CASH

PRIORITY
PROGRAM
BY: LESLIE PEREZ PINEDA
CASH PRIORITY This schedule determines which
partner shall be paid first, after all the
PROGRAM liabilities are settled.
CASH PRIORITY Maximum loss Total partner’s interest
=
PROGRAM absorption capacity Partner’s P/L percentage
Illustration: On January 1, 2021, the partners ABC Co. decided to liquidate their partnership.
The following information was made available:

Cash 20,000 Accounts Payable 30,000

Accounts Receivable 60,000 Payable to B 20,000
Inventory 120,000 A, Capital (20%) 100,000
Equipment, net 300,00 B, Capital (30%) 150,000
C, Capital (50%) 200,000

Total 500,00 Total 500,000

The following transactions occurred in January 2021:

1. 75% of the accounts receivable was collected for only P30,000.

2. Half of the inventory was sold for P40,000/
3. Equipment with a carrying amount of P200,000 was sold for P120,000.
4. P2,000 liquidation expenses were paid. Estimated future liquidation
expenses totaled P1,000.
5. P9,000 was retained in the business for potential unrecorded liabilities and
anticipated expenses
 A, Capital B, Capital C, Capital

Adjustments 20,000
Capital before 100,000 150,000 200,000
liquidation
Total Interest 100,000 170,000 200,000

P/L ratio 20% 30% 50%

Max. loss absorption 500,000 566,667 400,000

Rank of payment 2nd 1st 3rd

 A, Capital B, Capital C, Capital

Adjustments 20,000
Capital before 100,000 150,000 200,000
liquidation
Total Interest 100,000 170,000 200,000

P/L ratio 20% 30% 50%

Max. loss absorption 500,000 566,667 400,000

Rank of payment 2nd 1st 3rd

 A, Capital B, Capital C, Capital

Adjustments 20,000
Capital before 100,000 150,000 200,000
liquidation
Total Interest 100,000 170,000 200,000

P/L ratio 20% 30% 50%

Max. loss absorption 500,000 566,667 400,000

Rank of payment 2nd 1st 3rd

 A, Capital B, Capital C, Capital

Adjustments 20,000
Capital before 100,000 150,000 200,000
liquidation
Total Interest 100,000 170,000 200,000

P/L ratio 20% 30% 50%

Max. loss absorption 500,000 566,667 400,000

Rank of payment 2nd 1st 3rd

 A, Capital B, Capital C, Capital

Max. loss 500,000 566,667 400,000

absorption
Difference (66,667)
between 1st and
2nd
Balance 500,000 500,000 400,000

Difference (100,000) (100,000)

between 1st, 2nd,
and 3rd
Equal balance 400,000 400,000 400,000
 A(20%) B (30%) C (50%)

1st priority 20,000 -

2nd priority 20,000 30,000 -

Total 20,000 50,000 -

Difference (66,667)
between 1st and
2nd

= 66,667 x 30%
= 20,000
 A(20%) B (30%) C (50%)

1st priority 20,000 -

2nd priority 20,000 30,000 -

Total 20,000 50,000 -

Difference (100,000) (100,000)

between 1st, 2nd,
and 3rd

= 100,000 x 20% = 100,000 x 30%

= 20,000 = 30,000
 A(20%) B (30%) C (50%)

1st priority 20,000 -

2nd priority 20,000 30,000 -

Total 20,000 50,000 -

Collection of accounts receivable 30,000
Sale of inventory 40,000
Sale of equipment 120,000
Liquidation expense (2,000)
Estimated liquidation expense (1,000)
Potential future costs (9,000)
Net proceeds 178,000
Add: Cash, beg 20,000
Less: Accounts Payable (30,000)
Cash available for distribution 168,000
Accounts receivable 30,000 The following transactions occurred in January
2021:
Sale of inventory 40,000
Cash 1. 75% of20,000
the accounts receivable was collected
Sale of equipment 120,000
Accounts Receivable
for only P30,000. 60,000
Liquidation expense (2,000) Inventory
2. Half of the inventory120,000
was sold for P40,000/
Equipment, net 300,000
3. Equipment with a carrying amount of P200,000
Estimated liquidation expense (1,000)
was sold for P120,000.
Potential costs (9,000) Accounts Payable 30,000
4. P2,000 liquidation expenses were paid.
Payable to BEstimated future
20,000
liquidation expenses totaled
Net proceeds 178,000
A, Capital P1,000. 100,000
Add: Cash, beg 20,000 B, Capital 150,000in the business for potential
5. P9,000 was retained
C, Capital unrecorded liabilities
200,000and anticipated expenses
Less: Accounts Payable (30,000)
Cash available for distribution 168,000
 A B C Total

