Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Furra College

Chapter Two: Partnership Dissolution and Liquidation

Conditions for Dissolution and Liquidation
Dissolution is a term used to describe events ranging from a minor change of ownership interest
not affecting operations of the partnership to a decision by the partners to terminate a
partnership.
Conditions for dissolution of a partnership may, therefore, be:

Bankruptcy of the firm or any partner

The expiration of the time period stated in the partnership contract

Mutual agreement of the partners to end their association

Accountants are concerned with the economic substance of a transaction than its legal form and
evaluate all the circumstances of the individual case and determine how the change should be
recorded.
Changes in Personnel\Changes in Ownership
Most changes in ownership of partnerships are accomplished without interruption of its
operations and there is usually no significant change in the finances or operating routines of the
partnership. However, from a legal view point a partnership is dissolved by the retirement or
death of a partner or by the admission of a new partner.
Admission of a New Partner
Adjustment of the partnership accounting records may be necessary to restate the carrying
amounts of assets and liabilities to current fair value before a new partner is admitted. As an
alternative to revaluation of the existing partnership assets, it may be preferable to evaluate any
discrepancies between the carrying amounts and current fair values and adjust the terms of
admission of a new partner. In this way, the amount invested by the incoming partner may be set
at a level that reflects the current fair value of the partnership, even though the carrying amounts
of existing partnership assets remain unchanged in the accounting records.

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Furra College

The admission of new partner to a partnership may be effected either by an acquisition of all or
part of the interest of one or more of the existing partners or by an investment of assets by the
new partner with a resultant increase in the net assets of the partnership.
Acquisition of an Interest by Direct Payment to One or More Partners

If a new partner acquires an interest from one or more of the existing partners, the event is
recorded by establishing a capital account for the new partner and decreasing the capital account
balances of the selling partners by the same amount. No assets are received by the partnership;
the transfer ownership is a personal transaction between the partners.
Illustration: L and M are partners of L&M Partnership sharing earnings equally and each has a
capital account balance of 60,000. Partner N (with the consent of M) acquires one half of Ls
interest in the partnership. The journal entry to record this change would be:
L, Capital (1/2of 60,000)

30,000

N, Capital

30,000

To record transfer of one-half of Ls capital to N

This transfer has caused no change in the assets, liabilities or total partners capital.

The price paid for a partnership interest by a new partner to an existing partner does not
provide sufficient evidence to support changes in the carrying amounts of the
partnerships assets.

Investment in Partnership by a New Partner

A new partner may gain admission by investing assets in the partnership, thus increasing the total
assets and partners capital of the partnership.
Assume that X and Y, partners of the X&Y Partnership, share net income or net loss equally and
that each has a capital account balance of Br. 60,000. Assume also that the carrying amounts of
the partnership assets are approximately equal to current fair values and that Z owns land that
could be used for expansion of partnership operations. X and Y agree to admit Z to the
partnership by investment of the land; net income and loss of the new firm are to be shared
equally. The land had cost Z Br. 50, 000, but has a current fair value of 80,000. The admission of
Z to the partnership is recorded as follows:
Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)
4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Land

Furra College

80,000
Z, Capital

80,000

To record admission of Z to partnership.

Z has 80,000 capital account balances and owns 40% interest in the firm.
Bonus Allowed to Existing Partners
In a profitable well-established firm, the partners may insist that a portion of the investment by a
new partner be allocated to them as bonus or that goodwill be recorded and credited to existing
partners.
Bonus to Existing Partners
In the C&D Partnership, C and D share net income or losses equally and have capital account
balances of Br. 45,000 each. The carrying amounts of the partnership net assets approximate
current fair values. The partners agree to admit E to a one third in capital and a one third interest
in earnings for a cash investment of Br. 60,000. The total capital of the new firm amounts to Br.
150,000 (45,000+45,000+60,000) and one third of that is Br. 50,000 resulting in bonus of 10,000
to the existing partners. Hence, the following entry:
Cash

60,000
C, Capital (10,000*1/2)

5,000

D, Capital (10,000*1/2)

5,000

E, Capital (150,000*1/3)

50,000

To record investment by E for one third interest in capital, with bonus of 10,000 divided equally
between C and D.

