Chapter 5

Problem I
1.

A, B, C and D Partnership
Statement of Liquidation
January 1, 20x4 to May 31, 20x4
Cash

Balances before
Liquidation
January
- Realization
- Payment of
expenses
- Payment
of
liabilities
Balances after Jan
February
- Realization
- Payment of
expenses
- Payment
of
liabilities
Balances before
payment to
partners
Payment to
Partners (Sch.
1)
Balances after
February
March
- Realization
- Payment of
expenses
Balances before
payment to
partners
Payment to
Partners (Sch.
2)
Balances after
March

72,000

Liabilitie
s
84,000

A,
loan
6,000

D, loan

A,
capital
(40%)

B,
capital
(20%)

C,
capital
(20%)

D,
capital
(20%)

3,000

26,400

25,800

20,400

16,200

(3,600
)

(3,600)

(90,00
0)

(7,200)

(1,200)
(66,00
0)
4,800
21,600
(1,320)

______
91,800

(66,000
)
18,000

_____
6,000

_____
3,000

(3,600)

( 480)

( 240)

( 240
)

______
18,720

______
21,960

______
16,560
(1,680
)

(30,00
0)

(3,360)

(1,680)

( 528)

( 264)

( 240)
______
12,360
(1,680)
( 264)
______

______

______

______

_______

( 264
)
______

61,800

6,000

3,000

14,832

20,016

14,616

10,416

( 5,280
)

______

_____

______

______

_____

______

(5,280)

1,800

61,800

6,000

3,000

14,832

14,736

14,616

10,416

19,200

(24,00
0)

(1,920)

( 960)

( 960)

( 960)

(18,00
0)

_______

7,080

(18,00
0)

( 1,440
)

______

______

_____

( 576)

( 288)

( 288
)

( 288)

19,560

31,500

6,000

3,000

12,336

13,488

13,368

9,168

(18,36
0)

______

(2,73
6)

(3,000)

(5,688)

(5,568
)

(1,368)

1,200

37,800

3,264

12,336

7,800

7,800

7,800

(19,80
0)

(5,520)

(2,
760)

(2,760
)

(2,760)

6,000
(4,800)

______

(1,920)

( 960)

( 960)

2,000

15,000

3,264

4,896

4,080

4,080

4,080

( 360)

( 360)

(1,500)

______

( 720)

500

18,000

2,554
_____

2,400

(18,00
0)

April
- Realization
- Payment of
expenses
Balances before
payment to
partners
Payment to
Partners (Note
1)
Balances after
April
May
- Realization
- Payment of
expenses

NonCash
Assets
181,80
0

( 960)

( 960)

( 360)
4,896

3,720

3,720

3,720

(6,240)

(3,120)

(3,120
)

(3,120)

( 384)

( 192)

( 192)

( 192
)
Balances before
Offsetting
Offset deficit vs.
Loan
Balances before
payment
Payment to
Partners (Note
2)

1,440

( 1,728
)

408

408

408

1,728

_____

______

_____

408

408

(408)

(408)

______

2,554
(1,72
8)

2,040

816

408

(2,040)

(816)

(408)

2.
A, B, C and D Partnership
Schedule of Safe Payments
Schedule 1 February 28, 20x4
Computation of Distribution of Cash on February 28, 20x4

Balances before payment to partners:

Loans
Capital
Total Interest
Restricted interest for possible losses:
Unrealized non-cash assets
61,800
Cash withheld
1,800

A,
capital
(40%)

B,
capital
(20%)

C,
capital
(20%)

D,
capital
(20%)

6,000
14,832
20,832

20,016
20,016

14,616
14,616

3,000
10,416
13,416

(12,72
0)

(12,72
0)
1,896

(12,72
0)
696

(1,536)
360
( 420)
(
60)
60

(1,536)
( 840)
840

P 63,600
Restricted for possible insolvency of A (2:2:2)

(25,44
0)
( 4,60
8)
4,608

Restricted for possible insolvency of D (2:2)

Restricted for possible insolvency of C
Payment to partner (s)
Applied to:
Loans
Capital

7,296
(1,536)
5,760
( 420)
5,340
( 60)
5,280

-05,280
5,280

Schedule 2 March 31, 20x4

Computation of Distribution of Cash on March 31, 20x4

Balances before payment to partners:

Loans
Capital
Total Interest
Restricted interest for possible losses:
Unrealized non-cash assets
37,800
Cash withheld
1,200

B,
capital
(20%)

C,
capital
(20%)

D,
capital
(20%)

6,000
12,336
18,336

13,488
13,488

13,488
13,488

3,000
9,168
12,168

(15,60
0)
2,736

( 7,800
)
5,688

( 7,800
)
5,568

( 7,800
)
4,368

P 39,000

Applied to:

A,
capital
(40%)

Loans
Capital

2,736
___-02,736

-05,688
5,688

-05,568
5,568

3,000
1,368
4,368

3.
T, U, V and W Partnership
Cash Payment Priority Program*
January 31, 20x4
Interests

Balances before
liquidation:
Loans
Capital
Total Interests
Divided by: P & L
%
Loss Absorption
Abilities

T,
capital
(40%)

U,
capital
(20%)

V,
capital
(20%)

W,
capital
(20%)

6,000
26,400
32,400

25,800
25,800

20,400
20,400

3,000
16,200
19,200

T,
capital
(40%)

Payments

U,
capital
(20%)

___20%
__20%
__20%
129,00
81,000
0 102,000
96,000
(27,00
Priority I
______
0)
_______
_______
102,00
81,000
0 102,000
96,000
( 6,000
Priority II
______
)
( 6,000)
_______
81,000
96,000
96,000
96,000
(15,00
(15,000
(15,000
Priority III
______
0)
)
)
_______
81,000
81,000
81,000
81,000
____-0*also known as Schedule of Cash Distribution Plan / Pre-distribution Plan.

