COURSE: BC ACCTG 2 – ACCOUNTING FOR PARTNERSHIP &

CORPORATION
MODULE NO. 4
MODULE TITLE: LUMP SUM LIIQUIDATION
FACULTY: MINERVA O. CRUZ

A Liquidation Defined:

Liquidation is the winding up of partnership affairs. Liquidation may

be lump sum or by installment. In lump sum liquidation, liquidation
proceedings is completed within a reasonably short period of time such
that all non-cash assets are immediately realized/converted into cash and
cash is distributed immediately to creditors and partners. While in
installment liquidation, the liquidation process extends over a
considerable period of time because of the difficulty of converting non-
cash assets into cash hence cash is distributed only to creditors and
partners as cash become available. Our discussion proper is focused only
on the lump sum liquidation since installment liquidation shall be tackled
in Advanced Financial Accounting and Reporting.

B Accounting Procedures Involved in Lump sum Liquidation:

Liquidation generally speaking involves two basic steps namely:

1. Conversion of non-cash assets into cash otherwise known as

realization and whatever is the resulting gain or loss on
realization/sale of non-cash assets the same is
apportioned/allocated to the partners according to their profit and
loss ratio. Realization/sale resulted to a gain if the proceeds from
sale is more than the book value/carrying amount of the non-cash
assets sold and such gain is credited to the capital account of the
partners using the profit and loss ratio or in the absence of the profit
and loss ratio, the capital ratio shall be used.. Loss on
realization/sale will arise on the other hand if the cash proceeds
from the sale of non-cash assets is less than the book value/carrying
amount of the non-cash assets sold and such loss is debited/charged
against the capital account of the partner according to their profit
and loss ratio or in the absence of the profit and loss ratio, the it
shall be divided according to capital ratio.

2. Distribution of cash to creditors and partners. After all non-cash

assets are converted to cash, cash may be distributed immediately to
the creditors first then to the partners provided the available cash
is sufficient to cover payment to outside creditors and the capital
account balances of the partners are all credit/positive balances.
Otherwise, the debit/negative balance in any of the capital account
will have to be eliminated first by means of any of the following
 options in the following order before any cash distribution is made
to the partners.

1. Exercise the right of offset, the debit/negative balance in the

capital account is charged against the loan account but to the
extent of the loan balance only or whichever is smaller. If the
debit/negative balance in the capital account exceeds the loan
balance, the remaining debit balance may be removed by
resorting to option 2.
2. Collect the deficit/debit balance from the deficient partner. This is
possible only if the deficient partner or partner with a debit or
negative balance is solvent meaning his personal assets exceeds
his personal liabilities and at the same time he is a general
partner meaning his liability to the partnership is unlimited.
Otherwise there is no other recourse other than to apply option
3.
3. Distribute the deficit as additional loss on the part of the other
partners who are solvent in accordance with the remaining profit
or loss ratio or capital ratio as the case may be.

C Statement of Partnership Liquidation Preparation and Preparation

of Journal Entries to Wind Up Partnership Affairs:

The liquidation process is summarized in a statement of partnership

liquidation accompanied by the preparation of journal entries to
take up
 the conversion of non-cash assets into cash.
 the distribution of gain or loss on realization according to
profit or loss ratio or the capital ratio in the absence of the
profit and loss ratio.
 the payment to outside creditors.
 the elimination of the deficit/capital deficiency if any and
 the distribution of remaining cash to partners in accordance
with the remaining/residual capital balances.
D Illustrative Problem:
C, D and E, who share profits and losses in the ratio of 2:2:1, respectively
decided to liquidate their partnership on December 31, 2021. Below is the
condensed statement of financial position just prior to liquidation.

Assets
Cash 160,000
Other Assets/Non-Cash 2,720,000
Total Assets 2,880,000
Liabilities & Capital
Liabilities 896,000
D, Loan/Payable to D 40,000
E, Loan/Payable to E 64,000
C, Capital 760,000
D, Capital 480,000
E, Capital 640,000
Total Liabilities & Capital 2,880,000
Required:
1. Statement of liquidation and appropriate journal entries under the following
independent assumptions:
a. Other assets/Non-cash are sold for P1,480,000 and any deficient partner
invests additional cash to cover the deficiency meaning deficient partner is
solvent or his personal assets exceed his personal liabilities or has the
capacity to pay.
b. Other assets are sold for P1,200,000 and that the deficient partner is insolvent
or his personal liabilities exceed his personal assets or does not have the
capacity to pay.
2. Determine the following:
a. What if D received P600,000 as final cash settlement from the partnership
inclusive of the loan, for how much was the other assets sold? Answer:
P2,920,000
b. After realization/sale of non-cash assets and payment of liabilities and
partner’s loan, cash of P740,000 remained.
1. How much was the loss on realization/sale of other assets? Answer:
(P1,140,000)
2. How much should C, D and E received in final cash settlement
(exclusive of the loan)? Answer: P304,000, P24,000 and P412,000;
respectively.
c. For C to receive P360,000 as final cash settlement,
1. For how much was the other assets sold? Answer: P1,720,000
2. How much did D and E receive respectively as final cash
settlement, inclusive of the loan? Answer: P120,000 and P504,000,
respectively.
3. How much was the total cash payment to the partners inclusive of
the loan? Answer: P984,000?