Bonus Allowed to New Partner

The present firm may offer a new partner a larger equity in net assets than the amount invested
by the new partner in recognition of the new partners skill and business contacts or its cash
needs.
Bonus to New Partner
Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)
4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Furra College

F and G, who share net income and losses equally and have capital account balances of Br.
35,000 each, offer H a one-third interest in net assets and a one-third share of net income or
losses for an investment of Br. 20,000 cash. The investment by H when added to the existing
capital of Br. 70,000 brings the total capital to Br. 90,000 and Hs interest there in is Br. 30,000
(90,000*1/3). The difference between Hs investment and interest in capital (30,000-20,000 =
10,000) represents bonus allowed to H by F and G. the journal entry to record admission of H to
the partnership would be:
Cash

20,000

F, Capital (10,000*1/2)

5,000

H, Capital (10,000*1/2)

5,000

H, Capital

30,000

To record admission of H, with bonus of Br.10,000 from F and G.

In the above illustration it is assumed that the net assets of the partnership were valued
properly

Writing down of the assets to 40, 000 should be considered especially if trade accounts
receivable included doubtful accounts or if inventories were obsolete.

Retirement of a Partner
A partner has always the authority to withdraw, as distinguished from the right to withdraw. A
partner, who withdraws in violation of the terms of the partnership contract, and without consent
of the other partners, may be liable for damages to the other partners.
In measuring the equity of a retiring partner:

The partners capital account is the starting point. Adjustments for correction of errors or
for differences between the carrying values and current fair values of net assets may be
necessary.

The partnership contract should be referred to for provisions regarding computation of

the amount to be paid a retiring partner. The contract may require audit by independent
auditors or valuation of the partnership as a going concern.

If the partnership doesnt contain provisions for the computation of retiring partners
equity, the accountant may obtain authorization from the partners to use a specific
method to determine an equitable settlement price.

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Furra College

The equity of a retiring partner is computed on the basis of current fair values of
partnership net assets with gain or loss arising from the difference between the current
fair value and carrying value divided in the income sharing ratio.

The partners may agree to settle by payment of the computed amount or a different
amount.

Payment of Bonus to Retiring Partner

Assume that L is to retire from the J, K &L Partnership. Each partner has a capital account
balance of Br. 60,000, and net income and losses are shared equally. The partnership contract
provides that a retiring partner is to receive the balance of his\her capital account plus a share of
any goodwill. At the time of Ls retirement, goodwill in the amount of Br. 10,000 is computed to
the mutual satisfaction of the partners.
But there is no reliable evidence to record such goodwill in the accounts except estimate of the
partners. Therefore, it is not appropriate to enter this goodwill in the accounting records of the
partnership. The portion paid to the retiring partner would, however, be treated as bonus as
shown in the following journal entry.
L, Capital

60,000

J, Capital (10,000*1/2)

5,000

K, Capital (10,000*1/2)

5,000

Cash

70,000

To record payment to retiring partner L, including bonus of Br. 10,000.

Settlement with Retiring Partner for Less than Carrying Amount

A retiring partner may accept less than his\her equity on retirement due to:

Anxiety to escape from an unsatisfactory business situation

Personal problems

Consideration that the partnership assets are overvalued

Anticipation of less net income in future years

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

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Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Furra College

The preferred accounting treatment under such circumstances is to leave net asset valuation
undisturbed unless a large amount of goodwill is carried in the accounting records. The
difference between the retiring partners capital account and the amount paid in settlement
should be credited as a bonus to the continuing partners.
M, N and P share net income or losses equally, and that each has a capital account balance of Br.
60,000. N retires from the partnership and receives Br. 50,000. The journal entry to record Ns
retirement is:
N, Capital

60,000

Cash

50,000

M, Capital (10,000*1/2)

5,000

P, Capital (10,000*1/2)

5,000

To record retirement of partner N for an amount less than carrying amount of Ns equity.

