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
