Partnership Liquidation

Deficient partner

A partner with a debit balance in his capital account after receiving his share on the loss on realization

Terminated or ended

A partnership is liquidated when its business operations are completely __

Lump sum method/Total Liquidation/Single Distribution

All non cash assets are converted into cash within a very short time and the related gains or losses distributed, and all outside creditors are paid before a single final cash distribution is made to partners.

Outside creditors, partners for loan or advances to the business, partners for capital accounts

General rule for cash distribution

Computation of gains or losses, payment of liabilities, equitable final distribution to partners

The focus of accounting during liquidation

Liquidation

The interval of time between dissolution and termination of partnership affairs

right of offset

The legal right of a partner to apply part or all of his loan account balance against his capital deficiency resulting from losses in the realization of assets

Liquidation

The process of converting all assets of the business into cash, followed by payments of creditors' claims and the partners' interest. Usually called as 'winding up of business activities'

winding up

The process of settling the business or partnership affairs

Partner's interest

The sum of a partner's capital and loan accounts in the partnership

Gains or losses

__ are always allocated to partner's capital accounts prior to distributing any cash to partners

to convert assets to cash, pay obligations, distribute cash and unsold assets to individual partners

Basic objectives during liquidation

Credit balance

Cash is only distributed to a partner with a __ in his partnership interest after absorption of maximum possible loss

Realization

Conversion of all assets into cash

Increased

Equity is __ by investment and share in profits.

Decreased

Equity is __ by withdrawals and share in losses.

Loss on realization

Excess of book value over the selling price of the assets sold through realization

Capital deficiency

Excess of partners' share of losses over their capital credit balances

Gain on realization

Excess of the selling price over book value of assets sold through realization

Termination

Is the point in time when all partnership affairs are ended

Dissolved

Liquidation usually happens once partners decided to end or terminate business operations after the partnership has been __

Personal creditors, partnership creditors, partners

Order of priority in settling debts

Cash priority program

Prepared prior to liquidation and allows partners to determine how cash should be safely distributed if and when it becomes available.

Schedule of Safe Payments

Prepared when there is cash available for distribution after payment to outside creditors has been made, prevents overpayment to partners

Realization, expenses, liabilities, distribution

Procedures for installment liquidation

Realization, expenses, liabilities, capital deficiencies, partners

Procedures in lump sum liquidation

Installment liquidation/piecemeal Liquidation

Process of selling some assets, paying the liabilities, dividing the available cash to partners, selling additional assets and making further payments to partners.

Capital accounts

Resulting income or loss after adjusting and closing the accounts are transferred to the partners' __

Marshalling of assets

Segregation of assets owned by the partnership and the personal assets owned by several partners; priority of claims when partnership/partners are insolvent