Partnership Liquidation Lump sum

the following procedures may be followed in lumpsum liquidations

1. realization and distribution of gain or loss to all partners on the pasis of profit and loss ratie 2. payment of liquidation expenses, if any 3. payment of liabilities to third parties 4. elimination of capital deficiencies. if after the distribution of loss on realization and payment of liquidation expenses, a partner incures a capital deficiency; 5. payment to partners

certain costs incurred during the liquidation process should be treated as

a reduction of the proceeds from the sale of non-cash assets (expenses)

priority of partnership liabilities

a. amounts owed to creditors other that partners; b. amount owed to partners other than for capital and profits c. amounts owed to partners as capital amounts owed to partners as profits not currently closed to partners' capital accounts

order of priority of how capital deficiencies should be eliminated

a. if the deficient partner has a loan balance,, exercise the right of offset b. if the deficient partner is solvent, then additional investment is necessary c. if the deficient partner is insolvent, the remaining partners will absorb the capital deficiency.

order of priority of payment to partners

a. loan accounts b. capital accounts

when a partnership is liquidated, the books should be

adjusted and has closed the net profit or loss for the period on the manner they have agreed in the partnership agreement

no distribution of assets may be made to the partners until

all outside partnership creditors have been paid

distributions are made to some or all of the partners as cash become available

installment liquidation

during distribution of of noncash assets, the fair value of the distributed asset

is charged against the proper capital account

when a partner has a loan outstanding to the partnership, the loan may or may not rank on an equal level with other partnership liabilities as to priority

it depends on whether the partner's loan is subordinate to the other partnership liabilities

whereby a deficit balance in partner's capital account may be set off against any balance existing in his/her loan account

legal doctrine of set-off

the parment of claims is

liquidation

types of liquidation

lump sum and installment liquidation

all assets are converted into cash within a very short time, creditors are paid, and a single, lumpsum payment is made the partners for their capital interest

lump sum liquidation

no distributions are maade to the partners until the realization prociss is completed when the full amount of the realization gain or loss is known

lump sum liquidation

if a deficit balance is created in a partner's capital account and that partner cannot contribute to eliminate the deficit, the partners who do not have deficit balances in their capital accounts

must absorb the deficit balance of the partner who does

the phase of partnership operations which begins after dissolution and eendds with the termination of partnership activities is referred to as

winding up the affairs

the winding up process includes

the transactions necessary to liquidate the partnership

the order of priority concerning the availability of the assets for each class of creditors is

A. Partnership assets 1. partnership creditors 2, personal creditors that did not recover their claims in full from personal assets. recovery from personal assets is limited to the extent that the partner has a credit interest in the partnership assets. B. Personal assets 1. personal creditors 2. partnership creditors who were not satisfied from partnership assets. such claims may be made against an individual partner regardless of whether or not the partner has a debit or credit equity interest in the partnership/ 3. amounts owed to partners by way of contribution. this refers to amounts owed to the partnership as represented by the partner's debit capital (deficit) balance.

most equitable manner of sharing the profits during liquidation is

profit and loss ratio

the conversion of assets into cash is referred to as

realization

other than converting aseets to cash, the partner may choose to

receive certain non cash assets

the basic procedures in liquidation are

sharing gains and losses, advance planning when the partnership is formed, rule on setoff - partnership loans to partners (receivables), rule on setoff- partner loans to the partnership (payables_, liquidation expenses, marshalling of assets, distribution of case or other assets to partners.

when a partnership has a loan outstanding to a partner, the partnership receivable should be

subtracted of set off from the partner's capital account

the marshalling of assets is applied when

the partnership and/or one or more of the partners are insolvent