V,
capital
(20%)

W,
capital
(20%)

Total

__40%

5,400

5,400

1,200

1,200

3,000
9,600

3,000
4,200

2,400
3,000

9,000

3,000

16,800

4.
Total Interests
Divided by: P & L %
Loss Absorption
Abilities
Order of Cash
Distribution
Vulnerability Rankings (1
Is most vulnerable)

T, capital
(40%)
P 32,400
____40%

U, capital
(20%)
P 25,800
____20%

W, capital
(20%)
P 19,200
____20%

P129,000

V, capital
(20%)
P 20,400
____20%
P
102,000

P 81,000
(4)

(1)

(2)

(3)

(1)

(4)

(3)

(2)

P 96,000

The vulnerability ranks indicate that partner T is most vulnerable to losses because his
equity were reduced to zero with a partnership liquidation loss of P81,000. Partner U is
least vulnerable because his equity is sufficient to absorb his share of liquidation losses
up to P129,000. This interpretation helps explain why partner U received all the cash
distributed to partner on the first installment distribution (August 20x4).
Incidentally, the cash priority program developed will yield the same cash payment as
the process of computing safe payments each time cash is available. The cash
distribution under the cash priority program is as follows:
Order of Cash
Distribution
1. First P70,000
2. Next P 4,500

Creditor
s
100%

U
100%

3. Next P2,000
4. Next P7,500
5. Remainder

40%

50%
33 1/3%
20%

50%
33 1/3%
20%

33 1/3%
20%

The first P84,000 available is, of course paid to the creditors. Cash may be held back
from distribution if it is anticipated that additional expenses will be incurred and
unrecorded liabilities will be discovered. The distribution of cash in excess of the reserve
amount proceeds as determined. Partner U will receive all of an additional ash up to
P5,400. Additional cash in excess of P5,400 and up to P7,800 is distributed 50:50 to
partners U and V. Any amount in excess of P7,800up to P16,800 is distributed 1: 1: 1 to
partners U, V, and W, respectively. After P16,800 (P5,400 + P2,400 + P9,000) has been
distributed to the partners, the capital accounts are in the desired profit and loss ratio of
4:2:2:2. Any further distributions to the partners are made in accordance with the profit
and loss ratio.
Even though both methods produce the same results, the cash payment priority
program is more informative to both personal and partnership creditors, and to the
partners. Interested parties now know the order in which the individual partners will
receive cash and the amounts that each may receive at each period of the distribution
process.
One requirement that must be satisfied in the development of the advance plan is that
the partners must share income in the same ratio that they share losses. If this were not
the case the potential amount of a new loss would need to be computed after every
allocation to the partners capital accounts. This occurs because the allocation of
liquidation gain alters the order of cash distribution computed in the priority program.
Problem II

ABC Partnership
Statement of Partnership Realization and Liquidation
For the period from January 1, 20x4, through March 31, 20x4

Cash
Balances before Liquidation,
18,000
January 1,20x4
January transactions:
1. Collection of accounts
receivable at a loss
of P15,000
51,000
2. Sale of inventory at a
38,000
loss of P14,000
3. Liquidation expenses
(2,000)
paid
4. Share of credit memorandum
5. Payments to creditors
(50,000
)
55,000
Safe payments to partners
(Schedule 1)
February transactions:
6. Liquidation expenses
paid

Other
Assets

Accounts
Payable

307,000

(53,000)

(66,000)
(52,000)

Capital
Balances
AA
BB
30%
50%
(88,000)
(110,000
)

CC
20%
(74,000)

7,500
7,000

4,500
4,200

3,000
2,800

1,000

600

400

3,000
50,000

(1,500)

(900)

(600)

189,000

-0-

(74,000)

(101,600
)

(68,400)

(45,000)
10,000

189,000

__
-0-

(74,000)

26,600
(75,000)

18,400
(50,000)

(4,000)
6,000

__
189,000

-0-

2,000
(72,000)

1,200
(73,800)

800
(49,200)

Safe payments to partners

(Schedule 2)
March transactions:
8. Sale of M&Eq. at a loss
of P43,000
9. Liquidation expenses
paid
10. Payments to partners

Balances at end of
liquidation, March 31, 20x4

-06,000
146,000
(5,000
)
147,000
(147,000
)

__
189,000

-0-

(189,000
)

-0-

-0-

___ -0(72,000)

-0(73,800)

-0(49,200)

21,500

12,900

8,600

2,500
(48,000)

-0-

1,500

1,000

(59,400)
59,400

(39,600)
39,600

48,000
-0-

-0-

-0-

-0-

0-

ABC Partnership
Schedules of Safe Payments to Partners

Schedule 1: January 31, 20x4

Capital balances
Possible loss:
Other assets (P189,000) and possible
liquidation costs (P10,000)
Absorption of AAs potential deficit balance
BB: (P25,500 x 3/5 = P15,300)
CC: (P25,500 x 2/5 = P10,200)
Safe payment, January 31, 20x4
Schedule 2: February 27, 20x4
Capital balances
Possible loss:
Other assets (P189,000) and possible
liquidation costs (P6,000)
Absorption of AAs potential deficit balance:
BB: (P25,500 x 3/5 = P15,300)
CC: (P25,500 x 2/5 = P10,200)
Safe payment, February 27, 20x4

AA
50%
(74,000)

BB
30%
(101,600)

CC
20%
(68,400)

99,500
25,500
(25,500)

59,700
(41,900)

39,800
(28,600)

15,300
-0-

(26,600)

10,200
(18,400)

(72,000)

(73,800)

(49,200)

97,500
25,500
(25,500)

58,500
(15,300)

39,000
(10,200)

15,300
-0-

-0-

10,200
-0-

Note that the computation of safe payments on February 27, 20x4, resulted in no payments to
partners. This is due to the large book value of Other Assets still unrealized and the reservation of
the $6,000 cash on hand for possible future liquidation expenses.

