PARTNERSHIP LIQUIDATION

Q1. Larry, Marsha, and Natalie are partners in a company that is being liquidated.
They share profits and losses 55 percent, 20 percent, and 25 percent, respectively.
When the liquidation begins they have capital account balances of P108,000, P62,000,
and P56,000, respectively. The partnership just sold equipment with a historical cost
and accumulated depreciation of P25.000 and P18,000, respectively for P10,000. What
is the balance in Marsha's capital account after the transaction is completed?

a. P62,000 c. P62,600

b. P61,400 d. P65,000

Answer: (c)

P62,000 + [P10,000 - (P25,000 - P18,000)] (.20)

P62,000 + (P3,000) (.20)
P62,000 + (P600)
P62,600 (c)

Q2. After operating for five years, the books of the partnership of Bo and By
showed the following balances:

Net assets P 169,000

Bo, Capital 110,500
By, Capital 58,500
If liquidation takes place at this point and the net assets are realized at book value, the
partners are entitled to:

a. Bo to receive P117,000 & By to receive P52,000

b. Bo to receive P126,750 & By to receive P42,250

c. Bo to receive P84,500 & By to receive P84,500

d. Bo to receive P110,500 & By to receive P58,500

(PhilCPA)

Answer: (d)

The non-cash assets are realized at book value therefore: There is no gain or loss, in
which case partners are entitled to receive an amount equivalent to their capital interest.

Partnership Liquidation | ©jipb162021

 Q3. RR, SS and I decided to dissolve the partnership on November 30, 20x5. Their
capital balances and profit ratio on this date, follow:

Capital Balances Profit Ratio

RR P 50,000 40%
SS 60,000 30%
TT 20,000 30%

The net income from January 1 to November 30, 20x5 is P44,000. Also, on this date,
cash and liabilities are P40,000 and P90,000, respectively. For RR to receive P55,200 in
full settlement of his interest in the firm, how much must be realized from the sale of
the firm's non-cash assets?

a. P196,000 c. P193,000

b. 177,000 d. 187,000

(Adapted)

Answer: (c)

Total Capital ( P50,000 + P60,000 + P20,000 + P44,000) P174,000

Total Liabilities 90,000

Total Assets P264,000

Less: Cash 40,000
Non-cash assets P224,000

Less: Loss on realization: (P55,200 - P67,600*) / 40% 31,000

Proceeds from sale P 193,000

* [P50,000 + (P44,000 x 40%)]

(P50,00 + P17,600)
P67,600

Partnership Liquidation | ©jipb162021