Concept Introduction:
Liquidation of partnership refers to the shutting of the firm i.e. putting end to the partnership business. This can be due to the death of any partner or on the closure of the business or any other reason. Sometimes, the liquidation takes place to initialize a new business entity with new partners.
The contribution of A towards the partnership liabilities in case of selling all assets for
Answer to Problem 9.4E
The partner A’s personal creditors will receive from the interest of A in partnership an amount of
Explanation of Solution
The partnership given in the question has three partners who are entitled to the equal profit sharing ratio. The capital balances of the three partners are:
Partner A has
The assets valued at
Computation of capital surplus or deficit of partners at the time of liquidation:
Particulars | Cash | Other Assets | Liabilities | Capital A | Capital B | Capital C |
Opening balance | ||||||
Sale of assets | ||||||
Payment of liabilities | ||||||
Balances | ||||||
Contribution by Partner B and C | ||||||
Payment of liabilities | ||||||
Balances |
Now, the table for computing the amount of contribution by partner B against the deficit amount is as follows:
Particulars | Amount | Personal assets allocation | |
Partnership deficit | |||
Personal Liabilities | |||
Total |
Hence, the amount of contribution by partner B towards capital deficit is
The table for computing the amount of contribution by partner C against the deficit amount is as follows:
Particulars | Amount | Personal assets allocation | |
Partnership deficit | |||
Personal Liabilities | |||
Total |
Hence, the amount of contribution by partner C towards capital deficit is
As after compensating the deficit capital balances of partner B i.e.
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Chapter 14 Solutions
EBK ADVANCED ACCOUNTING
- When a partnership dissolves, the first step in the dissolution process is to ________. A. allocate the gain or loss on sale based on income sharing ratio B. pay off liabilities C. sell noncash assets D. divide the remaining cash among the partnersarrow_forwardWhich of the following is a disadvantage of the partnership form of organization? A. limited life B. no taxation at the partnership level C. flexibility in business operations D. combining of financial resourcesarrow_forwardWhen a partnership is liquidated, any gains or losses realized by the sale of noncash assets are allocated to the partners based on their income sharing ratio. Why?arrow_forward
- When a partnership liquidates, do partners get paid first or do creditors get paid first?arrow_forwardWhat is the first step in a partnership liquidation (termination and sale of assets)?arrow_forwardA partnership ________. A. has one owner B. can issue stock C. pays taxes on partnership income D. can have more than one general partnerarrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College