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. 2. Compute the Total Partners Interest (Capital + Loan Balance) Distribution of possible loss to partners: a. b. 3. Total amount of unsold non-cash assets; Cash withheld to pay for liquidation expenses and any possible unrecorded liabilities; Sample ProblemThe 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

Additional loss to partners to eliminate any capital deficiency.

Other Assets Total

P 550,000 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.

AnswerJP PARTNERSHIP Statement of Liquidation June 1, 2006

Cash

Other Assets P550,00 0 (220000 ) P330,00 0

Liabiliti John es Loan P150,0 00 P50,0 00

John Capital(6 0%) P225,00 0 (24,000)

Paul, Capital (40%) P175,000

Balances before realization June Installment Realization of assets and distribution of loss Balances Payment of Liabilities Balances Payment to partnersSchedule 1 Balances July Installment Realization of assets and distribution of gain Balances Payment of liquidation expenses Balances

P50,000

180,000 P230,00 0 (150,000 ) P80,000 (80,000) 0 120,000

(16,000) P159,000

P150,0 00 (150,0 00)

P50,0 00

P201,00 0

P330,00 0

0

P50,0 00 (50,0 00)

P201,00 0 (3,000) P198,00 0 12,000

P159,000 (27,000) P132,000 8,000

P330,00 0 (100,00 0) P230,00 0 0

0

0

P120,00 0 (5,000) P115,00 0

0

P210,00 0 (3,000)

P140,000 (2,000) P138,000

P230,00 0

0

0

P207,00 0

Payment to partnersSchedule 2 Balances August Installment Realization of assets and distribution of loss Balances Final cash settlement to partners

(115,000 ) 0 200,000 P230,00 0 (230,00 0) 0 0 0 0 0

(69,000) P138,00 0 (18,000)

(46,000) P92,000 (12,000)

P200,00 0 (200,000 )

P120,00 0 (120,000 )

P80,000 (80,000)

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Schedule 1 Computation of Safe Payment John Capital(6 0%) Capital balances Loan Balance Total Partners Interest Possible loss- P330,000 Balances Loan Capital Schedule 2 Computation of Safe Payment John Capital(6 0%) Capital balances Possible loss- P230,000 Balances Capital JOURNAL ENTRIES Cash Gain or Loss on Realization Other assets 180,000 40,000 220,00 P207,000 (138,000) P69,000 Paul, Capital (40%) P138,000 (92,000) P46,000 P69,000 P46,000 P201,000 50,000 P251,000 (198,000) P53,000 P159,000 (132,000) P27,000 3,000 P27,000 Paul, Capital (40%) P159,000

P50,000

0 Realization of other assets John Capital Paul Capital Gain or Loss on Realization Distribution of loss to partners Liabilities Cash Payment of Liabilities John Loan John Capital Paul Capital Cash Payment to partners Cash Other assets Gain or Loss on Realization Realization of other assets Gain or Loss on Realization John Capital Paul Capital Distribution of gain to partners John Capital Paul Capital Cash Payment of liquidation expenses John Capital Paul Capital Cash 69,000 46,000 115,00 0 3,000 2,000 5,000 20,000 12,000 8,000 120,000 100,00 0 20,000 50,000 3,000 27,000 80,000 150,000 150,00 0 24,000 16,000 40,000

Payment to partners Cash Gain or Loss on Realization Other assets Realization of other assets John Capital Paul Capital Gain or Loss on Realization Distribution of loss to partners John Capital Paul Capital Cash Final Payment to partners 120,000 80,000 200,00 0 18,000 12,000 30,000 200,000 30,000 230,00 0