
Other Assets 188,000 Potho, Loan 8,000
Arami, Capital 54,000
 Portho, Capital 78,000
Artagna, Capital 20,000
Totals P200,000 P200,000
The partners shared net income and losses as follows: Arami, 40%, Portho, 40% and Artagna, 20%. On June 4,
2014, the other assets were realized at P61,400, and P41,000 had to be to liquidate the liabilities because of an
unrecorded trade accounts payable of P1,000. Arami and Portho were solvent, but Artagna’s personal liabilities
exceeded personal assets by P10,000. How much would each partner receive?

Problem V
AA, BB and CC are partners sharing profits and loss in the ratio of 4:3:3, respectively. On January 1, 2014, they
decided to liquidate the partnership and the balance sheet prepared were as follows:
Assets Liabilities and Partnership Capital
Cash P 8,000 Liabilities P 24,000
Other Assets 184,000 BB, Loan 20,000
CC, Loan 10,000
AA, Capital 57,800
BB, Capital 50,200
CC, Capital 30,000
Totals P192,000 P192,000
The following transactions as a result of liquidation were as follows:
Book Value Cash Realized Costs of Cash Withheld at the
Of Assets from Sale of liquidation Payment to end of the month for
Sold Assets paid Creditors Anticipated Expenses
January P48,000 P42,000 P 2,000 P24,000 P 8,000
February 28,000 24,000 3,000 4,000
March 60,000 40,000 4,000 10,000
April 48,000 20,000 10,000 0
Required:
1. Prepare a statement of liquidation with supporting schedules to accompany the statement
(schedule of safe payments)
2. Prepare a cash priority program/cash distribution plan showing how cash should be distributed to
partners as it becomes available.
Problem VI

When Rey and Koniff, general partners of the Rey Koniff Partnership who shared net income and losses in a 4:6
ratio, were incapacitated in an accident, a liquidator was appointed to rise up the partnership. The partnership’s
balance sheet showed the following:
Assets Liabilities and Capital
Cash P 70,000 Liabilities P 40,000
Other Assets 200,000 Rey, Capital 142,000
Goodwill 20,000 Koniff, Capital 108,000
Totals P 290,000 P 290,000
Because of the specialize nature of the non cash assets, the liquidator anticipated that considerable time would be
required to dispose them. Liquidation expenses paid P10,000 for advertising, rent, travel, etc. in the process of
liquidating the partnership, an overlooked bill for landscaping services of P4,000 is discovered and in addition,
partners agree to keep a P6,000 contingent funds. Determine the amount of cash that should be paid to each
partner.

Problem VII

The partnership of JJ, KK, LL and MM is preparing to liquidate. Profit and loss sharing ratios are shown in the
summarized balance sheet at December 31, 2014 as follows:
Assets Liabilities and Capitals
Cash P 400,000 Other liabilities P 200,000
Inventories 400,000 JJ, loan 200,000
Loan to KK 40,000 JJ, Capital (40%) 400,000
Other assets 1,020,000 KK, Capital (20%) 640,000
LL, Capital (20%) 200,000
MM, Capital (20%) 220,000
Totals P1,860,000 Totals P1,860,000

During January 2015, the inventories are sold for P170,000, the other liabilities are paid, and P100,000 is set-
aside for contingencies.

Compute the total cash payment to partners and the cash that should be receive by JJ and KK:
Problem VIII

The ABC Partnership is being dissolved. All liabilities have been liquidated. The balance of assets at hand is
being realized gradually. The following are details of each partners’ accounts.

Capital Current Account

Account Undistributed
(Original Earnings Loans to Profit and
Investment) (net of Drawings) Partnership Loss Ratio
A P20,000 P1,000 cr. P15,000 40%
B 25,000 2,000 dr. 40%
C. 10,000 1,000 cr. 5,000 20%

If A receives P16,000 at this point, how much will BB and CC receive?

Problem IX

The balance sheet of the Partnership Duro, Kemp and Ruth on December 31, 2014 before liquidations shows the
following:
Assets Liabilities and Capital
Cash P120,000 Accounts Payable P150,000
Other Assets 560,000 Notes payable 100,000
Loan to Ruth 20,000 Loan from Kemp 10,000
Duro, capital (50%) 170,000
Kemp, capital (30%) 170,000
Ruth, capital (20%) 100,000
Totals P700,000 Totals P700,000

The partnership decided to liquidate as soon as possible after December 31, 2014, and all cash on hand, except for
P10,000 contingency balance is to be distributed at the end of each month until the liquidation is completed.

If in the first month of realization and distribution, the partnership pays liquidation expenses of P5,000 and Kemp
receives P60,000, what are the cash proceeds from the initial sale of other assets?

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