Solution to the illustrative problem:

1. Statement of Partnership Liquidation and Necessary Journal Entries to wind up
partnership affairs assuming: /SPL/JES
a. Other assets are sold for 1,480,000 and deficient partner/s invests additional
cash to remove the capital deficiency or the debit balance in the capital
account of the partner/s because deficient partner/s is/are solvent (personal
assets exceeds personal liabilities and he is assumed to be a general partner
meaning his liability extend to his personal assets)

C, D and E
Statement of Partnership Liquidation
December 31, 2021

Cash OA/NC Accounts D, Loan E, Loan C,Capital D,Capital E,Capital

Payable 2/5 2/5 1/5
Bal before sale 160,000 2,720,000 896,000 40,000 64,000 760,000 480,000 640,000
Sale&dist’n of loss 1,480,000 1 (2,720,000) (496,000) (496,000) (248,000)

1,640,000 896,000 40,000 64,000 264,000 (16,000) 392,000

Payment of liabs (896,000)2 (896,000)
744,000 40,000 64,000 264,000 (16,000) 392,000
Offset Def against loan (16,000)3 16,000
744,000 24,000 64,000 264,000 392,000
Payment of loans (88,000)4 (24,000) (64,000)
656,000 264,000 392,000
Dist’n of rem cash (656,000)5 (264,000) (392,000)
 Journal Entries:
1. Sale of Non-cash/other assets and distribution of loss on realization/sale:
Cash 1,480,000 proceeds from sale
C, Capital 2/5x1,240,000loss 496,000
D, Capital2/5x1,240,000loss 496,000
E, Capital 1/5 x 1,240,000 48,000
Other Assets 2,720,000Book value

Loss on sale:1,480,000-2,720,000= -1,240,000

C’s share: 2/5 x -1,240,000= -496,000
D’s share: 2/5 x -1,240,000= -496,000
E’s share: 1/5 x -1,240,000= -248,000

Loss on sale of other assets amounting to P1,240,000 is to be

charged/debited against the capital account of the partner according to
profit and loss ratio but in the absence, the capital ratio shall be used. But
in case of gain, such should be credited to the capital account of the
partners.

2.Payment of liabilities to outside creditors.

Cash is sufficient to cover payment to outside creditors represented by the account
liabilities so payment could be made already to outside creditors:
Liabilities 896,000
Cash 896,000
#

Elimination of deficit or debit balance in the capital account of D:

Since D has a loan account to the partnership for P40,000 (amount
payable to the partner) this may be used to offset/write off the deficit/debit
balance for P16,000 (amount payable to the partnership) instead of asking the
partner concerned to contribute additional cash to remove the deficit. Hence, the
following entry is made:
First scenario: loan balance is sufficient to cover the capital deficiency.
D, Loan D, Capital
40,000 (16,000)
Offset to the extent of the deficiency (16,000) (16,000)
24,000 0
3.The entire deficit is eliminated thru the exercise of the right of offset.

D, Loan 16,000
D, Capital 16,000
#offset

What if, the scenario is this? What are the other options to the deficient
partner? Collect the deficit or distribute as additional loss on the part of
the other partners provided they are solvent.
Second Scenario: loan is 16,000 and capital deficiency is 40,000

D, Loan D, Capital
16,000 (40,000)
Offset (16,000) 16,000
Residual deficit 0. (24,000)

D, Loan 16,000
D, Capital 16,000
#offset to the extent of the loan balance
 Residual capital deficiency/debit balance may be collected provided the
deficient partner is solvent.
Cash D, Capital
xxx (24,000)
Collection of debit balance 24,000 24,000
Balance 0
Cash 24,000
D, Capital 24,000
#collection of dr balance

Third Scenario: loan, 16,000 and capital deficiency of 40,000;

First entry: offset
D, loan 16,000
D, Capital 16,000
#
What will be the second entry to remove the remaining deficit of 24,000 if
ever collection is not possible? If not possible then the option left is to
distribute the 24,000 deficit of D as additional loss to C and E according to
remaining profit and loss ratio as follows:
Second Entry:

C, Capital 2/3 x 24,000 16,000

E, Capital 1/3 x 24,000 8,000
D, Capital 24,000
#

If ever in the above situation, the debit balance or the deficit is

P40,000 while the loan balance is P16,000. How much of the deficit can be
eliminated if the right of offset is applied? The answer is P16,000 meaning the
maximum amount of the deficit that can be written off is only limited to the loan
balance or whatever is the lesser amount. That being the case, there is still a
residual debit balance or deficit of P24,000. So what options are available to
remove the remaining deficit, one is collection of P24,000 in cash provided the
deficient partner is solvent and a general partner at that. However, if the deficient
partner is insolvent or does not have the capacity to pay, then the residual deficit
will be distributed as additional loss on the part of the other partners divided
according to the remaining profit ratio.

4.Payment of the partners’ loans to the partnership:

Partners’ loans to the partnership are paid ahead of capital balances
following the order of payment at the point of liquidation.

D, Loan 24,000
E, Loan 64,000
Cash 88,000
#
D, Loan: 40,000-16,000deficit =24,000 balance of the loan

5.Distribution of remaining cash to the partners/Return of capital contribution to

the partners:
Take note that the remaining cash is distributed to the partners in
accordance with the remaining/resulting capital balances and not in accordance
with the profit ratio.
C, Capital 264,000
E, Capital 392,000
Cash 656,000
#
Remaining cash determined as follows: 160,000+1,480,000-896,000-88,000=656,000
C, Capital: 760,000-496,000 share in loss= 264,000
D, Capital: 480,000-496,000 share in loss +16,000= 0
E, Capital: 640,000-248,000 share in loss 392,000
Total cash distributed to partners 656,000

1. Statement of Partnership Liquidation and Necessary Journal Entries to wind up

partnership affairs assuming :

b. Other assets are sold for 1,200,000 and that the deficient partner/s is/are
insolvent (personal assets liabilities exceeds his personal assets) but the other
partners are solvent.

