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.