Problem III: Cash Distribution Plan

PET Partnership
Cash Distribution Plan
June 30, 20x4

Loss Absorption Power

PP

EE

Capital Accounts
TT

PP

EE

TT

Profit and loss

percentages

50%

30%

20%

Preliquidation
capital balances

(55,000)

(45,000)

(24,000)

(55,000)

9,000
(36,000)

(24,000)

Loss absorption
Power (Capital
balances /
Loss percent)

(110,000)

(150,000)

(120,000)

(110,000)

30,000
(120,000)

(120,000)

Decrease highest LAP

to next highest:
EE
(P30,000 x .30)

Decrease LAPs
to next highest:
EE
(P10,000 x .30)
TT
(P10,000 x .20)

10,000

(110,000)

3,000

(110,000)

10,000
(110,000)

(55,000)

2,000
(22,000)

(33,000)

Summary of Cash Distribution

(If Offer of P100,000 is Accepted)
Accounts
Payable
Cash available
First
Next
Next
Additional paid
in P&L ratio

P106,000
(17,000)
(9,000)
(5,000)

PP
50%

EE
30%

TT
20%

P 9,000
3,000

P 2,000

22,500
P34,500

15,000
P17,000

P17,000

(75,000)
P
-0-

______
P17,000

P37,500
P37,500

Problem IV

PET Partnership
Statement of Partnership Liquidation and Realization
From July 1, 20x4, through September 30, 20x4
Capital

Preliquidation balances
July:

Cash

Noncash
Assets

Accounts
Payable

6,000

135,000

(17,000)

PP

EE

50%
(55,00
0)

30%
(45,000)

TT
20%
(24,000)

Assets Realized
Paid liquidation costs
Paid creditors

26,500
(1,000)
(17,000
)
14,500

(36,000)

4,750
500

2,850
300

1,900
200

(49,75
0)

(41,850)

(21,900)

17,000
99,000

-0-

Safe Payments (Sch. 1)

6,500
(6,500)
8,000

August:
Equipment withdrawn
(allocate P6,000 gain)
Paid liquidation costs

99,000

-0-

(49,75
0)

(35,350)

(21,900)

(4,000)

(3,000)

(1,800)

8,800

95,000

750
(52,00
0)

450
(1,500)
6,500

-0-

(36,700)

Safe Payments (Sch. 2)

September:
Assets Realized
Paid liquidation costs

Payments to partners
Postliquidation balances

300
(12,800)

4,000
(4,000)
2,500

95,000

75,000

(95.000)

(1,000)
76,500

-0-

(76,500
)
-0-

-0-

(32,700)

(12,800)

10,000

6,000
300

4,000
200

(26,400)

(8.600)

26,400

8,600

-0-

-0-

500
(41,50
0)
41,500

-0-

-0-

(52,00
0)

-0-

0-

PET Partnership
Schedules of Safe Payments to Partners
Schedule 1: July 31, 20x4
Capital balances
Possible loss on noncash assets (P99,000)
Cash retained (P8,000)
Absorption of Pen's potential deficit
EE: P3,750 x .30/.50
TT: P3,750 x .20/.50

PP
50%
(49,750)
49,500
4,000
3,750
(3,750)

Schedule 2: August 31, 20x4

Capital balances
Possible loss on noncash assets (P95,000)
Cash retained (P2,500)

TT
20%
(21,900)
19,800
1,600
(500)

2,250
-0-

Absorption of TTs potential deficit

EE P1,000 x .30/.30
Safe payment

EE
30%
(41,850)
29,700
2,400
(9,750)

(7,500)

-0-

(52,000)
47,500
1,250

1,000
(6,500)

(36,700)
28,500
750

1,500
1,000
(1,000)
-0-

(12,800)
19,000
500

(3,250)
Absorption of TTs potential deficit
PP: P6,700 x .50/.80
EE: P6,700 x .30/.80

(7,450)

6,700
(6,700)

4,188
938
(938)

Absorption of PPs potential deficit

EE: P938 x .30/.30
Safe payment

-0-

2,512
(4,938)

-0-

938
(4,000)

-0-

Problem V
DSV Partnership
Statement of Partnership Realization and Liquidation Installment Liquidation
From July 1, 20x4, through September 30, 20x4
Capital

Preliquidation balances, 6/30

July, 20x4: Sale of assets and
distribution of P120,000
loss

Cash

Noncash
Assets

50,000

670,000

390,000
440,000

(510,000
)
160,000

Liabilitie
s
(405,000
)

(405,000
)

Balances
D
50%

S
30%

20%

(100,00
0)

(140,00
0)

(75,000)

36,000

24,000

(104,00
0)
750

(51,000)

(103,25
0)

(50,500)

60,000
(40,000)

Liquidation expenses

Payment to creditors

Payments to partners (Sch.

