Accounting for Liquidation by Installment

1. Record the sale of assets and distribute any gains or losses among
the partners using their profits and loss ratio
2. Pay liquidation expenses, if any, and divide these among the partners
using the P/L ratio
3. Pay the liabilities to outside creditors. Liabilities should be paid in full,
or cash sufficient to ensure the payment of all liabilities, including
estimated liquidation expenses should be withheld.
4. Distribute cash to the partners after possible future losses have been
divided to partners in accordance with an advance distribution plan or
schedule of safe payments

Schedule of Safe Payments

This schedule is prepared on the assumption that there will be no further
sales of non cash assets, and any capital deficiency is not collectible.
Illustration:
Partners A, B and C shares profits and losses in the ratio of 2:3:5,
respectively.  The statement of financial position of the partnership as of
December 31, 2018 as follows:
ABC Company
Statement of Financial Positiion
December 31, 2018

Assets Liabilities and Capital

Cas 10,000 Liabilities 80,000
Other Assets 310,000 A Capital 60,000
B Capital 80,000
C Capital 100,000
Total 320,000 Total 320,000

Realization of Assets

Carrying Value Realized Value Loss

January P160,000 P130,000 P30,000
February   84,000    48,000   36,000
March    66,000    24,000   42,000

1. Determine the total interest of each partner.  Loan o a partner and loan
from a partner, if any, shall be added to or deducted from the capital
balance to obtain the total interest of each partner.

A B C
Capital P60,000 P80,000 P100,000
Loss on
)6,000) (9,000) (15,000)
realization in jan
Balance P54,000 P71,000 P85,000

2.  Compute the total possible loss of the partnership to be absorbed by

each partner.  This consist of the total carrying value of remaining non-cash
assets, and the cash withheld for possible liquidation expenses and
unrecognized liabilities, if any.
Each partner absorbs a possible loss of an amount equal to the total
possible loss multiplied by his profit and loss percentage.
Possible Loss absorbed by:
A  P150,000 x 2/10 = P30,000
B  P150,000 x 3/10  = P45,000
C  P150,000 x 5/10  = P 75,000
Schedule 1 - Schedule of Sale Payment for January

A B C
Total Interest P54,000 P71,000 P85,000
Possible Loss 30,000   45,000   75,000
Payment to
P24,000 P26,000 P10,000
Partners

After the distribution of available cash, the partners' capital balances are A-
P30,000, B-P45,000 and C-P75,000. The capital balances are now equal to
the agreed profit and loss ration which is 2:3:5. Therefore, any further
 installment payments in February and March can be safely made on the
agree profit and loss ratio without preparing a schedule of safe payments
ABC Company
Statement of Partnership Liquidation
January -March 2019
Other
Cash Liabilities  A Capital  B Capital  C Capital
Assets
Balance  10,000 310,000 80,000 60,000 80,000 100,000
January Realization 130,000 -160,000   -6,000 -9,000 -15,000
Balance  140,000 150,000 80,000 54,000 71,000 85,000
Pay Liab -80,000   -80,000      
Balance  60,000 150,000 0 54,000 71,000 85,000
Sched of Payment 1 -60,000     -24,000 -26,000 -10,000
Balance  0 150,000 0 30,000 45,000 75,000
February Realization 48,000 -84,000   -7,200 -10,800 -18,000
Balance  48,000 66,000 0 22,800 34,200 57,000
Payment to Partners -48,000     -9,600 -14,400 -24,000
Balance  0 66,000 0 13,200 19,800 33,000
march realization 24,000 -66,000   -8,400 -12,600 -21,000
Balance  24,000 0 0 4,800 7,200 12,000
Payment to Partners -24,000     -4,800 -7,200 -12,000