C, D and E
Statement of Partnership Liquidation
December 31, 2021

Cash OA Liabilitie D, Loan E, Loan C,Capital D,Capital E,Capital

s 2/5 2/5 1/5
Bal before sale 160,000 2,720,000 896,000 40,000 64,000 760,000 480,000 640,000
Sale&dist’n of loss 1,200,0001 (2,720,000) (608,000) (608,000) (304,000)

1,360,000 896,000 40,000 64,000 152,000 (128,000) 336,000

Payment of liabs (896,000)2 (896,000)
464,000 40,000 64,000 152,000 (128,000) 336,000
Dist’n of add’l loss (85,333)3 128,000 (42,667)
464,000 40,000 64,000 66,667 293,333
Payment of loans (104,000)4 (40,000) (64,000)
360,000 66,667 293,,333
Dist’n of rem cash (360,000)5 (66,667) (293,,333)

Journal Entries:
1.Sale of non-cash assets/other assets and distribution of loss.
Cash 1,200,000
C, Capital 608,000
D, Capital 608,000
E, Capital 304,000
Other Assets 2,720,000
#
Loss on sale=1,200,000-2,720,000= -1,520,000
Cs’ share=-1,520,000 x 2/5= -608,000
D’s Cruz’ share=-1,520,000 x 2/5= -608,000
E’s share= -1,520,000 x 1/5= -304,000

2.Payment of liabilities to outside creditors:

Liabilities 896,000
Cash 896,000
#
3.Elimination of the deficit or debit balance in the capital account of D amounting
to P128,000.

Although D has a loan account to the partnership the deficit can not be offset
against the partner’s loan to the partnership since D is insolvent hence the
personal creditors of D has priority over the partnership in terms of payment
unlike in letter A assumption that offsetting was allowed because D is solvent/has
the capacity to pay. The option to collect the debit balance is also not possible
because D is insolvent hence the partnership has no other recourse but to
 distribute the debit balance between C and E using the remaining profit ratio
between the two which is 2:1 as additional loss.
C, Capital 85,333
E, Capital 42,667
Dela Cruz, Capital 128,000
#
C’s share: -128,000 x 2/3 = -85,333
E’s share: -128,000 x 2/3 = -42,667

4.Payment of the partners’ loan to the partnership:

D, Loan 40,000
E , Loan 64,000
Cash 104,000
#

5.Distribution of remaining cash to the partners:

D, Capital 66,667
E, Capital 293,333
Cash 360,000
#
Remaining cash:160,000+1,200,000-896,000-104,000=360,000
C, Capital: 760,000-608,000-85,333= 66,667
D, Capital: 480,000-608,000+128,000)= 0
E, Capital : 640,000-304,000-42,667= 293,333
Total cash distributed to partners 360,000

2a) What if D received P600,000 as final cash settlement from the partnership
inclusive of the loan, for how much was the other assets sold? 2,920,000

Final Cash Settlement: (capital account of D) 600,000

D’s total interest in the partnership:
Loan 40,000
Capital 480,000 520,000
D’s share in the gain on realization/sale of other assets 80,000

The P80,000 gain is only his share so to get the total gain on sale of other assets
divide P80,000 by his profit share which is 2/5 (80,000/2/5). Total gain on sale is
P200,000.

Proceeds from the sale of other assets:

Proceeds from the sale of other assets ?
Less: Book value or carrying amount of OA 2,720,000
Gain on sale of other assets as determined above 200,000

Proceeds from the sale: workback: 200,000+2,720,000= 2,920,000

To check=2,920,000-2720,000=200,000 gain

2b) After realization/sale of non-cash assets and payment of liabilities and partner’s
loan, cash of P740,000 remained. Workback approach is applied.
1. How much was the loss on realization/sale of other assets? (P1,140,000) done
2. How much should C, D and E received in final cash settlement (exclusive of the
loan) ? Answer: P304,000, P24,000 and P412,000, respectively

Cash balance before sale 160,000 given

Proceeds from sale ?
Payment of liabilities (896,000) given
Payment of partners’ loans (40,000+64,000) (104,000) given
 Remaining cash 740,000 given

To determine proceeds from sale: workback:

740,000+104,000+896,000-160,000= 1,580,000

To check: 160,000+1,580,000-896,000-104,000=740,000 remaining cash

To determine loss on sale of other assets:

Proceeds from sale 1,580,000
Less: Carrying amount of other assets 2,720,000
Loss on sale of other assets. (1,140,000)

To determine the cash settlement to the partners:

C/2/5 D/2/5 E/1/5

Capital balance before sale 760,000 480,000 640,000
Distribution of loss:2:2:1, respectively (456,000) (456,000) (228,000)
Remaining capital balances 304,000 24,000 412,000

Remaining cash: 304,000+24,000+412,000= 740,000

2c) For C to receive P360,000 as final cash settlement,

1. For how much was the other assets sold? P1,720,000
2. How much did D and E receive respectively as final cash settlement, inclusive
of the loan? P120,000 and P504,000, respectively.
3. How much was the total cash payment to the partners inclusive of the loan?
P984,000?

To determine the loss on sale of other assets:

C
Balance before sale 760,000
Share in the loss ( ? )
Balance after the sale/target cash settlement 360,000

Workback: 360,000-760,000= -400,000 is C’s share in the loss

To check=760,000-400,000=360,000

If C’s share in the loss was P400,000, total loss on sale then is P1,000,000:
(-400,000/2/5=-1,000,000)

To determine proceeds from the sale: workback:

Proceeds from sale ?
Less: Book value of other assets 2,720,000
Loss on sale of other assets (1,000,000)

Proceeds from sale: -1,000,000+2,720,000= +1,720,000

To check=1,720,000-2,720.000=-1000,000 loss on sale
To determine cash settlement to D and E, respectively:
D E
Capital balance before sale 480,000 640,000
Distribution of loss:2/5 and 1/5 of (1,000,000) (400,000) (200,000)
Balances 80,000 440,000
Partner’s loans 40,000 64,0000
Total cash payment to partners inclusive of loans 120,000 504,000
 Total cash payment/settlement to the partners: Analyze cash:
160,000+1,720,000-896,000=P984,000

Or simply add all the cash settlement to the partners:

360,000C +120,000D+504,000E=984,000

Based on the above discussion, answer the following activities:

Activity 1 The partnership of M, T and R have been suffering financial difficulty.