1)

160,000

(405,00
0)
32,500

(405,000
)
405,000

160,000

-0-

(38,750)

(103,25
0)
22,500

(50,500)

(22,500)
10,000

160,000

-0-

(38,750)

(80,750)

(50,500)

(35,000
)
125,000

3,900

2,600

22,000
32,000

-0-

6,500
(32,250)

(76,850)
750

(47,900)
500

125,000

-0-

1,250
(31,000)

(76,100)
13,700

(47,400)
5,800

125,000

-0-

(31,000)

(62,400)

(41,600)

21,000

14,000

(41,400)
2,400

(27,600)
1,600

(39,000)

(26,000)
1,000

Liquidation expenses
Payments to partners (Sch.
2)

500

(2,500)
437,500

August, 20x4: Sale of assets

&
distribution of P13,000 loss

1,250
(38,750)

(2,500)
29,500
(19,500
)
10,000

September, 20x4: Sale of

assets
distribution of P70,000 loss
55,000
65,000

(125,000
)
-0-

-0-

35,000
4,000

65,000

-0-

-0-

(4,000)
-0-

Allocate D's deficit to S and

V
Liquidation expenses
(2,500)

1,500

62,500

-0-

-0-

-0-

Payments to partners

(62,500)

(37,500)
37,500

(25,000)
25,000

0-

Postliquidation balances

-0-

-0-

-0-

-0-

-0-

0-

DSV Partnership
Schedule of Safe Payments to Partners
Schedule 1, July 31, 20x4:
Capital balances, July 31,
Before cash distribution
Assume full loss of P160,000 on
remaining noncash assets and
P10,000 in possible future
liquidation expenses
Assume D's potential deficit
must be absorbed by S and V:
30/50 x P46,250
20/50 x P46,250

D
50%

S
30%

V
20%

(38,750)

(103,250)

(50,500)

85,000
46,250

51,000
(52,250)

34,000
(16,500)

(46,250)
27,750
-0-

Assume V's potential deficit

must be absorbed by S completely
Safe payments to partners
on July 31, 20x4

-0-

Schedule 2, August 31, 20x4:

Capital balances, August 31,
before cash distribution
Assume full loss of P125,000 on
remaining noncash assets and
P10,000 in possible liquidation
Expenses
Assume D's potential deficit
must be absorbed by S and V:
30/50 x P36,500
20/50 x P36,500
Safe payments to partners

(24,500)

18,500
2,000

2,000

(2,000)

(22,500)

-0-

(31,000)

(76,100)

(47,400)

67,500
36,500

40,500
(35,600)

27,000
(20,400)

(36,500)
21,900
-0-

(13,700)

14,600
(5,800)

Problem VI: Cash Distribution Plan (or better use the format presented in the
discussion)

DSV Partnership
Cash Distribution Plan
June 30, 20x4

Loss Absorption Power

D

Capital Accounts
V

Profit and loss sharing ratio

Preliquidation capital balances
Loss absorption power (LAP)
capital accounts /
loss sharing percentage
Decrease highest LAP to next
highest LAP:

D
50%
(100,000)

(200,00
0)

(466,66
7)

(375,00
0)

30%
(140,000)

20%
(75,000
)

Decrease S by P91,667
(Cash distribution: P91,667 x .
30)

91,667
27,500
(200,00
0)

Decrease LAP to next highest

level:
Decrease S by P175,000
Cash distribution: P175,000 x .
30)
Decrease V by P175,000
Cash distribution: P175,000 x .
20)

Decrease LAPs by distributing

cash in the P/L sharing ratio

(375,00
0)

(375,00
0)

(100,000)

(112,500)

175,000
52,500
175,000
35,000

(200,00
0)

(200,00
0)

(200,00
0)

50%

30%

20%

(100,000)

(60,000)

Summary of Cash Distribution Plan

(Estimated on June 30, 20x4)
Liquidatio
n
Creditors

100%
60%

40%

30%

20%

Expenses
1.
2.
3.
4.
5.

(75,000
)

First P405,000
100%
Next P10,000
Next P27,500
Next P87,500
Any additional distributions
in the partners' profit
and loss ratio

100%

50%

b. Confirmation of cash distribution plan

DSV Partnership
Capital Account Balances
June 30, 20x4, through September 30, 20x4
Profit and loss ratio
Preliquidation balances, June 30
July loss of P120,000 on disposal of assets
and P2,500 paid in liquidation costs

50%
(100,000)

30%
(140,000)

20%
(75,000)

61,250
(38,750)

36,750
(103,250)

24,500
(50,500)

(38,750)

22,500
(80,750)

(50,500)

7,750
(31,000)

4,650
(76,100)

3,100
(47,400)

July 31 distribution of P22,500 of

available cash to partners (Sch. 1)
First P22,500 of P27,500 layer:
100% to S
August loss of P13,000 on disposal of
assets and P2,500 paid in
liquidation costs
August 31 distribution of P19,500 of
available cash to partners (Sch. 2)
Remaining P5,000 of P27,500 layer
of which P22,500 paid on July 31:
100% to S
Next $14,500 of P87,500 layer:

5,000

(40,000
)

60% to S
40% to V

8,700

September loss of P70,000 on disposal of

assets and P2,500 paid in liquidation
Costs
Distribution of D's deficit

(31,000)

(62,400)

5,800
(41,600)

36,250
5,250
(5,250)
-0-

21,750
(40,650)
3,150
(37,500)

14,500
(27,100)
2,100
(25,000)

September 30 distribution of P62,500 of

available cash to partners (Sch. 3)
Next P62,500 of P87,500 layer of which
P14,500 paid on August 31:
60% to S
40% to V
Postliquidation balances

37,500
-0-

-0-

25,000
-0-

Schedule 1, July 31, 20x4: Computation of P22,500 of cash available to be distributed to

partners on July 31, 20x4:
Cash balance, July 1, 20x4
P 50,000
Cash from sale of noncash assets
390,000
Less: Payment of actual liquidation expenses
(2,500)
Less: Payments to creditors
(405,000)
Less: Amount held for possible
future liquidation expenses
(10,000)
Cash available to partners, July 31, 20x4
P 22,500
Schedule 2, August 31, 20x4: Computation of P19,500 of cash available to be distributed to
partners on August 31, 20x4:
Cash balance, August 1, 20x4
Cash from sale of noncash assets
Less: Payment of actual liquidation expenses
Less: Amount held for possible
future liquidation expenses
Cash available to partners, August 31, 20x4

