Liquidation Of Partnership Flashcards
winding up of the partnership business
Partnership liquidation
conversion of noncash assets into cash
Realization
As a general rule, partnership assets should be distributed as follows
- To outside creditors
- To partners for loan accounts
- To partners for capital accounts
capital account and the
loan(s) are combined to give a net amount
right of offset
right of assets occurs when
loans exist between the partnership and a partner
what happens if right of offset is exercised
payment to some partners can be
made on their capital balances even if there are loans payable to the other partners
account designed to hold funds temporarily in safekeeping
escrow account
what to do before the distribution may be made to the partners
liabilities to outside creditors
must be paid in full or the necessary funds may be placed in an escrow account
The total partner’s equity (interest) in the partnership include
- the balance of capital account
- loan to and from
- drawing
- and share in net income or loss.
All gains or losses should be allocated through
profit and loss ratio
Total loss includes
o Realized loss
o Unrealized loss
o Cash withheld for future liquidation expenses
o Unrecorded liabilities
true or false
Total loss include cash set aside in a separate fund
false
Total loss does not include cash set aside in a separate fund
what happens to a partner if his total equity is less than his share in total loss
deficit
what will the deficient partner do
pay the partnership the
amount of such deficiency
what if the deficient partner can’t pay the said amount
other partners have to bear his deficiency in the partnership according to their profit and loss ratio
As a general rule, claims against the personal assets of the deficient partner is rank
in the following order
o Personal creditors
o Partnership creditors
o Partners by way of contribution
Methods of partnership liquidation:
o Lump-sum or total or single
o Installment
shows in detail all of the transactions
associated with the liquidation of the partnership
statement of partnership liquidation
also called as the liquidations by totals, where all the assets are realized at once and a liability were settled at once
Lump-Sum Liquidation
TRUE OR FALSE
No distributions will be made (both to creditors and partners) until all the non-cash assets was sold.
true
liquidation by piece meal. there are several distributions oftentimes the end of the month even if there is still non-cash assets remaining in the books of partnership
installment liquidation
it is prepared to assure the safe distribution of cash to the partners
schedule of safe payments
it is a tool that will also help in the determination of safe payments to partners
cash priority program
selling price of the partnership assets is less than the carrying value or book value
loss on realization