Partners decide to liquidate. The condensed statement of financial position of M, T
and R on this date is as follows:

Assets
Cash 80,000
Non-cash Assets 960,000
Total Assets 1,040,000
Liabilities & Partners’ Capital
Accounts Payable 160.000
M, Capital 408,000
T, Capital 352,000
R, Capital 120,000
Total Liabilities & Partners’ Capital 1,040,000

The profit and loss ratio is M, 30%; T, 20% and R, 50%. R has no personal assets
other than her interest in the partnership. The non-cash assets were sold for
P640,000. Any deficient partner is insolvent, while the others are solvent.

Required:
1. Statement of partnership liquidation.
2. Entries to record the liquidation of the partnership.
3. What if in the above, all partners are solvent, prepare the entry to eliminate the
deficit in the capital account of R as well as the entry to record the distribution of
the remaining cash to the partners.
4. What if in the above, the partnership has loans payable to R for P160,000 and that
M has a capital balance of 248,000 but the rest of the balances are the same,
prepare entry/ies to eliminate the deficit in the capital account of R as well as the
entry to record the distribution of the remaining cash to the partners. (Assume
also all partners are solvent)
5. What if in the above, the partnership has loans payable to R for P40,000 and that R
has a capital balance of only P80,0000 but the rest of the balances are the same,
prepare entry/ies to eliminate the deficit in the capital account of R as well as the
entry to record the distribution of the remaining cash to the partners. Assume also
all partners are solvent.

Answers:
1.
Cash OÅ AP M/30% T/20% R/50%
Balance before 80,000 960,000 160,000 408,000 352,000 120,000
Sale & dist’n of loss 1 640,000 (960,000) (96,000) (64,000) (160,000)
720,000 160,000 312,000 288,000 (40,000)
Payment of liabs 2 (160,000) (160,000)
560,000 312,000 288,000 (40,000)
Additional loss 3 (24,000) (16,000) 40,000
560,000 288,000 272,000
Dist’n of rem cash 4 (560,000) (288,000) (272,000)

Loss on sale=640,000-960,000=-320,000
M=30%x320,000=96,000
T=20%x320,000=64,000
R=50%x320,000=160,000

R is insolvent, no loan, no capacity to pay, option left-distribute as additional loss

on the part of M and T divided according to rem profit or loss ratio.
(40,000)
M3/5 x 40,000=(24,000)
T2/5 x 40.000=(16,000)

2. Entries:
1) Cash 640,000
M, Capital 96,000
T, Capital 64,000
R, Capital 160,000
Other Assets 960,000

2) Accounts Payable 160,000

Cash 160,000

3) M, Capital 24,000
T, Capital 16,000
R, Capital 40,000

4) M, Capital 288,000
T, Capital 272,000
Cash 360,000

3. Entries to eliminate the debit and to distribute the remaining to partners

assuming all partners are solvent.

Option available to eliminate the debit balance/deficit:

Cash 40,000
R, Capital 40,000

M, Capital 312,000
T, Capital 288,000
Cash (560,000+40,000) c 600,000

4. R, Loan of 160,000 and M, Capital of 248,000 and the rest are the same.
Assume all partners are solvent. Entries to eliminate the debit balance and
distribution of remaining cash to partners:
R, Loan/Payable to R M,C T,C R,C
160,000 248,000 352,000 120,000
Loss/320,000 (96,000) (64,000) (160,000)
160,000 152,000 288,000 (40,000)
Offset (40,000) 40,000
120,000 152,000 288,000

Elimination of debit thru the exercise of the right of offset

R, Loan 40,000
R, Capital 40,000

Cash=80,000+640,000-160,000-120,000=440,000 rem cash to partners

M, Capital 152,000
T, Capital 288,000
Cash 440,000

5. R, loan is P40,000 R, C is 80,000, rest the same balances. Assume all partners
are solvent. Entries to eliminate the debit balance and the distribution of.
remaining cash to partners.
Cash R, Loan/Payable to R M,C T,C R,C
40,000 408,000 352,000 80,000
Loss/320,000 (96,000) (64,000) (160,000)
40,000 312,000 288,000 (80,000)
Offset (40,000) (40,000)
(40,000)
Collection +40,000 +40,000

Elimination of debit balance:

R, Loan 40,000
R, Capital 40,000

Cash 40,000
R, Capital 40,000

Distribution of remaining cash to partners.(80,000+640,000-160,000+40,000=600,000

M, Capital 312,000
T, Capital 288,000
Cash 600,000
#
April 5 1 pm to distribute the activity to be answered-coverage -partnership formation
and partnership operations
April 9 quiz on module 3-partnership dissolution/change in partnership ownership
Morning session-9-12 noon.

Activity 2 The partnership of C, A and B named CAB decided to liquidate their

partnership on May 31, 2021. Before liquidating and sharing of net income, their
capital balances are as follows: C (30%) 250,000; A (30%) 180,000; B (40%)
220,000. Net income from January 1 to May 31, 2021 is 120,000. Liabilities of the
partnership amounted to P210,000 and its total assets include cash amounting to
P70,000.
Unsettled liabilities are 110,000. C invested cash enough to settle their
partnership’s indebtedness. A is personally solvent. B is personally insolvent and
C becomes insolvent after investing the cash needed by the partnership.
Required:
1. How much was the proceeds from the sale of the partnership’s non-cash assets?
30,000
2. How much cash will A invest in the partnership?90,000
3. How much will C receive as a result of their liquidation? C
A=L+C
Cash+Non-Cash=L+A,C+B,C+C,C
70,000+Non-Cash=210,000+770,000
Non-Cash=980,000-70,000
Non-cash=910,000
Cash=70,000+proceeds from sale-100,000=0
Proceeds from sale=100,000-70,000=30,000
Cash=0+110,000-110,000=0+48,000=48,000+42,000=90,000-90,000 goes to C=0
Liabilities=210,000-100,000=110,000-110,000=0
 Loss from sale of non-cash=910,000-30,000=880,000 loss on sale of non-cash

