Chapter 15: Partnerships: Termination and Liquidation

Deficit capital balances

If partner has negative balance, he should contribute more assets.

Predistribution plan

A newly revised liquidation schedule must be created every time, so create a predistribution plan instead. Assumes a series of losses, each large enough to remove one partner

Preliminary distribution of assets to the partners

A schedule of liquidation. Anticipate max loss in each case, non cash assets have no resale value.

Safe balances

Ending potential capital balances remaining on a liquidation schedule (indicate that the partner will have interest after liquidation)

Statement of liquidation

To disclose losses and gains that have incurred, remaining assets/liabilities, current capital balances

Treatment of partner's loan to partnership

Partner loan accounts are typically combined with partner capital account

If partner does not immediately pay his negative balance

Remaining partners may request distribution of any partnership cash available.

Safe payments

Safe payments of cash to remaining partners based on safe capital balances (the amounts that will remain in individual accounts even if all losses must be absorbed)