The final settlement with retiring partner is often differed for some time to permit:
The accumulation of cash
Measurement of net income to date of withdrawal
Obtaining of bank loans
Or other acts needed to complete the transaction
The retirement of a partner doesnt terminate the retiring partners responsibility for general
partnership liabilities existing on the retirement date.
Death of a Partner
A partnership contract often provides:
o Partners shall acquire life insurance policies on each others lives so that cash will be
available for settlement with the estate of a deceased partner.
o A buy-sell agreement wherein the surviving partners acquire equities of the deceased
partner
o The surviving partners are given an option to buy, or right of first refusal, rather than
imposing on the partnership an obligation to acquire the deceased partners equity.

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Furra College

Accounting for Liquidation of Partnerships

Liquidation means winding up partnership activities, usually by selling assets, paying liabilities
and distributing any remaining cash to partners.
A business enterprise that has ended normal operations and is in the process of converting its
assets to cash and making settlement with its creditors is said to be in liquidation, or in the
process of being liquidated.
Another commonly used term in liquidation is realization, which means the conversion of assets
to cash.
Distribution of Loss or Gain
When the decision to liquidate the partnership is made, the accounting records of the partnership
should be adjusted and closed, and the net income or loss for the final period of operations
entered in the accounts of the partners.
The losses or gains from realization of assets are divided among the partners in the income
sharing ratio and entered in their capital accounts. The underlying theme under the circumstances
is: Divide the loss or gain from realization before distributing the cash.
The income sharing ratio used during the operation is applicable upon liquidation also unless the
partners have a different agreement.
When the net loss or gain from liquidation is divided among the partners, the final balance of the
partners capital and loan ledger accounts will be equal to the cash available for distribution.
Payments are then made in the amounts of the partners respective equities in the partnership.
Distribution of Cash
The Uniform Partnership Act lists the order for distribution of cash by a liquidating partnership
as:

Payment of creditors in full

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Payment of loans from partners

Payment of partners capital account credit balances

Furra College

The indicated priority of partners loan over partners capital appears to be a legal provision
which is usually nullified for practical purposes by an established legal doctrine called the right
of offset. If a partners capital account has a debit balance or even a potential debit balance
depending upon possible future realization of losses, any credit balance in the partners loan
account must be offset against the deficit or potential deficit in the capital account. However, if a
partner with a loan account receives any cash, it is debited to the loan account to the extent of the
balance of that account. Furthermore, the existence of a partners loan account will not advance
the time of payment to any partner during liquidation.
The amount of cash, if any, that a partner is entitled to receive in liquidation can not be
determined until the partners capital accounts have been adjusted for any loss or gain on the
realization of the assets.
Settlement of Partners Capital Balances
The amount each partner receives from the liquidation of a partnership will be equal to:

The capital invested, whether recorded in a capital or loan account

A share of operating net income or loss minus drawings

A share of loss or gain from realization of assets

If the negative factors are larger, the partner will have a capital deficit (a debit balance in the
capital account), and must pay the amount of such deficit. Failure to effect such payment would
mean the partner had not complied with provisions of the partnership contract for sharing net
income or loss and cause the other partners to receive less than their equity in the partnership.
Illustration follows:
Equity of Each Partner is Sufficient to Absorb Loss from Realization
Assume that A and B, who share net income and losses equally, decide to liquidate their
partnership. A balance sheet on 30 June 1999, just prior to liquidation follows:
A & B Partnership
Balance Sheet
June 30, 1999
Assets
Cash

10,000.00

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Other assets
Total

Furra College

75,000.00
85,000.00

Liabilities and Partners Capital

Liabilities
20,000.00
Loan Payable to B
20,000.00
A, Capital
40,000.00
B, Capital
5,000.00
Total
85,000.00
Non cash assets with a carrying amount of Br. 75,000.00 realized cash of Br. 35,000.00,
with the resultant loss absorbed by A and B.

The accountant exercises the right of offset by transferring Br. 15,000.00 from Bs loan
account to his capital account.