P10,000
22,000
(2,500)
(10,000)
P 19,500

Schedule 3, September 30, 20x4: Computation of P62,500 of cash available to be distributed to

partners on September 30, 20x4:
Cash balance, September 1, 20x4
Cash received from sale of noncash assets
Less: Payment of actual liquidation expenses
Cash available to partners, September 30, 20x4

P10,000
55,000
(2,500)
P62,500

Problem VII

Cash distribution program:

First
Next
Next
All over

P 50,000
34,000
48,000
P132,000

Creditors
100%

Ames

40%

Beard
100%
33 1/3%
20%

Craig
66 2/3%
40%

Working paper for cash distributions to partners during liquidation (not required):
Ames
Beard
Craig
Capital balances before liquidation
P60,000 P80,000 P92,000
Income-sharing ratio
4
4
2

Capital per unit

Reduce Beard's
Capital per unit
Reduce Beard's
Capital per unit

of income sharing
P15,000
capital to next highest capital for Craig ______
of income sharing
P15,000
and Craig's capital to Ames's capital
______
of income sharing
P15,000

P40,000 P23,000
(17,000)
______
P23,000 P23,000
(8,000) (8,000)
P15,000 P15,000

Problem VIII
Cash
60,000
Quanto, Capital
5,000
Rollo, Capital
3,000
Simms, Capital
2,000
Assets
To record realization of assets at a loss of $10,000, divided
amount Quanto, Rollo, and Simms in 5:3:2 ratio, respectively.
Liabilities
Cash
To record payment to creditors.

30,000

Loan Payable to Quanto

Rollo, Capital
Simms, Capital
Cash
To record payment to partners, computed as follows:

9,500
10,500
5,000

30,000

Quanto
Capital (including Quanto's
loan of P10,000)
before liquidation
Loss on realization of assets
Balances
Maximum potential
additional
loss (P5,000 +
P50,000 = P55,000)
divided in 5:3:2 ratio
Cash payments
Multiple Choice Problems
1. c

70,000

Rollo

25,000

Simms

P42,000
(5,000)
P37,000

P30,000
(3,000)
P27,000

P18,000
(2,000)
P16,000

(27,500)
P 9,500

(16,500)
P10,500

(11,000)
P 5,000

JJ

CC

TT

Total

Profit ratio

40%

50%

10%

100%

Prior capital

(160,000
)

(45,000)

(55,000)

(260,000)

30,000

6,000

60,000

(15,000)

(49,000)

(200,000)

Loss on sale
of inventory

24,000
(136,000
)

2. a

Peter

Paul

Mary

Total

Capital balances
Loss on sale of assets
(475,000 600,000)
4:4:2

Possible loss for unrealized

assets
P1,000,000 P600,000 =
400,000
3.

4.

300,000

( 50,000
)
250,000

160,000
(90,000

Capital balances
Divided by: Profit and loss
ratio
Loss absorption power
Loss to reduce CC to BB:
(77,500 x .20 = 15,500)
Balances
Loss to reduce BB & CC to
AA:
(B:70,000 x .40 = 28,000)
(C:70,000 x .20 = 14,000)
Balances

AA
37,000
40%
92,500

350,00
0

400,000

1,050,00
0

(50,000
)

(25,000
)

(125,000)

300,00
0

375,000

925,000

160,00
0
140,00
0

80,000

400,000

295,000

525,000

BB

CC

65,000
40%

48,000

162,500

240,000

20%

77,500
92,500

162,500

162,500

70,000
92,500

70,000

92,500

92,500

Cash of P20,000 after settlement of liabilities: CC receives first

P15,500; remaining P4,500 split 2/3 to BB and 1/3 to CC
5.

d Cash of P17,000: CC receives first P15,500; remaining P1,500 split

2/3 to BB and 1/3 to CC.

6.

a If all partners received cash after the second sale, then the remaining
12,000 is distributed in the loss ratio.

7.

Total

Capital before realization

Loss on sale (2:2:1); [90 50]

37,000

65,000

(16,000)

( 16,000)

21,000

49,000

48,000
( 8,000)
40,000

150,00
0
(40,000
)
110,00
0

Possible loss P90,000, unrealized

NCA

(36,000)

(15,000)

20,000
Possible insolvency loss (2:1)

13,000

15,000

3,000

8.

90,000

22,000

(10,000)

( 5,000)

17,000

b
A

Total

Capital before realization

65,000

37,000

Loss on sale (2:2:1); [90 50]

Possible loss P90,000, unrealized

NCA
plus P3,000 = P93,000

(18,000)

(36,000)

( 16,000)

21,000

49,000

(37,200)

(37,200)

17,000
Possible insolvency loss (2:1)

16,200

40,000
(18,600)

AE
40%
(40,000)
40,000
-0-

BT
30%
(180,000)
30,000
(150,000)

93,000

21,400

(10,800)
1,000

Profit and loss ratio

Capital balances
Loss of P100,000
Remaining equities

150,00
0
(40,000
)
110,00
0

( 8,000)

11,800

17,000

9.

48,000

(16,000)

(16,200)

( 5,400)

16,000

KT
30%
(30,000)
30,000
-0-

AE will receive nothing; the entire P150,000 will be paid to BT.

10.
11.
12.
13.

c
d
d
c

14. a

Profit and loss ratio

Beginning capital
Actual loss on assets (5:3:2)

Possible loss unrealized

NCA
Safe payments

CC
5/10
80,000

DD
3/10
90,000

(15,000
)

(9,000)

65,000
( 50,00
0)
15,000

81,000
(30,000)
51,000

EE
2/10
70,000
(6,000)
64,000
(20,000
)
44,000

Total
10/10
240,00
0
( 30,00
0)
210,00
0
( 20,00
0)
190,00
0

15. c

Capital before
realization

X
130,000

Divided by:
Loss absorption abilities
16. a

50%
260,000

130,000

30%
260,000

100,000
20%
500,000

The loan payable to AA has the same legal status as the

partnerships other liabilities. After payment of the loan, then any
available cash can be distributed to the partners using the safe
payments computations.