C,C=250,000+36,000)(30%x120,000)=286,000-264,000(880,000x30%)=22,000+110,000=132,000-
42,000=90,000-90,000=0
A,C=180,000+36,000(30%x120,000)=216,000-264,000(880,000x30%)=(48,000)+48,000=0-
42,000=(42,000)+42,000=0
B,C=220,000+48,000(40%x120,000)= 268,000-
352,000(880,000x30%)=(84,000)+84,000=0
TPC= 770,000
Solution:
1. Proceeds from the sale of non-cash assets:
Cash+Non-cash=Liabilities+Capital
70,000+Non-cash=210,000+Capital(250,000+180,000+220,000) + NI(120,000)
70,000+Non-cash=210,000+650,000+120,000
70,000+Non-cash=980,000
Non-cash=980,000-70,000=910,000
Analyze cash to determine, proceeds from sale of non-cash:
=70,000+proceeds from sale?-100,000 (210,000-110,000)=0
Proceeds from sale=0+100,000-70,000=30,000
Loss from sale of assets=30,000-910,000=(880,000)
Analyze the capital account, to determine the cash settlement to partners:

C/30% A/30% B/40%

Balances before sale and net income 250,000 180,000 220,000
Net income 36,000 36,000 48,000
Share in net loss (264,000) (264,000) (352,000)
Balances 22,000 (48,000) (84,000)
Contribution of C to settle the unpaid liabilities 110,000
Balances 132,000
(48,000) (84,000)
Distribution of additional loss (42,000)
(42,000) 84,000
Remaining capital balances 90,000
(90,000) 0
Contribution of additional cash of D 90,000
Remaining capital balances 90,000 0 0
2. A should contribute cash of 90,000 to remove his capital deficiency.
3. C would receive 90,000 in final cash settlement.

Activity 3 C and D are partners with capital balances of 98,000 and 62,000,
respectively. They share profits and losses in the ratio of 3:2, respectively. The
partners decided to liquidate the partnership. The firm’s liabilities amount to
144,000 including 16,000 owing to C and 14,000 owing to B.
After realization of assets, the cash on hand amounted to 150,000.
Required:
1. How much was the loss on realization? (154,000)
2. How much should C and D receive in final settlement of their respective interest
(inclusive of loans)?21,600; 14,400
Loss on realization?
beg bal + proceeds from sale=150,000 cash
proceeds from sale=150,000
A=L+C
A=L 114,000+16,000C, Loan+14,000B,Loan+160,000
A =304,000
A of 304,000 all in non-cash assets form
Loss on sale=304,000 non-cash-150,000=154,000
C D
Beg balance 98,000 62,000
Distribution of loss on sale (92,400) (61,600)
 Balance after sale 5,600 400
Loans 16,000 14,000
Total cash settlement 21,600 14,400
Solution:
1. Loss on realization: (154,000)
Cash=0 beg+150,000proceeds from sale=150,000 cash balance after sale
Assets=Liabilities+Capital
A=144,000+98,000+62,000
A=304,000 (non-cash)
Loss on sale=150,000-304,000=(154,000)

2. Cash settlement to C and D:21,600; 14,400

C D
Balances before sale 98,000 62,000
Share in loss on realization of (154,000)3:2 (92,400) (61,600)
Balances 5,600 400
Partner’s loans 16,000 14,000
Total Partners’ interest 21,600 14,400
Analyze cash=0+150,000- 114,000 (144,000-16,000-14,000)=36,000 remaining
cash
Cash settlement to partners=36,000-21,600-14,400=0

Activity 4 D, E and F are partners with a profit and loss ratio of 5:4:1, respectively.
The partnership is to be liquidated. Prior to the liquidation, the statement of
financial position shows the following balances.

Cash 80,000
Other Assets 720,000
Total Assets 800,000
Liabilities 80,000
D, Capital 320,000
E, Capital 240,000
F, Capital 160,000
Total Liabilities & Capital 800,000
After realization, E received P120,000 as settlement of his interest.
Required:
1. How much was the loss on realization?(300,000)
2. How much did F receive in final settlement of his interest? 130,000
3. What amount of total cash was distributed to the partners. 420,000
D E F
Beg balance 320,000 240,000 160,000
Share in net loss (150,000 ) (120,000) (30,000 )
Balance after sale 170,000 120,000 130,000
Total cash to partners=170,000+120,000+130,000=420,000
Loss on sale=120,000 share in net loss of E/40%=(300,000)
F’s share in the loss=10%x300,000=(30,000)
Cash=80,000+420,000-80,000=420,000
Proceeds from sale=720,000Non-cash/OA-proceeds from sale=(300,000)
Proceeds from sale=720,000-300,000=420,000
Answers:
D E F
Balances before realization of other assets 320,000 240,000 160,000
Share in the net loss of (300,000) (150,000) (120,000) (30,000)
Balances after the sale 170,000 120,000 130,000
 1. Note: If E received 120,000 then his share in the loss is (240,000-
120,000)=120,000. So to get the total loss divide 120,000/4/10 or
40%=(300,000)loss on realization
2. F received the amount of 130,000 based on the above computation.
3. Total cash distributed=170,000+120,000+130,000=420,000 or 80,000+420,000-
80,000=420,000

Activity 5 The statement of financial position of L, M and N just before liquidation

shows the following:

Cash 20,000
Non-Cash Assets 240,000
Total Assets 260,000
Accounts Payable 40,000
N, Loan 40,000
L, Capital 62,000
M, Capital 88,000
N, Capital 30,000
Total Liabilities & Capital 260,000

L, M and N share profits and losses in the ratio of 3:2:5, respectively. The
non-cash assets were sold for 160,000. Assume N is solvent.

