Installment Liquidation Lecture Notes
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INSTALLMENT LIQUIDATION Initial Disposal of Non-cash Assets 1. Sale of non-cash assets and distribution of gain or loss on realization according to their profit and loss ratio. 2. Payments of liquidation expenses and unrecorded liabilities if any. 3. Payment of partnership liabilities 4. Payment to partners Succeeding Sale of Non-Cash Assets 1. Sale of non-cash assets and distribution of gain or loss on realization according. to their profit and loss ratio. 2. Payments of liquidation expenses and unrecorded liabilities if any. 3. Payment of partnership liabilities (unpaid balance) 4. Payment to partners Final Sale of Non-cash Assets 1. Sale of non-cash assets and distribution of gain or loss on realization according to their profit and loss ratio. 2. Payments of liquidation expenses and unrecorded liabilities if any. 3. In case of capital deficiency: a. Solvent partner/s 1) Apply right of offset 2) Additional investment b. Insolvent partner/s 1) Apply right of offset 2) Absorption of loss by solvent partners 4. Final CASH settlement to partners COMPUTATION OF SAFE PAYMENTS 1.
Compute the Total Partner’s Interest (Capital + Loan Balance)
2.
Distribution of possible loss to partners:
3.
a.
Total amount of unsold non-cash assets;
b.
Cash withheld to pay for liquidation expenses and any possible unrecorded liabilities;
Additional loss to partners to eliminate any capital deficiency.
Sample Problem The following is the balance sheet of John and Paul on June 1, 2006: Assets Cash
P 50,000
Liabilities and Partners Capital Liabilities P 150,000
Other Assets
P 550,000
Total
P 600,000
John, Loan John, Capital Paul, Capital
50,000 225,000 175,000 P 600,000
The partners share net income and net losses as follows: John, 60%; Paul, 40%. In June, other, assets with a carrying amount of P 220,000 realized P 180,000, creditors were paid in full, and available cash was distributed to partners. In July, other assets with a carrying amount P 100,000 realized P 120,000, and liquidation cost of P5,000 were paid. In August , the remaining other assets realized P 200,000, and final settlement was made between the partners.
Prepare the necessary journal entries and Statement of Liquidation as of June 1, 2006.
Answer JP PARTNERSHIP Statement of Liquidation June 1, 2006
Cash
Other Assets
Liabiliti John es Loan
John Capital(6 0%)
P50,000
P550,00 0
P150,0 00
P225,00 0
Realization of assets and distribution of loss
180,000
(220000 )
Balances
P230,00 0
P330,00 0
Payment of Liabilities
(150,000 )
Balances
P80,000
Payment to partnersSchedule 1
(80,000)
Balances before realization
P50,0 00
Paul, Capital (40%) P175,000
June Installment
Balances
P330,00 0
P330,00 0
120,000
(100,00 0)
Balances
P120,00 0
P230,00 0
Payment of liquidation expenses
(5,000)
Balances
P115,00 0
Realization of assets and distribution of gain
(16,000)
P50,0 00
P201,00 0
P159,000
P50,0 00
P201,00 0
P159,000
(50,0 00)
(3,000)
(27,000)
0
P198,00 0
P132,000
12,000
8,000
P210,00 0
P140,000
(3,000)
(2,000)
P207,00 0
P138,000
(150,0 00)
0
July Installment
P150,0 00
(24,000)
P230,00 0
0
0
0
0
0
0
Payment to partnersSchedule 2
(115,000 )
Balances
0
P230,00 0
August Installment
200,000
(230,00 0)
Balances
P200,00 0
0
Final cash settlement to partners
(200,000 )
Realization of assets and distribution of loss
0
0
0
0
(69,000)
(46,000)
P138,00 0
P92,000
(18,000)
(12,000)
P120,00 0
P80,000
(120,000 )
(80,000)
============================== ==============================
Schedule 1 Computation of Safe Payment John Capital(6 0%) Capital balances Loan Balance
P201,000
Paul, Capital (40%) P159,000
50,000
Total Partners’ Interest
P251,000
P159,000
Possible loss- P330,000
(198,000)
(132,000)
Balances
P53,000
P27,000
Loan
P50,000
Capital
3,000
P27,000
Schedule 2 Computation of Safe Payment John Capital(6 0%)
Paul,
Capital balances
P207,000
P138,000
Possible loss- P230,000
(138,000)
(92,000)
Balances
P69,000
P46,000
Capital
Capital (40%)
P69,000
JOURNAL ENTRIES Cash
180,000
Gain or Loss on Realization
40,000
Other assets
220,00
P46,000
0 Realization of other assets John Capital
24,000
Paul Capital
16,000
Gain or Loss on Realization
40,000
Distribution of loss to partners Liabilities
150,000
Cash
150,00 0
Payment of Liabilities John Loan
50,000
John Capital
3,000
Paul Capital
27,000
Cash
80,000
Payment to partners Cash
120,000 Other assets
100,00 0
Gain or Loss on Realization
20,000
Realization of other assets Gain or Loss on Realization
20,000
John Capital
12,000
Paul Capital
8,000
Distribution of gain to partners John Capital
3,000
Paul Capital
2,000
Cash
5,000
Payment of liquidation expenses John Capital
69,000
Paul Capital
46,000
Cash
115,00 0
Payment to partners Cash
200,000
Gain or Loss on Realization
30,000
Other assets
230,00 0
Realization of other assets John Capital
18,000
Paul Capital
12,000
Gain or Loss on Realization
30,000
Distribution of loss to partners John Capital
120,000
Paul Capital
80,000
Cash Final Payment to partners
200,00 0
Compute the Total Partner’s Interest (Capital + Loan Balance)
2.
