Accounting - Partnership Liquidation
Chapter17: Partnership Liquidation
Liquidation Process
-converting noncash assets into cash
-recognizing gains and losses and expenses incurred during the liquidation period
-settling all liabilities
-distributing cash to the partners according to the final balances in their capital accounts
Rank order of payment:
1. Amounts owed to creditors other than partners and amounts owed to partners other than for capital and profits
2. Amounts due to partners liquidating their capital balance upon conclusion of the liquidation of partnership assets and liabilities
Simple Partnership Liquidation
-conversion of all partnership assets into cash with a single distribution of cash to partners in final settlement of the partnership’s affairs
Debit Capital Balances in a Solvent Partnership
-if the partners with debit balances are without personal resources, the partners with positive equity absorb losses equal to the debit balances. -losses are shared in relative profit and loss sharing ratios of the partners with positive equity balances
-if partner is personally solvent, he should pay money into the partnership to eliminate his debit capital balance.
-Right of offset – amount owed to the partner offsets up to the debit capital amount
If the partner is insolvent and the right of offset is not applied, the personal creditors of the partner with the debit balance would be paid the amount of their claims up to the amount of Loan payable (by the P) to the partner
*recommended that the rule not be applied without agreement from the partners when a partner-creditor is personally insolvent.
SAFE PAYMENTS TO PARTNERS
-some cash may be available for distribution to partners after all liabilities are paid but before all noncash assets are converted into cash
-if partners decide to distribute available cash before all NCA are sold (and before all gains and losses are recognized) – how much cash can be safely distributed to the individual partners?
Safe Payments –
Liquidation Process
-converting noncash assets into cash
-recognizing gains and losses and expenses incurred during the liquidation period
-settling all liabilities
-distributing cash to the partners according to the final balances in their capital accounts
Rank order of payment:
1. Amounts owed to creditors other than partners and amounts owed to partners other than for capital and profits
2. Amounts due to partners liquidating their capital balance upon conclusion of the liquidation of partnership assets and liabilities
Simple Partnership Liquidation
-conversion of all partnership assets into cash with a single distribution of cash to partners in final settlement of the partnership’s affairs
Debit Capital Balances in a Solvent Partnership
-if the partners with debit balances are without personal resources, the partners with positive equity absorb losses equal to the debit balances. -losses are shared in relative profit and loss sharing ratios of the partners with positive equity balances
-if partner is personally solvent, he should pay money into the partnership to eliminate his debit capital balance.
-Right of offset – amount owed to the partner offsets up to the debit capital amount
If the partner is insolvent and the right of offset is not applied, the personal creditors of the partner with the debit balance would be paid the amount of their claims up to the amount of Loan payable (by the P) to the partner
*recommended that the rule not be applied without agreement from the partners when a partner-creditor is personally insolvent.
SAFE PAYMENTS TO PARTNERS
-some cash may be available for distribution to partners after all liabilities are paid but before all noncash assets are converted into cash
-if partners decide to distribute available cash before all NCA are sold (and before all gains and losses are recognized) – how much cash can be safely distributed to the individual partners?
Safe Payments –