Required:
1. How much cash is available for distribution to partners in settlement of their
capital balances?110,000
2. How much cash is received by N in full settlement of his total interest in the
partnership, including loan? 30,000
N,Loan L M N
Beg balance 40,000 62,000 88,000 30,000
Sale at a loss of 80,000 (24,000) (16,000) (40,000)
After sale 40,000 38,000 72,000 (10,000)
Right of offse (10,000) 10,000
Balances 30,000 38,000 72,000 0
Total cash distributed to partners
In. settlement of capital. Balances= 38,000+72,000=110,000
Answers:
N, Loan L M N
Capital balances before sale 40,000 62,000 88,000 30,000
Share in the net loss(160,000-240,000=80,000) (24,000) (16,000 (40,000)
)
Balances after sale 40,000 38,000 72,000 (10,000)
Offset (10,000) 10,000
Remaining balances 30,000 38,000 72,0000
Total cash settlement to partners=38,000+72,000+=110,000 0r 20,000+160,000-
40,000-30,000=110,000

Activity 6 Partners E, F and G who share profits and losses in the ratio of 2:2:1,
respectively decided to liquidate. The condensed statement of financial position
immediately prior to the liquidation shows the following balances.

Cash 400,000
Non-cash Assets 1,600,000
Liabilities 560,000
E, Loan 40,000
E, Capital 180,000
F, Capital 420,000
 G, Capital 800,000

After paying liabilities to partnership creditors, cash of 830,000 is

available for distribution to partners. Any capital deficiency is made good by the
deficient partner, since three partners are personally solvent.

Required:
1. How much was the loss on realization?610,000
2. How much would F receive in final settlement of his interest?176,000
3. How much would G receive in final settlement of his interest?678,000
Cash=beg bal+proceeds from sale-payment of liabilities=830,000
400,000+proceeds -560,000=830,000
Proceeds =830,000-400,000+560,000
Proceeds from sale=990,000
Loss from sale=non-cash-proceeds
Loss from sale=1600,000-990,000=(610,000)
E,Loan E F G
Beg balance 40,000 180,000 420,000 800,000
Sale of non-cash (244,000) (244,000) (122,000)
Balances 40,000 (64,000) 176,000 678,000
Right of offset (40,000) 40,000
Balances 0 (24,000) 176,000 678,000
Contribution of E 24,000
Balances 0 176,000 678,000
Answers:
1. Loss on realization:
Analyze the cash account=400,000+proceeds from sale-560,0000=830,000
Proceeds from sale=830,000+560,000-400,000=990,000
Loss on sale=990,000-1,600,000 carrying amount of non-cash=(610,000)loss on
sale
2. F cash settlement=420,000-244,000share in loss (610,000x2/5)=176,000
3. G cash settlement=800,000-122,000share in loss(610,000x1/5)=678,000

Activity 7 R, I and M are partners sharing profits and losses in the ratio of 1:1:2,
respectively. They decided to liquidate their business. The assets were sold and
liabilities amounting to P20,000 were paid. At this point, the capital balances of
the partners are as follows:
R 20,000 credit
I 15,000 debit
M 30,000 credit
I is personally insolvent.
R I M
Balances after sale and payment to creditors 20,000 (15,000) 30,000
Debit balance distributed as additional loss. (5,000) 15,000 (10,000)
Balances 15,000 0 20,000
Total cash distributed=15,000+20,000=35,000
Required:
1. How much was the cash available for distribution to partners?35,000
2. How much cash would R and M receive in final settlement? 15,000; 20,000
Answers:
1. Cash available to partners=20,000+30,000-15,000=35,000(15,000+20,000)
2. Cash paid to R=20,000-5,000additional loss(15,000x1/3)=15,000
Cash paid to M=30,000-10,000additional loss(15,000x2/3)=20,000

Activity 8 L, R and T decided to liquidate their partnership. Non-cash assets were

sold for 128,000 and all creditors were paid. Profit and loss ratios were 20%, 30%
and 50%, respectively. Balances in each capital account before and after the sale
follow:
 L R T
Balances before the sale 48,000 12,000 62,000
Balances after the sale 32,800 (10,800) 24,000

Required:
1. How much was the loss on realization? (76,000)
2. How much was the carrying amount of the assets sold? 204,000

Balances before the sale 48,000 12,000. 62,000

Share in loss on sale (15,200) (22,800). (38,000)
Balances after the sale 32,800 (10,800). 24,000
Total loss=15,200+22,800+38,000=76,000
Total loss=15,200/20%=76,000
CA of the assets sold
Loss on sale=proceeds from sale-CA of the non-assets sold
-76,000=128,000-CA of non-cash
CA=128,000+76,000=204,000
Answers:
1. Loss on realization:
Capital balances before the sale=(48,000+12,000+62,000)= 122,000
Capital balances after the sale=(32,800-10,800+24,000)= 46,000
Loss on realization/decrease in capital balances= 76,000

Or Analyze one capital account say L=48,000-32,800=15,200/20%=76,000 loss

2. Carrying amount of the non-cash assets sold=128,000-CA=(76,000)
CA=-76,000-128,000=204,000

Activity 9 Partners A and J who share profits and losses in the ratio of 3:2,
respectively, decided to liquidate their partnership. Capital balances before
liquidation were: A, 40,000 and J, 30,000. After paying in full liabilities of 30,000,
they have 49,000 cash to divide.
Required:
1. How much was the loss on realization? (21,000)
2. In full settlement of their equities, A and J would receive cash of how much?
27,400; 21,600

Loss on realization:
Cash=beg balance+ proceeds from sale-payment of liabilities
49,000=beg balance + proceeds from sale-30,000
49,000=0+proceeds from sale-30,000
Proceeds from sale=49,000+30,000=79,000
A=L+C
A=30,000+70,000
A=100,000 all in non-cash
Loss on sale=proceeds from sale-CA of non-cash
Loss on sale=79,000-100,000
Loss on sale=(21,000)
A J
Balance before sale 40,000 30,000
Distribution of loss:3:2 (12,600) (8,400)
Balance after the sale 27,400 21,600
Answers:
1. Loss on realization:
Capital balances (40,0000+30,000)= 70,000
Less Available cash for distribution to partners 49,000
Loss on realization of 21,000
2. Cash settlement to partners:
A=40,000-12,600 share in loss (21,000x3/5)= 27,400
J=30,000-8,400 share in loss(21,000x2/5)= 21,600
 Total cash settlement to partners 49,000