Available cash (01/31/21) 168,000

Allocation:

1st priority 20,000 (20,000)

2nd priority 20,000 30,000 (50,000)

Balance 20,000 50,000 98,000

Payment after priorities 19,600 29,400 49,000 (98,000)

A(20%) B (30%) C (50%)
1st installment 1st priority 39,600 79,400
20,000 49,000
- 0
2nd priority 20,000 30,000 -
Total 20,000 50,000 -
 A B C Total

Available cash (01/31/21) 168,000

Allocation:

1st priority 20,000 (20,000)

2nd priority 20,000 30,000 (50,000)

Balance 20,000 50,000 98,000

Payment after priorities 19,600 29,400 49,000 (98,000)

1st installment 39,600 79,400 49,000 0

 A B C Total

Available cash (01/31/21) 168,000

Allocation:

1st priority 20,000 (20,000)

2nd priority 20,000 30,000 (50,000)

Balance 20,000 50,000 98,000

Payment after priorities 19,600 29,400 49,000 (98,000)

1st installment 39,600 79,400 49,000 0

The following transactions occurred in February 2021:

1. 10,000 was collected on the remaining accounts receivable; the balance was
deemed uncollectible.
2. The other half of the inventory was sold for 20,000.
3. The remaining items of equipment were sold for 30,000.
4. 10,000 liquidation expense and previously unrecorded liabilities were paid.
5. The liquidation process ended on February 28, 2021.
Collection of accounts receivable 10,000
Sale of inventory 20,000
Sale of equipment 30,000
Liquidation expense (10,000)
Net proceeds 50,000
Add: Estimated liquidation expense (1,000)
Potential future costs (9,000)
Cash available for distribution 60,000
Accounts receivable 10,000 The following transactions occurred in February 2021:

Sale of inventory 20,000 1. 10,000 was collected on the remaining accounts

receivable; the balance was deemed uncollectible.
Sale of equipment 30,000
2. The other half of the inventory was sold for 20,000.
Liquidation expense (10,000) 3. The remaining items of equipment were sold for
30,000.
Net proceeds 50,000 4. 10,000 liquidation expense and previously unrecorded
Add: Estimated liquidation (1,000) liabilities were paid.
5. The liquidation process ended on February 28, 2021.
Potential costs (9,000)
Cash available 60,000
 A (20%) B (30%) C (50%) Total

Available cash 60,000

(02/28/21)
Allocation:

Payment after 12,000 18,000 30,000 (60,000)

priorities
Final installment 12,000 18,000 30,000 0
BRAIN
WORKO
UT!!
Done Partnership is undergoing liquidation. Done will be liquidated on installment basis. In
Information on Done is as follows: the first month of the liquidation process, the
non-cash assets were realized as follows:
Cash 20,000 a. Half of the accounts receivable was
Accounts Receivable 60,000 collected.
Receivable from A 10,000 b. Seventy-five percent of the inventory was
Inventory 120,000 sold at 80% of cost.
Equipment, net 290,000 c. Equipment with carrying amount of
P200,000 was sold for P185,000.
Total assets 500,000 d. P12,000 liquidation expenses were paid.
Additional P5,000 liquidation expenses are
Accounts Payable 30,000 expected to be incurred in subsequent
Payable to B 20,000 periods.
A, Capital (60%) 250,000
B, Capital (40%) 200,000 Requirement: Compute for the cash
distributions to the partners using a cash
Total 500,000 priority program.
Done Partnership is undergoing liquidation. Done will be liquidated on installment basis. In
Information on Done is as follows: the first month of the liquidation process, the
non-cash assets were realized as follows:
Cash 20,000 a. Half of the accounts receivable was
Accounts Receivable 60,000 collected.
Receivable from A 10,000 b. Seventy-five percent of the inventory was
Inventory 120,000 sold at 80% of cost.
Equipment, net 290,000 c. Equipment with carrying amount of
P200,000 was sold for P185,000.
Total assets 500,000 d. P12,000 liquidation expenses were paid.
Additional P5,000 liquidation expenses are
Accounts Payable 30,000 expected to be incurred in subsequent
Payable to B 20,000 periods.
A, Capital (60%) 250,000
B, Capital (40%) 200,000 Requirement: Compute for the cash
distributions to the partners using a cash
Total 500,000 priority program.
THANK
YOU
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