17. a

Capital balances
Divided by: Profit and loss
ratio
Loss absorption power
Loss to reduce N to D:
(80,000 x .20 = 16,000)

D
72,000
40%
180,000

Potential loss from Sandy

deficit

Loss to reduce H and J:

(50:35)
Balances

32,000
20%

52,000

24,000

20%

20%

160,000

260,000

120,000

80,000

18. d Harding, P6,107; Jones, P12,275

Capital balances

20,000
(5,882)
14,118
(8,011)
6,107

____0

Total

22,000
(4,118)

(10,000)

32,000

10,000

17,882

32,000
(13,618)

(5,607)
12,275

13,382

Note:
1. Regardless there is a forthcoming contribution to be made by Sandy, it is assumed that the P10,000 deficit
may
not be recovered for purposes of distribution of cash.
2. The P13,382 cannot be distributed in accordance with profit and loss ratio for reason that the capital
balances of Harding and Jones is not the same with the P&L ratio (H: 20/42 =48%; J: 22/42 = 52%)

or, alternatively: Using Cash Payment Priority Program

Capital balances
Additional contribution

20,000

22,000
0

S
(10,000)

Capital balances

20,000

Divided by: Profit and loss ratio

35/85

50/85

Loss absorption power

53,429

34,000

Loss to reduce JJ to HH:

(19,428 x 35/85 = 8,000)

10,000

22,000

19,428

Balances

34,000

Cash available
P18,382
Less: Priority I to Jones (P19,428 x 35/85)
8,000
P10,382
Less: P& L (50:35)
(10,382)
P6,107

34,000
P 8,000
P 6,107

4,275
P 12,275

19. c
20. b
21. c
Total

Capital before realization

Loan
Total interests
Loss on sale (240,000 195,000)

70,000
20,000
90,000
(15,000)
75,000

30,000
______
30,000
( 15,000)
15,000

50,000
______
50,000
(15,000)
35,000

150,00
0
20,000
170,00
0
(45,000
)
125,00
0

22. b liabilities should be paid first, then the balance of P30,000 should be given to Able
since he is the one entitled to the first priority.
INTERESTS
PAYMENTS______
A
B
C
A
B
C
Total
Balances before realization
Loans.. P 20,000
Capital...
70,000 P 30,000 P 50,000
Total interests... P 90,000 P 30,000 P 50,000
Divided by: P&L ratio
1/3
1/3
1/3
Loss absorption ability.. P270,000 P 90,000 P150,000
Priority I. 120,000
_______ P40,000
P40,000
P150,000 P90,000 P150,000
Priority II
60,000
0
60,000 20,000
0 P20,000
40,000

P 90,000 P90,000 P 90,000 P60,000 P

P20,000

P80,000
23. d

Total

Capital before realization

30,000

70,000

Loan
Total interests
Loss on sale (240,000 195,000)

Payment of loans to partner

50,000

______

20,000
90,000

55,000
105,000
Asset received
______
(30,000)
Payment to partners after payment of loan 55,000
75,000

20,000
170,00
0
(45,000
)
125,00
0
(20,000
)

50,000
(15,000)

( 15,000)
15,000

(20,000)

150,00
0

______

30,000

(15,000)
75,000

35,000

______

_____

15,000
______

35,000
(30,000)

15,000

5,000

Note: The requirement is payment to partners after outside creditors and loans to partners had been paid,
therefore, the payment to partners is in so far as capital is concerned.

24. a

Capital balances
Less: Machine, at fair value
Capital balances
Divided by: Profit and loss
ratio
Loss absorption power
Loss to reduce E to D:
(45,000 x 1/3 = 15,000)
Balances
25. c

Capital balances
Divided by: Profit and loss
ratio
Loss absorption power
Loss to reduce CC to BB:
(170,000 x .10 = 17,000)

40,000
______

90,000
(35,000)

30,000
______

40,000
1/3

55,000
1/3

30,000

120,000

165,000

90,000

(45,000)

____0

120,000

90,000

120,000

1/3

59,000

39,000
30%

34,000

34,000

10%

20%

130,000

340,000

170,000

40%
147,500

170,000

____0

Balances
26. c

Capital balances
Divided by: Profit and loss
ratio
Loss absorption power
Loss to reduce CC to BB:
(15,000 x .20 = 3,000)
Balances

147,500

130,000

60,000

27,000
30%

43,000

20,000

20%

10%

90,000

215,000

200,000

15,000

____0

200,000

200,000

40%
150,000

150,000

170,000
H

90,000

170,000
M

27. c - the P16,000 available cash can be distributed but should be done under the
assumption that all deficit balances will be total losses. After offsetting JJ loan, the two
deficits total P4,000. FF and RR, the two partners with positive capital balances, share
profits in a 30:20 relationship (the equivalent of a 60%:40% ratio). FF would absorb P2,400
of the potential loss with RR being allocated P1,600. The remaining capital balances
(P10,600 and P5,400) are safe capital balances and those amounts can be immediately
distributed.
or, alternatively:

Capital balances
Loan
Total interests
Potential insolvency loss (3:2)

28. b

Capital balances
Potential loss from A deficit (5:3)

Loss to reduce H and J:

(5:3)

Possible insolvency loss

0

W
(2,000)
______
(2,000)
2,000

A
(5,000)
5,000

(5,000)

13,000

3,000

_______

(2,000)
2,000

13,000

7,000

( 2,400)

(1,600)

10,600

5,400

7,000

18,000
(3,125)
14,875

(8,750)
6,125

Total

6,000

19,000

(1,875)
4,125

(5,250)
(1,125)
(1,125)