A & B Partnership
Statement of Realization and Liquidation
July 1-15, 1999
Assets
Cash Other
Liabilities
B Loan
Balances before liquid.
10,000
75,000
40,000
5,000
Realization at a loss of40,000 35,000
(75,000)
(20,000)
(20,000)
Balances
45,000
20,000
(15,000)
Payment to Creditors
(20,000)
Balance
25,000
20,000
(15,000)
Offset Bs loan
15,000
Balance
25,000
20,000
Payments to Partners
(25,000)
(20,000)

Partners Capital
A (50%)
B (50%)
20,000
20,000

20,000

20,000

(20,000)
20,000
(15,000)
5,000
(5,000)

From the above it is apparent that partners loan account has no special significance in the
liquidation process. Therefore, in succeeding illustrations, whenever a partners loan account is
involved its balance will be combined with the partners capital account balanc
Equity of One Partner Not Sufficient to Absorb Loss From Realization
Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)
4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Furra College

In this case, distribution of loss on realization of assets as per the income sharing ratio results in
debit balance in capital account of one of the partners. The partner must pay sufficient cash to the
partnership to eliminate any capital deficit. If the partner is unable to do so, the deficit must be
absorbed by the other partners as an additional loss in the same proportion as they have
previously shared net income or loss among themselves. To illustrate, assume the following
balance sheet for DEF Partnership just prior to liquidation:
D, E &F Partnership
Balance Sheet
May 20, 1999
Assets
Cash
Other assets
Total

20,000
80,000
100,000

Liabilities & Partners Capital

Liabilities
D, Capital
E, Capital
F, Capital
Total

30,000
40,000
21,000
9,000
100,000

The income sharing ratio is 20%, 40%, and 40% to D, E, and F respectively.

The other assets with carrying amount of Br. 80,000 realized Br. 50,000 cash.
D,E &F Partnership
Statement of Realization and Liquidation
May 21 to 31, 1999

Assets
Cash Other Liabilities
Balance before liquidation 20, 000
80,000 30,000
Realization
50,000 (80,000)
Balances
70,000
30,000
Payment to creditors
(30,000)
(30,000)
Balance
40,000
Cash from F
3,000
Balances
43,000
Payment to partners
(43,000)

D (20%)
40,000
( 6,000)
34,000

partners Capital
E(40%)
F(40%)
21,000
9,000
(12,000)
(12,000)
9,000
(3,000)

34,000

9,000

34,000
(34,000)

9,000
(9,000)

(3,000)
3,000
0
0

Change one condition of the following illustration by assuming that partner F was not able to pay
the 3,000 capital deficit to the partnership. If the cash available is to be distributed without delay,
the statement of realization and liquidation would appear as:
Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)
4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Furra College

D, E &F Partnership
Statement of Realization and Liquidation
May 21 to 31, 1999
Assets
Cash
Other
Balance before liquidation 20,000 80,000
Realization
50,000 (80,000)
Balances
70,000
Payment to creditors
(30,000)
Balance
40,000
Payment to partners
(40,000)
Balance

Liabilities
30,000

D (20%)
40,000
(6,000)
34,000

30,000
(30,000)

Partners Capital
E(40% )
F(40%
21,000
9,000
(12,000)
(12,000)
9,000
(3,000)

34,000
9,000
(33,000) (7,000)
1,000 2,000

(3,000)
0

(3,000)

The cash payments made to D and E leaves both with a sufficient capital account balance to
share their share of the additional loss if F is unable to pay the Br. 3,000 to the partnership.
If the Br. 3,000 is later collected from F, this amount will be divided Br. 1,000 to D and Br.
2,000 to E. However, if the 3,000 from F is uncollectible the statement of realization and
liquidation is completed with the write off of Fs capital deficit as additional loss to D and E.
Equities of Two Partners Are Not Sufficient to Absorb Their Shares of Loss From
Realization
One capital deficit, if uncollectible, may cause a second capital deficit that may or may not be
collectible. In other words, a partner may have sufficient credit balance in his capital and loan
accounts to cover losses from realization but may not have sufficient equity to absorb loss caused
by inability of the partnership to collect the deficit in another partners capital account.
Assume that J, K, L and M share net income and loss 10%, 20%, 30%, and 40% respectively.

