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. Compute the Total Partner’s Interest (Capital + Loan Balance)
2. Distribution of possible loss to partners:
a. Total amount of unsold non-cash assets;
b. Cash withheld to pay for liquidation expenses and any possible
unrecorded liabilities;
3. Additional loss to partners to eliminate any capital deficiency.

Sample Problem
The following is the balance sheet of John and Paul on June 1, 2006:

Assets Liabilities and Partners Capital

Cash P 50,000 Liabilities P 150,000
Other Assets P 550,000 John, Loan 50,000
John, Capital 225,000
Paul, Capital 175,000
Total P 600,000 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.

Answer
JP PARTNERSHIP
Statement of Liquidation
June 1, 2006

Cash Other Liabiliti John John Paul,

Assets es Loan Capital(6
Capital
0%)
(40%)
P175,000
Balances before P50,000 P550,00 P150,0 P50,0 P225,00
realization 0 00 00 0
June Installment
Realization of assets and 180,000 (220000 (24,000) (16,000)
distribution of loss )
Balances P230,00 P330,00 P150,0 P50,0 P201,00 P159,000
0 0 00 00 0
Payment of Liabilities (150,000 (150,0
) 00)
Balances P80,000 P330,00 0 P50,0 P201,00 P159,000
0 00 0
Payment to partners- (80,000) (50,0 (3,000) (27,000)
Schedule 1 00)
Balances 0 P330,00 0 0 P198,00 P132,000
0 0
July Installment 120,000 (100,00 12,000 8,000
0)
Realization of assets and
distribution of gain
Balances P120,00 P230,00 0 0 P210,00 P140,000
0 0 0
Payment of liquidation (5,000) (3,000) (2,000)
expenses
Balances P115,00 P230,00 0 0 P207,00 P138,000
0 0 0
Payment to partners- (115,000 (69,000) (46,000)
Schedule 2 )
Balances 0 P230,00 0 0 P138,00 P92,000
0 0
August Installment 200,000 (230,00 (18,000) (12,000)
0)
Realization of assets and
distribution of loss
Balances P200,00 0 0 0 P120,00 P80,000
0 0
Final cash settlement to (200,000 (120,000 (80,000)
partners ) )
==============================
==============================

Schedule 1
Computation of Safe Payment
John Paul,
Capital(6
Capital (40%)
0%)
P159,000
Capital balances P201,000
Loan Balance 50,000
Total Partners’ Interest P251,000 P159,000
Possible loss- P330,000 (198,000) (132,000)
Balances P53,000 P27,000
Loan P50,000
Capital 3,000 P27,000

Schedule 2
Computation of Safe Payment
John Paul,
Capital(6
Capital (40%)
0%)
Capital balances P207,000 P138,000
Possible loss- P230,000 (138,000) (92,000)
Balances P69,000 P46,000
Capital P69,000 P46,000
JOURNAL ENTRIES
Cash 180,000
Gain or Loss on Realization 40,000
Other assets 220,00
 0
Realization of other assets

John Capital 24,000

Paul Capital 16,000
Gain or Loss on Realization 40,000
Distribution of loss to partners

Liabilities 150,000
Cash 150,00
0
Payment of Liabilities

John Loan 50,000

John Capital 3,000
Paul Capital 27,000
Cash 80,000
Payment to partners

Cash 120,000
Other assets 100,00
0
Gain or Loss on Realization 20,000
Realization of other assets

Gain or Loss on Realization 20,000

John Capital 12,000
Paul Capital 8,000
Distribution of gain to partners

John Capital 3,000

Paul Capital 2,000
Cash 5,000
Payment of liquidation expenses

John Capital 69,000

Paul Capital 46,000
Cash 115,00
0
Payment to partners

Cash 200,000
Gain or Loss on Realization 30,000
Other assets 230,00
0
Realization of other assets

John Capital 18,000

Paul Capital 12,000
Gain or Loss on Realization 30,000
Distribution of loss to partners

John Capital 120,000

Paul Capital 80,000
Cash 200,00
0
Final Payment to partners