Activity 10 L, O and V decided to dissolve their partnership. On August 31, 2021. They
have dividing profits and losses in the ratio of 40%; 30% and 30%, respectively
and their capital balances as of January 1, 2021 were as follows:

L 75,000
O 90,000
V 30,000
The operations of the partnership for the period January 1 to August 31,
2021 resulted to a profit of P66,000. As of August 31, 2021, cash balance is
60,000 and liabilities are 135,000.
Required:
1. How much is the total partnership assets as of August 31, 2021?396,000
2. For L to receive P60,000 in final settlement of her equity, the non-cash assets must
be sold for how much? 292,500

A=L+C as of January 1, 2021

A=135,000+261,000(195,000 as of January 1, 2021+66,000 profit from 1/1-8/1
A=396,000/60,000 cash; 336,000 non-cash
L,C
Before sale 75,000
Profit from 1/1-8/1 66,000 x 40% 26,400
After share in profit 101,400
Share in loss on sale (41,400)
Balance after sale 60,000
Total loss on sale=(41,400)/40%=(103,500)
Loss on sale=proceeds -CA of non-cash
(103,500)=proceeds -336,000
Proceeds from sale=336,000-103,500=232,500
Answers:
1. Total partnership assets as of August 31, 2021: 396,000
Cash + Non-cash=Liabilities + Capital
60,000+Non-cash=135,0000+261,000Capital Balance as of August 31,2021
60,000+Non-cash=396,000
Non-cash=396,000-60,000=336,000
TPA=60,000+336,000=396,000 or TPA= 396,000(135,000+261,000Capital, end)
Capital as of August 31, 2021=Capital balances as of August 1, 2021:
195,000(75,000+90,000+30,000)+66,000net income from January 1-August 31,
2021=261,000
2. For L to receive P60,000, non-cash should be sold for?
L, Capital as of August 31, 2021=75,000+26,400(66,000x40%)=101,400
Share of L in the loss on realization=101,400-60,000=41,400
Total loss on realization=41,400/40%=103,500
Proceeds from sale-CA of the non-cash=loss on realization
Proceeds from sale-336,000=-103,500
Proceeds from sale=-103,500+336,000=232,500

Activity 11 D, T and I Partnership became insolvent on December 31, 2021 and is to

be liquidated. D, T and I have the following capital balances, respectively,
65,000; (30,000); (4,000). After paying their personal liabilities, D had 10,000
while T had 15,000 of their personal assets. However I had still unpaid personal
liabilities amounting to 40,000 and his personal assets amounted only to P30,000.
The partners share profits and losses equally.

Required:
1. How much is the maximum amount that D can expect to receive from the
partnership?
D T I
 Balances 65,000 (30,000) (4,000)
Collection of partial debit balance 15,000
Balances 65.000 (15,000) (4,000)
Distribution of additional loss (19,000) 15,000 4,000
Balances 46,000 0 0

Answer:
1. 46,000 based on the table below

D T I
Balances after realization/sale 65,000 (30,000) (4,000)
Additional loss:4,000 divided1:1 (2,000) (2,000) 4,000
Balances 63,000 (32,000 0
Contribution from T 15,000
Balances 63,000 (17,000) 0
Additional loss on the part of D (17,000) 17,000
Balances 46,000 0 0
Financial Status of the partners:
D=has 10,000 personal assets
T=has 15,000 personal assets
I= has 10,000 unpaid personal liabilities (Personal assets of 30,000-Personal
liabilities of 40,000)

Activity 12 D, A and C decided to dissolve their partnership on July 31, 2021. Their
capital balances and profit and loss ratio on this date follow: D, 33,600,(45%); A,
43,200, (25%); C, 19,200, (30%). The net income from January 1 to July 31, 2021
was 7,200, Also on this date, cash and liabilities were 25,200 and 34,800,
respectively. C received 24,960 in full settlement of his interest.
Required:
1. How much was the carrying amount of the non-cash assets?112,800
2. For how much was the non-cash assets sold?124,800
3. How much was the gain on realization? 12,000
4. How much was the total cash settlement to the partners? 115,200
D A C
Balances 33,600 43.200 19,200=96,000
Share in net profit 3,240 1,800 2,160=7,200
Balances 36,840 45,000 21,360=103,200
Share in gain on sale 5,400 3,000 +3,600
Balances after sale 42,240 48,000 24,960
Total gain on sale=3,600/30%=12,000
Total cash settlement to partners=42,240+48,000+24,960=115,200
A=L+C
Cash,25,200+Non-cash?=34,800+103,200
Non-cash=138,000-25,200=112,800
Gain on sale=proceed from sale-CA of non-cash
12,000=proceeds from sale-112,800
Proceeds from sale=112,800+12,000=124,800
Answers:

D A C
Balances before sale and net income 33,600 43,200 19,200
Net income:45%;25%;30% 3,240 1,800 2,160
Balances after net income 36,840 45,000 21,360
Share in gain on realization 5,400 3,000 3,600
Balances 42,240 48,000 24,960

Supporting Computations:
1. Share in gain on realization of C=24,960-21,360=3,600
 2. Total gain=3,600/30%=12,000 (3)
3. Share of D=12,000x45%=5,400
4. Share of A=12,000x25%=3,000
5. 25,200Cash +Non-cash=34,800+103,200(33,600+43,200+19,200+7,200)
25,200+Non-cash=138,000
Non-cash=138,000-25,200=112,800(1)
6. Proceeds from sale-CA of 112,800=12,000 gain
Proceeds from sale=12,000+112,800=124,800 (2)
7. Cash settlement to the partners=25,200+124,800=150,000-34,800=115,200
8. Cash settlement to partners=42,240+48,000+24,960=115,200 (4)

Activity 13 The accounts of the partnership of R, P and I at the end of the fiscal year on
November 30, 2021 are as follows:
Liabilities 262,500
Cash 103,750 Loan from P/Payable to P 20,000
Other Assets 707,500 R, Capital(30%) 266,250
Loan to R/Rec’ble fr R 15,000 P, Capital(50%) 136,250
I, Capital(20%) 141,250

P received P50,000 in settlement of his equity.