J, K, L &M Partnership
Statement of Realization and Liquidation
August 1 to 15, 1999

M(40%)
Balance before liquidation
8,000
Realization
(32,000)

Assets
Cash

Other

20,000

200,000

120,000

(200,000)

Liab.
120,000

Partners Capital
J (10%)
K (20%) L(30%)
30,000

32,000

(8,000)

(16,000)

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

4

30,000
(24,000)

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Balances
(24,000)
Payment to creditors
Balance
(24,000)
Payment to partners
Balance
(24,000)

140,000

120,000

(120,000)
20,000

(120,000)

22,000

16,000

22,000

(20,000)

(16,000)
6,000

Furra College
6,000

16,000
(4,000)
12,000

6,000
6,000

J, K, L &M Partnership
Statement of Realization and Liquidation
August 1 to 15, 1999
Partners Capital

Balance before cash dist.

Additional loss to J, K, l, &M
(10: 20: 30)
Balance
Additional loss to J & K
Amount that may be paid to partners

J (10%)

K(20%)

L(30%)

M(40%)

22,000

16,000

6,000

(24,000)

(4,000)
18,000
(2,000)
16,000

( 8,000)
8,000
(4,000)
4,000

(12,000) 24,000
(6,000)
6,000

Partnership is Insolvent but Partners Are Solvent

A partnership is insolvent means it is unable to pay all outside creditors. In such cases, the total
of the capital account debit balances exceeds the total of the credit balances. If the
partner\partners with deficit pay the required cash, the partnership will be able to pay its
liabilities. However, the partnership creditors may demand payment from any solvent partner
whose actions caused the partnerships insolvency, regardless of whether the partners capital
account has a debit or a credit balance.
Any partner who makes payments to partnership creditors receives credit to his or her capital
account.

N, O, & P partnership is liquidated on May 10,1999

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Furra College

Other assets with Br. 85,000 carrying amount realize Br. 40,000 cash

Total cash available of Br. 55,000 is paid to creditors leaving unpaid balance of Br.
10,000
N, O & P LLP
Statement of Realization and Liquidation
May 11 to 31, 1999

Assets
Cash
Other
Balance before liquidation 15,000 85,000
Realization
40,000 (85,000)
Balances
55,000
Partial Pmt to creditors
(55,000)
Balance
0
Cash by O & P
13,000
Balance
13,000
Final Pmt to creditors
(10,000)
Balance
3,000
Payment to N
(3,000)

Liabilities
65,000
65,000
(55,000)
10,000
10,000
(10,000)

Partners Capital
N (1/3) O(1/3)
18,000 10,000
(15,000) (15,000)
3,000
(5,000)
3,000

(5,000)
5,000

P(1/3)
7,000
(15,000)
(8,000)
(8,000)
8,000

3,000
3,000
(3,000)

General Partnership is Insolvent and Partners Are Insolvent

In an insolvent general partnership with one or more insolvent partners, the relative right of
the following groups would be:

Assets of the general partnership are first available to partnership creditors

Assets of the partners are first available to their creditors

o After full payment to the partners creditors assets of the partner are available
to partnership creditors whether that partners capital account has a debit or a
credit balance

To illustrate, R, S & T Partnership is a general partnership whose partners share net income or
loss equally. On 30 Nov. the partners have the following assets and liabilities other than their
equities in the partnership.
Partner
R

Personal
Assets
100,000

Personal
Liabilities
25,000

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

S
T

50,000
5,000

Furra College

50,000
60,000

Realization of other assets results in Br. 60,000 loss

R, S & T PARTNERSHIP
Statement of Realization and Liquidation
December 1 to 12, 1999
Assets
Partners Capital
Cash
Other Liabilities
R (1/3) S (1/3)
Balance before liquidation 10,000
100,000 60,000
5,000
15,000
Realization
40,000
(100,000)
(20,000) (20,000
Balances
50,000
60,000
(15,000) (5,000)
Partial Pmt to creditors
(50,000)
(50,000)
Balance
0
10,000
(15,000) (5,000)
Pmt to PP creditors by R
(10,000)
10,000
Balance
Cash by R
Balances
Payment to T
Balance
Write-off of Ss Deficit
Balances
Cash by R
Balances
Payment to T