__

19,000
(14,000)
5,000

1,125

5,000
29. a installment liquidation (refer for more problems in Chapter 5)
P

INTERESTS
Q
R

Balances before realization

Totall interests... P 70,000 P 50,000 P100,000
Divided by: P&L ratio
20%
40%
40%
Loss absorption abilities.. P350,000 P125,000 P250,000
Priority I.
(100,000)
0 P20,000
P250,000 P125,000 P250,000
Priority II
(125,000)
(125,000)
25,000
75,000
P125,000 P125,000 P125,000 P75,000
P95,000

P20,000
P50,000
P 4,500

Cash, beginning
Add (deduct):
Liquidation expenses paid
Payment of liabilities
Proceeds from sale of assets (?)
Payment to partner before payment to Renquist (priority I only)
30. d Justice P15,533

Capital balances
Potential loss from Douglass
(40:35)
Note:

(7,467)
15,533

P50,000

P 90,000
( 8,000)
(170,000)
108,000
P 20,000

23,000

PAYMENTS
___
R
Total

Total

22,000
(6,533)

(14,000)

31,000

14,000

15,467

31,000

1. Regardless there is a forthcoming contribution to be made by Douglass, it is assumed that the P14,000
deficit
may not be recovered for purposes of distribution of cash.
2. The P31,000 cannot be distributed in accordance with profit and loss ratio for reason that the capital
balances of Justice and Zobart is not the same with the P&L ratio (H: 20/42 =48%; J: 22/42 = 52%)

or, alternatively: Using Cash Payment Priority Program (refer to Chapter 5)

Capital balances
Additional contribution
Capital balances
Divided by: Profit and loss ratio
Loss absorption power
Loss to reduce Z to D:
(4,018 x 35/55 = 1,875)
Balances
Cash available

23,000

22,000
0

0
23,000
40/75
43,125

22,000
35/75
47,143
4,018

43,125
P31,000

43,125

D
(14,000)
14,000

Less: Priority I to Douglass (P4,018 x 35/75)

1,875
P 1,875
P29,125
Less: P& L (40:35)
(29,125) P15,533
13,592
P15,533
P15,467
31. d
D

INTERESTS
K
R

Balances before realization

Loans.. P
0
P 10,000 P(20,000)
Capital... 170,000
170,000
100,000
Total interests... P170,000 P180,000 P 80,000
Divided by: P&L ratio
50%
30%
20%
Loss absorption abilities.. P340,000 P600,000 P400,000
Priority I.
(200,000)
0
P340,000 P400,000 P400,000
Priority II
(60,000)
(60,000)
P340,000 P340,000 P340,000

P60,000

Cash received by Tree

Divided by: P & L ratio
Amount in excess of P7,500
Total cash payments refer to program
Payment to partners
33. d
Cash, beginning
Add (deduct):
Proceeds from sale of certain assets
Liquidation expenses paid
Payment of liabilities
Payment to partners (refer to No. 30)
Cash withheld

18,000
36,000
P18,000 P 96,000

P 60,000
250,000
5,000
10,000
(120,000)
P205,000

INTERESTS
N
D

Balances before realization

Loans.. P
0
P
0 P
0
Capital...
22,000 15,500
14,000
Total interests... P 22,000 P15,500 P 14,000
Divided by: P&L ratio
2/4
1/4
1/4
Loss absorption abilities.. P 44,000 P62,000 P 56,000
Priority I.
( 6,000)
0
P 44,000 P56,000 P56,000
Priority II
(12,000) (12,000) __
P 44,000 P44,000 P44,000 P

___

P60,000

18,000
P P 78,000

Cash received by the partner Kemp

Add (deduct):
Liabilities paid
Expenses paid
Contingency
Cash, beginning
Proceeds from sale of other assets
32. b

PAYMENTS
R
Total

PAYMENTS
N
D

P 1,500

3,000
P 4,500

___
Total

P1,500

P 3,000
6,000
P 3,000 P 7,500

6,250
2/4
P 12,500
P 20,000

7,500

P 12,000
32,000
1,000)
5,400)
( 20,000)
P 17,600
(
(

34. d
Priority
Creditors
First P300,000. P300,000
Next P80,000 (7:3)
Next P70,000 (3:4)
Remainder*..
P300,000
(d)

Mattews

Norell

Reams

Total

P300,000
P56,000
P24,000
80,000
30,000
P40,000
70,000
22,000
34,000
44,000
100,000
P108,000
P58,000
P84,000 P550,000

*P550,000 P300,000 P80,000 P70,000 = P100,000

Balances before realization

Loans..
Capital...
Total interests...
Divided by: P&L ratio
Loss absorption abilities..
Priority I.
2,000
Priority II
14,000 (d)
P16,000

INTERESTS
Q
R

PAYMENTS______
Q
R
Total

P 6,000
P(10,000)
24,000 P36,000
60,000
P30,000 P36,000
P50,000
3/10
3/10
4/10
P100,000 P120,000 P125,000
(5,000)
P100,000 P120,000 P120,000
(20,000) (20,000)
P100,000 P100,000 P100,000

P 2,000 P
P6,000
P P6,000

8,000
P10,000

35. d
Priority
Creditors
First P300,000. P300,000
Next P80,000 (7:3)
Next P70,000 (3:4)
Remainder*..
P300,000
(d)

Mattews

Norell

Reams

Total

P300,000
P56,000
P24,000
80,000
30,000
P40,000
70,000
22,000
34,000
44,000
100,000
P108,000
P58,000
P84,000 P550,000

*P550,000 P300,000 P80,000 P70,000 = P100,000

Quiz - V
1. M= 0, K= 25,000, C= 0 - this problem is more on installment liquidation principles.
M
K
C
Total

Capital before
realization
Loss on sale
(50%:30%:20%)

Additional loss (3:2)

100,000

175,000

75,000

(162,500
)

(97,500)

( 62,500)

77,500

(65,000)
10,000

62,500

(37,500)