Distribution of possible loss to partners:
3.
a.
Total amount of unsold non-cash assets;
b.
Cash withheld to pay for liquidation expenses and any possible unrecorded liabilities;
Additional loss to partners to eliminate any capital deficiency.
Sample Problem The following is the balance sheet of John and Paul on June 1, 2006: Assets Cash
P 50,000
Liabilities and Partners Capital Liabilities P 150,000
Other Assets
P 550,000
Total
P 600,000
John, Loan John, Capital Paul, Capital
50,000 225,000 175,000 P 600,000
The partners share net income and net losses as follows: John, 60%; Paul, 40%. In June, other, assets with a carrying amount of P 220,000 realized P 180,000, creditors were paid in full, and available cash was distributed to partners. In July, other assets with a carrying amount P 100,000 realized P 120,000, and liquidation cost of P5,000 were paid. In August , the remaining other assets realized P 200,000, and final settlement was made between the partners.
Prepare the necessary journal entries and Statement of Liquidation as of June 1, 2006.
Answer JP PARTNERSHIP Statement of Liquidation June 1, 2006
Cash
Other Assets
Liabiliti John es Loan
John Capital(6 0%)
P50,000
P550,00 0
P150,0 00
P225,00 0
Realization of assets and distribution of loss
180,000
(220000 )
Balances
P230,00 0
P330,00 0
Payment of Liabilities
(150,000 )
Balances
P80,000
Payment to partnersSchedule 1
(80,000)
Balances before realization
P50,0 00
Paul, Capital (40%) P175,000
June Installment
Balances
P330,00 0
P330,00 0
120,000
(100,00 0)
Balances
P120,00 0
P230,00 0
Payment of liquidation expenses
(5,000)
Balances
P115,00 0
Realization of assets and distribution of gain
(16,000)
P50,0 00
P201,00 0
P159,000
P50,0 00
P201,00 0
P159,000
(50,0 00)
(3,000)
(27,000)
0
P198,00 0
P132,000
12,000
8,000
P210,00 0
P140,000
(3,000)
(2,000)
P207,00 0
P138,000
(150,0 00)
0
July Installment
P150,0 00
(24,000)
P230,00 0
0
0
0
0
0
0
Payment to partnersSchedule 2
(115,000 )
Balances
0
P230,00 0
August Installment
200,000
(230,00 0)
Balances
P200,00 0
0
Final cash settlement to partners
(200,000 )
Realization of assets and distribution of loss
0
0
0
0
(69,000)
(46,000)
P138,00 0
P92,000
(18,000)
(12,000)
P120,00 0
P80,000
(120,000 )
(80,000)
============================== ==============================
Schedule 1 Computation of Safe Payment John Capital(6 0%) Capital balances Loan Balance
P201,000
Paul, Capital (40%) P159,000
50,000
Total Partners’ Interest
P251,000
P159,000
Possible loss- P330,000
(198,000)
(132,000)
Balances
P53,000
P27,000
Loan
P50,000
Capital
3,000
P27,000
Schedule 2 Computation of Safe Payment John Capital(6 0%)
Paul,
Capital balances
P207,000
P138,000
Possible loss- P230,000
(138,000)
(92,000)
Balances
P69,000
P46,000
Capital
Capital (40%)
P69,000
JOURNAL ENTRIES Cash
180,000
Gain or Loss on Realization
40,000
Other assets
220,00
P46,000
0 Realization of other assets John Capital
24,000
Paul Capital
16,000
Gain or Loss on Realization
40,000
Distribution of loss to partners Liabilities
150,000
Cash
150,00 0
Payment of Liabilities John Loan
50,000
John Capital
3,000
Paul Capital
27,000
Cash
80,000
Payment to partners Cash
120,000 Other assets
100,00 0
Gain or Loss on Realization
20,000
Realization of other assets Gain or Loss on Realization
20,000
John Capital
12,000
Paul Capital
8,000
Distribution of gain to partners John Capital
3,000
Paul Capital
2,000
Cash
5,000
Payment of liquidation expenses John Capital
69,000
Paul Capital
46,000
Cash
115,00 0
Payment to partners Cash
200,000
Gain or Loss on Realization
30,000
Other assets
230,00 0
Realization of other assets John Capital
18,000
Paul Capital
12,000
Gain or Loss on Realization
30,000
Distribution of loss to partners John Capital
120,000
Paul Capital
80,000
Cash Final Payment to partners
200,00 0
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