PARTNERSHIP LIQUIDATION: Theories Pt II

True

A deficient but solvent partner has to share on the deficiency of an insolvent partner in case of final liquidation.

False Explanation Deficient partner may be solvent or insolvent.

A deficient partner is automatically an insolvent partner

True

A partnership is liquidated when its business operations are completely terminated or ended.

False

Gain on realization is the process of converting non-cash assets into cash.

True

If the deficient partner is insolvent, his deficiency will be absorbed by the other partners distributed according to their profit and loss ratio.

False

Under dissolution, the association of the partners for purposes of carrying on activities in the usual manner is considered ended.

False

The process of settling the business or partnership affairs is winding up which is synonymous to dissolution

True

The right of offset is exercised when a partner's capital account reports a debit balance and he has at the same time a loan to the partnership.

True

When a partnership is to be liquidated, the books should be adjusted and balances of nominal accounts are closed.

True

After the distribution of cash to partners in a partnership liquidation, the business would have zero assets, liabilities and owners' equity.

False

Right of offset involves the order of creditors' rights against the partnership's assets and personal assets of the individual partners.

False

In partnership liquidation, the capital and liabilities of the partnership are directly intertwined with those of the individual partners' personal asset and capital because of unlimited liability.

False Explanation It is based on their capital balances.

The final distribution of cash to the partners shall be made based on their profit and loss sharing agreement.

False Explanation Partners' claim from the partnership may not be enough to cover deciency.

A partner with a loan to the partnership may never become a deficient partner.

True

Accounting problems involved in liquidation includes; determination of profit or loss, closing of partnership books, correction of accounting errors in prior periods and liquidation of the business.

False

Installment liquidation distribute cash after all non cash assets has been realized.

True

The excess of the selling price over the cost of the asset is called gain on realization.

True

The sum of a partner's capital, loan balances and advances to the partnership is called partners' interest

True

When the personal assets of a partner exceed his personal liabilities, the partner is considered solvent but only to the extent of the excess.

True

A partner's claim from the partnership, upon liquidation, increases the amount available for the partner's personal debts.

True

Dissolution of a partnership can be recognized as a change in the capital structure of a business.

False

Capital deficiency is a partner with debit balance in his capital account after receiving his share in loss on realization.

True

Capital deficiency is the excess of a partner's share on losses over his capital.

True

Cash can be distributed to partners before or after elimination of deficiency.

True

If the selling price is lower than the cost of the asset then it is a loss on realization.

True

In a statement of liquidation, there are only two classes of assets - cash and other assets.

True

In partnership liquidation, advances and withdrawals are closed to capital accounts since cash settlement is based on the partners' capital account balances.

True

In the statement of liquidation, the accounting equation is observed through out the liquidation process.

True

Liquidation expenses may be incurred to facilitate immediate realization of non-cash assets which reduces cash and capital accounts.

False Explanation It affects cash and capital

Liquidation expenses which are incurred to facilitate the immediate realization of non-cash assets affect cash but not capital.

True

Liquidation is the interval of time between dissolution and termination of partnership affairs which is also the process of winding up a business.

False

Lump sum liquidation distributes cash on a periodic basis as it becomes available even before all non-cash assets are converted into cash.

False

Marshaling of assets involves offsetting a deficit in a partners' capital against the load payable to that partner.

True

Partnership dissolution calling for the winding up of businesses affairs is called liquidation.

False Explanation Dissolution doesn't always end up with liquidation.

Partnership dissolution is always followed by liquidation

True

Partnership liquidation may be caused by accomplishment of purpose, termination of term covered by contract, bankruptcy of the firm and mutual agreement among the partners.

False Explanation They are not always equal.

The liquidation ratios will always be equal to the profit and loss ratio of partners

True

The loan payable to a partner has a higher priority in liquidation than a partner's capital balance but lower priority than liabilities to outside creditors.

True

The order of marshaling of assets against the partnership assets is as follows 1. Partnership creditors other than partners (Liabilities outside) 2. Partners' claims other than capital and profits (Loan balances) 3. Partners' claim to capital or profits (Capital Balances)

False

The order of marshaling of assets against the personal assets is as follows 1. Partnership creditors other than partners (Liabilities outside) 2. Partners' claims other than capital and profits (Loan balances) 3. Partners' claim to capital or profits (Capital Balances)

True

The priorities for creditors' claims against the assets available to pay the partnership liabilities involve two concepts: The marshalling of assets and right of offset.

True

Dissolution is the termination of a partnership as a going concern, it is the termination of the life of the partnership.

False Explanation All assets are sold

Non-cash assets that are not sold should be written off as a loss and such loss is divided to the partners equally.

True

Gain or loss on realization is distributed according to their residual profit or loss ratio unless liquidation ratios are specified.

True

Personal creditors of individual partners have priority over partnership creditors in the order of claims against the personal assets of a partner.

True

Termination is the point in time when all partnership affairs are ended.

True

In the lump-sum liquidation, the distribution of cash to partners is made only after all the non-cash assets have been realized, the total amount of gain or loss on realization has been determined and distributed and all liabilities have been paid.

True

Right of offset is the legal right to apply part or all of the amount owing to a partner on a loan balance against deficiency in his capital resulting from losses.

True

The amount offset in exercising the right of offset shall be the amount of a partner's loan to the partnership or the amount of his deficiency, which ever is lower.

True

The amount to be offset shall be the lower of the amount of the loan or the amount of deficiency.