(25,000)

40,000

(15,000)

350,000
*(325,0
00)
**25,00
0
______25,000

Additional loss

(15,000)

*balancing figure total reduction in capital

15,000

-0-

25,000

Payment to partners: P200,000 P25,000 P150,000 = P25,000**

2. Homer, P54,000; Marge, P84,000; Bart, P177,000.
3. P150,000
4. Stan, P0; Kenney, P10,000; Cartman, P0
5. P500,000 = (P147,000 + P28,000)/.35
6. P1,040,000 = (P260,000 / .25)
7. P675,000 = (P285,000 - P15,000)/.40
8. a
9. Perry: P15,000; Quincy: P51,000; Eddy: P44,000
10.
11. b
12. P33,000
First allocation (H) (P400,000 - P380,000) (.30)
6,000
Second allocation (H) (P380,000 - P300,000) (.30)
(F) (P380,000 - P300,000) (.25)
44,000
Third allocation, share based on profit and loss ratios

P
P24,000

20,000
10,000

Harold: P6,000 + P24,000 + (P10,000 x .30)

13. P2,500
First allocation (H) (P400,000 - P380,000) (.30)
6,000
Second allocation (H) (P380,000 - P300,000) (.30)
(F) (P380,000 - P300,000) (.25)
44,000
Third allocation, share based on profit and loss ratios

P
P24,000

20,000
10,000

Sheldon: (P10,000 x .25)

14. P24,500
First allocation (H) (P400,000 - P380,000) (.30)
6,000
Second allocation (H) (P380,000 - P300,000) (.30)
(F) (P380,000 - P300,000) (.25)
44,000
Third allocation, share based on profit and loss ratios

P
P24,000

20,000
10,000

Fred: P20,000 + (P10,000 x .45)

15. P147,000
Losses
Equities
Possible loss on

40%
Hara
135,000

30%
Ives
216,000

30%
Jack
49,000

remaining assets
Contingencies
Subtotals

200,000
10,000

Eliminate Jacks
debit balance

(
(

80,000 )
4,000 )
51,000

(
(

60,000 )
3,000 )
153,000

8,000 )

6,000 )

Safe payments

43,000

(
(
(

60,000 )
3,000 )
14,000 )
14,000

147,000

16. P495,000 = (P162,000 + P36,000) / .40

17. c

Capital before
realization
Liquidation expenses

Divided by:
Loss absorption abilities

70,000

50,000

100,000

(1,600)

( 3,200)

( 3,200
)

68,400
20%

46,800

96,800
40%

342,000

117,000

40%

Selling Price
Book value
Loss

242,000

183,000
300,000
(117,000)

or,
Quincy capital before liquidation..P 50,000
Less: Share in liquidation expenses (P8,000 x 40%).
3,200
Quincy capital before realization of non-cash assets.P 46,800
Less: Cash received by Quincy (minimum).
0
Share in the loss on realizationP 46,800
Divided by: Profit and loss ratio..
40%
Loss on realization..P117,000
Less; Non-cash assets...................... 300,000
Proceeds from saleP183,000
18. P29,000
(P14,000 Warle capital + P10,000 Xin capital +
P6,000 Yates capital + P5,000 Loan from Xin P6,000 Loan to Warle)
19. P2,000
(P4,000 beginning balance + P3,000 cash collected + P4,000 for
inventory sold - P7,000 of accounts payable - P2,000 for expenses)
20. P2,000
Equities,Jun 30
Inventory loss
Contingency fund

(
(

Warle
8,000
2,000 )
400 )

(
(

Xin
15,000
3,000 )
600 )

(
(

Yates
6,000
5,000 )
1,000 )

(
(

Total
29,000
10,000 )
2,000 )

Subtotals

5,600

Possible losses on
remaining assets
Subtotals
Eliminate Yatess
Deficit
Subtotals

0
(
(

7,500 )
7,500 )

17,000

3,000 )
2,600

4,500 )
6,900

(
(

3,000 )
400 )

4,500 )
2,400

7,500
0

2,000

400
0

400 )
2,000

2,000

Eliminate Warles
Deficit
Cash distribution

15,000 )
2,000

THEORIES

True or False

1
.
2
.
3
.
4
.
5
.

11,400

False

6.

True

True

7.

True

False

8.

False

False

9.

True

True

10
.

True

11
.
12
.
13
.
14
.
15
,

False
True

16
.
17
.

False
True

False
True
True

Note for the following numbers:

1.
An installment liquidation occurs over an extended period of time and partners
generally receive interim (installment) distributions.
3.
The accountant must ensure that the partnership will have sufficient cash to pay
current and prospective creditors before distributions are made to partners.
4.
It may not be prudent for the accountant to pay creditors as quickly as possible.
However, funds should be set aside so that creditors can be paid in a timely manner.
8.
The size of the capital account must be evaluated in conjunction with the residual
profit and loss ratio to determine which partner is least likely to have a deficit occur
during the partnership liquidation.
11.
The cash distribution plan indicates how a distribution will be allocated among the
partners but it does not guarantee that a distribution will be made.
13.
The loss absorption power indicates the amount of loss the partnership would have
to occur before that partners capital account balance is reduced to zero.
16.
The schedule of safe payments can be used for any partnership liquidation but it
provides the same distribution as the cash distribution plan under most
circumstances.

Multiple Choice

1
8.
1
9.

b
b

23
.
24
.

a
d

28
.
29
.

b
e

33
.
34
.

b
d

3
8.
3
9.

c
d

43
.
44
.

d
b

2
0.
2
1.
2
2.

a
a
d

25
.
26
.
27
.

d
a
d

30
.
31
.
32
.

a
a
c

35
.
36
.
37
.

b
a
b

4
0.
4
1.
4
2.

b
a
b

45
.
46
.

c
d