Required:
1. How much was the loss on realization?212,500
2. How much was the proceeds from the sale? 495,000
3. How much was the total cash settlement/distributed to the partners in settlement
of their total interest?
R P I
Balances 266,250 136,250 141,250
Recble/Payable (15,000) +20,000
Total Equity 251,250 156,250 141,250
Share in net loss (63,750) (106,250) (42,500)
Balances 187,500 50,000 98,750

Total cash settlement to partners=187,500+50,000+98,750=336,250

Cash=103,750+495,000-262,500=cash available to partners of 336,250
Total loss(106,250)/50%=212,500
Loss on sale=proceeds from sale-Non-cash
-212,500=proceeds from sale-707,500
Proceeds from sale=707,500-212,500=495,000

R P I
Capital balances before sale 266,250 136,250 141,250
Loss on realization:30%:50%:20% (63,750) (106,250) (42,500)
Capital balances after sale 202,500 30,000 98,750
Loan to R and Loan from P (15,000) 20,000 0
Total Partners’ Equity 187,500 50,000 98,750

Supporting computations:
1. Loss on realization:
Share of P in the loss on realization=136,250 capital +20,000 loan=156,250-
50,000=106,250/50%=212,500 loss on realization
2. Proceeds from sale-707,500=-212,500 loss on realization
Proceeds from sale=-212,500+707,500=495,000
3. Total cash settlement to partners=187,500+50,000+98,750=336,250
Cash available to partners for distribution=103,750+495,000-262,500=336,250
Activity 14 On January 1, 2020, ACT Partnership entered into liquidation. The
partners’ profit sharing and capital balances on this date were as follows: A (25%),
P2,500,000; C. (35%), P5,400,000; T (40%), P3,700,000. The. partnership
liabilities amounting to P4,400,000 including loan from C in the amount of
P600,000. Cash on hand prior to the liquidation process is P800,000.
Non-cash assets amounting to P7,400,000 were sold at their carrying
amount and the remainder of the non-cash assets were sold at a loss of
P4,200,000.
Required:
1. How much is the total non-cash assets prior to liquidation process?15,200,000
2. How much was the total proceeds from the sale of non-cash assets? 11,000,000
3. How was the loss on realization of non-cash assets? (4,200,000)
4. How much cash did A, C and T receive in final cash settlement of their equities
(inclusive of the loan)?. 1,450,000’ 1,530,000; 2,020,000
A=L+C
800,000 cash + non-cash=4,400,000(600,000 is C, Loan/Payable toC)+11,600,000
800,000-non-cash=16,000,000
Non-cash=16,000,000-800,000=15,200,000
Total Proceeds from the sale=7,400,000+3,600,000=11,000,000
CA of the remaining non-cash assets=15,200,000-7,400,000=7,800,000
Loss from sale=Proceeds from sale of remaining assets-CA remaining non-cash
-4,200,000=Proceeds from sale of rem. Non-cash- 7,800,000CA of rem non-cash
Proceeds from sale of rem non-cash assets=7,800,000-4,200,000=3,600,000
A C T
2,500,000 5,400,00 3,700,000
Share in loss (1,050,000) (1,470,000) (1,680,000)
1,450,000 3,930,000 2,020,000
C, Loan 600,000
Total 1,450,000 4,530,000 2,020,000

Activity 15 Sonny, Sandy and Sabio decided to dissolve the partnership on June 30,
2020. Their capital balances and profit and loss ratio on this date are:
Sonny,P672,000(45%); Sandy, P864,000 (25%); and Sabio, P384,000 (30%). The
profit from January 1 through June 30 is P144,000. Also on this date, cash and
liabilities are P504,000 and P696,000, respectively.
Required:
1. What was the carrying value of the non-cash assets?2,256,000
2. If Sabio received P499,200 in full settlement of his interest in the firm, how much
should have been received by Sonny? 844,800
3. If only P449,600 was realized from the sale of non-cash assets and P80,000
liquidation expenses were paid, how much total loss was charged against the
capital of Sabio? 565,920
4. In relation to No. 3, How much cash was received by Sonny assuming Sonny is
solvent?=0

A= L+C
A= 696,000+ 2,064,000 (672,000+864,000+384,000+144,000)
504,000 cash+non-cash=2,760,000
Non-cash=2,760,000-504,000=2,256,000

Sonny Sandy Sabio

672,000 864,000 384,000
Profit share +64,800 +36,000 +43,200
736,800 900,000 427,200
Share in the gain +108,000 +72,000
844,800 499,200
Total gain=72,000/30%=240,000
Sonny’s share in gain=45%x240,000=108,000
Sabio
384,00

Loss on sale= cash proceeds from sale-CA of non-cash

Loss on sale=449,600-80,000 liquidation expenses-2,256,000
Loss on sale=369,600 net proceeds-2,256,000
Loss on sale=(1,886,400)
Share of Sabio in the loss/amt charged/debited against Sabio’s
account=1,886,400x30%565,920
Sabio’s capital including profit share =427,200-share in loss of
565,920=(138,720)+138,720=0( Sabio’s deficit will collected in cash)
Sonny’s capital after profit share=736,800-848,880(1,886,400x45%)=(112,080) collected
in cash+112,080=0 balance