- Published: December 27, 2021
- Updated: December 27, 2021
- University / College: Deakin University
- Level: Masters
- Language: English
- Downloads: 33
Accounting for Liquidation of a Partnership Questions a. Gain/ Loss realized on the sale of assets = Sales value-Net Book Value
= 85, 000-106, 000 = -21, 000 (Loss)
Name
Partnership
General Jou+A2: J25rnal
GENERAL JOURNAL
Date
Account Titles and Explanation
P. R.
Debit
Credit
Asset A/C
GJ
21, 000
Realization A/
GJ
21, 000
Being loss on realization
Sand
1, 200
Mell
11, 700
Rand
15, 100
Loss: Sand
2, 100
Mell
8, 400
Rand
10, 500
Being losses on realization
Assets A/C
106, 000
Realiczation A/C
A/C
85, 000
Loss on realization
21, 000
Being losses on disposal of assets
Liabilities A/c
88, 000
Cash
95, 000
cash balance
7, 000
Being payment of liabilities
b.
Sand-1/10 x 21, 000 = (2, 100)
Mell-4/10 x 21, 000 = (8, 400)
Rand-5/10 x 21, 000= (10, 500)
Hence, balances in the partner’s capital accounts
Sand’s Capital Account
Debit
Loss 2, 100
2, 100
Credit
Balance b/d 1, 200
Balance c/d 900
2, 100
Mell’s Capital Account
Debit
Loss 8, 400
Balance c/d 3, 300
11, 700
Credit
Balance b/d 11, 700
11, 700
Rand’s Capital Account
Debit
Loss 10, 500
Balance c/d 4, 600
15, 100
Credit
Balance b/d 15, 100
15, 100
c.
Items $ $
Cash 10, 000
Other assets 85, 000
Total Assets 95, 000
Less: Total liabilities (88, 000)
Sand (1/10 x 7000) 700
Mell (4/10 x 7000) 2, 800
Rand (5/10 x 7000) 3, 500
Remaining cash after liquidation 7, 000
Liquidation of a partnership may occur if and only if, a partner has died, there is a mutual agreement between partners to end the business, if the partnership was contractual and its objective is met, there exist continued disagreements between the partners, a request by one of the partners for dissolution or bankruptcy due to continuous loss making (Warren, 2011). Prior to the liquidation period, the partnership should ensure that the accounting cycle is complete by preparing the financial statements having adjusted the entries, closing entries, and the post-closing trial balance. Hence, the balance sheet is the document open in the liquidation process (Delaney & Whittington, 2005). Liquidating a partnership necessitates selling noncash assets for cash and recognition of gain or loss on realization, allocation of the gains or losses to the partners based on their profit/loss ratios, cash payment of the liabilities of the partnership and distributing the remaining cash to the partners based on their capital balances. The aforementioned steps of the partnership liquidation process must be executed sequentially (Kimmel, Weygandt & Kieso, 2011). The other options available for partnership include placing the business under receivership where an administrative receiver is appointed to oversee the recovery process of the business in case of a limited liability partnership (Delaney & Whittington, 2005). In addition, the partners may decide to undertake an individual voluntary agreement with the creditors so that the secured creditors can be assured of their security enforcement before their final decision on forcing the partner into bankruptcy (Reeve, Warren & Duchac, 2012).
References
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting: Tools for business decision making. Hoboken, N. J: Wiley.
Delaney, P. R., & Whittington, R. (2005). Wiley CPA exam review. Hoboken, NJ: Wiley.
Warren, C. S. (2011). Accounting: Chapters 1-13. S. l.: Cengage Learning.
Reeve, J. M., Warren, C. S., & Duchac, J. E. (2012). Accounting: Using Excel for success. Mason, OH: South-Western Cengage Learning.