1. Partners ABC Partners ABC and DEF have decided to liquidate their business. The following informationis available:CashInventoryLily, ReceivableTotalP 180,000 Accounts Payable250,000 ABC, Capital5,000 DEF, CapitalP 435,000 TotalP 100,000150,000185,000P405,000ABC and DEF share profits and losses in a 3:2 ratio. During the first month of liquidation,half of the inventory was sold for P60,000, and P50,000 of the accounts payable is paid.The partners are expecting additional liquidation expense in the future for P10,000 that iswhy they have allotted a contingency fund of P10,000. During the second month, the restof the inventory is sold for P45,000, and the remaining accounts payable are paid. Cashis distributed at the end of each month, and the liquidation is completed at the end of thesecond month. Compute for the amount of reduction in capital of ABC in the first monthof liquidation.

This question belongs to the liquidation of the partnership firm. The reduction in the capital…

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Business

Accounting

Compute for the amount of reduction in capital of ABC in the first month

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter10: Stockholder's Equity

Section: Chapter Questions

Problem 92.4C

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Concept explainers

Partnership Accounting

A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.

Partner Admission and Withdrawal

A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.

Question

1. Partners ABC

Partners ABC and DEF have decided to liquidate their business. The following information
is available:
Cash
Inventory
Lily, Receivable
Total
P 180,000 Accounts Payable
250,000 ABC, Capital
5,000 DEF, Capital
P 435,000 Total
P 100,000
150,000
185,000
P405,000
ABC and DEF share profits and losses in a 3:2 ratio. During the first month of liquidation,
half of the inventory was sold for P60,000, and P50,000 of the accounts payable is paid.
The partners are expecting additional liquidation expense in the future for P10,000 that is
why they have allotted a contingency fund of P10,000. During the second month, the rest
of the inventory is sold for P45,000, and the remaining accounts payable are paid. Cash
is distributed at the end of each month, and the liquidation is completed at the end of the
second month. Compute for the amount of reduction in capital of ABC in the first month
of liquidation.

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