ACTIVITY 9-ELE02

1. Define Partnership Liquidation

- The process of dissolving a partnership and dispersing its assets is known as
liquidation. Partners frequently decide to end and liquidate existing partnerships in order
to launch new businesses. In other cases, partnerships experience financial difficulties
and are compelled to liquidate in order to pay off their debts. In any case, the procedure
for liquidating a partnership is comparable. The first step in the partnership liquidation
procedure is the partnership's auction sale of all of its noncash assets. Most of the time,
these assets will result in a loss because the partnership paid less for them when they
were bought, but some assets, like buildings, can appreciate and result in a gain when
sold. According to the partnership agreement, the profits and losses from these sales
are divided among the partners' capital accounts.

2. Explain the Two Methods of Liquidation.

- When a partnership is liquidated in a lump sum, all of the assets are quickly
turned into cash, the creditors are paid, and the partners are given a single lump sum
payment for their capital interests. A discounted price can also be made available for
the partnership's fixed assets. The partnership often collects the accounts receivable.
When residual receivables must be promptly paid in order to avoid the partnership's
dissolution, the partnership may grant a significant cash discount. The receivables could
also be sold to a factor as an alternative. A factor is a company that specialized in
buying account receivables and paying the seller of the receivables right away in cash.
The sale of the receivables is recorded by the partnership just like any other asset.
While, In, an installment liquidation, some assets are sold, the partnership's debts are
settled, the remaining funds are divided among the partners, more assets are sold, and
more payments are made to the partners. Before the assets are completely liquidated,
partners receive payments in the form of installments. When allocating the cash on
hand, the accountant must exercise extra care because unforeseen circumstances
could alter the sums that should be given to each partner.

3. Explain Marshalling of assets.

- The process of placing the items on a balance sheet in a precise order is
known as marshalling of assets. In other words, it is the act of listing each asset
that appears on a balance sheet in a particular sequence.