0
5,000
5,000

(5,000)
5,000

(5,000)

10,000

10,000
(5,000)

(5,000)

2,500
2,500
(2,500)

T (1/3)
30,000
(20,000)
10,000

(5,000)
(2,500)
5,000
(2,500)
2,500

10,000

(5,000)
5,000
(2,500)
2,500
2,500
(2,500)

Installment Payment to Partners

Occurs when realization of non cash assets takes longer periods and the partners want to receive
cash as it becomes available rather than waiting until all non cash assets are realized.

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Furra College

Liquidation in installment is, therefore, a process of realizing some assets, paying creditors,
paying the remaining available cash to partners, realizing additional assets, and making
additional cash payment to partners until all non cash assets are realized and all cash distributed.

General Principles Guiding Installment Payments

The only safe policy for determining cash payments to partners is assuming the worst case
scenario:

Assume a total loss on all remaining non cash assets, and provide for all possible losses,
including potential liquidation costs and unrecorded liabilities

Any partner with a potential capital deficit will be unable to pay anything;

Thus, distribute each installment of cash as if no more cash will be forthcoming.

To illustrate, assume that the partners of UVW Partnership who share net income or loss in a
4:3:2 ratio decide to liquidate the partnership and distribute cash in installments. The balance
sheet just prior to liquidation on July 5, 1999 is as follows:
UVW Partnership
Balance Sheet
July 5, 1999
Assets
Cash
Other Assets
Total

Liabilities & Partners Capital

8,000
Liabilities
192,000
U, Capital
V, Capital
W, Capital
200,000
Total

61,000
40,000
45,000
54,000
200,000

UVW Partnership
Realization of Other Assets
July 6 to September 30, 1999

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

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Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Date

Book Value

Proceed

Loss

July 31
August 31
September 30

62,000
66,000
64,000

48,500
30,000
32,500

13,500
30,000
31,500

Total

192,000

111,000

81,000

Furra College

Cash distribution is to be made monthly

UVW PARTNERSHIP
Statement of Realization and Liquidation
July 6 to September 30, 1999
Assets
Cash Other Liabilities
8,000 192,000 61,000
48,500 (62,000)
56,500 130,000 61,000
(56,500)
(56,500)
130,000 4,500
30,000 (66,000)
30,000 64,000 4,500
(4,500)
(4,500)
25,500 64,000
(25,500)
64,000
32,500 (64,000)
32,500
(32,500)

Balance before liquidation

Realization July, 31
Balances
Partial Payment to Creditors
Balances
Realization August, 31
Balances
Final Pmt to Creditors
Balances
Pay to Partners (Sch.2)
Balances
Realization
Balances
Final pmt to Partners

Partners Capital
U (4)
V (3)
40,000
45,000
(6,000)
(4,500)
34,000
40,500

W (2)
54,000
(3,000)
51,000

34,000
(16,000)
18,000

51,000
(8,000)
43,000

18,000

28,500
(900)
18,000
27,600
(14,000)
(10,500)
4,000
17,100
(4,000) (17,100)

UVW PARTNERSHIP
Schedule of Safe Payment to Partners
U (4)
V (3)
Schedule 1: July 31
Balance before cash distribution

34,000

40,500
(12,000)
28,500

43,000
(24,600)
18,400
(7,000)
11,400
(11,400)

W (2)

40,500

51,000

28,500
(21,333)
7,167
(6,267)
900

43,000
(14,222)
28,778
(4,178)
24,600

No cash distribution to partners

as creditors are not fully paid yet
Schedule 2: August 31
Balance before cash distribution 18,000
Full loss of Br. 64, 000 assets
(28,445)
Balances
(10,445)
Full absorption of Us deficit (3:2) 10,445
Balances to be distributed

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

4

Chapter Two: Accounting for Dissolution and Liquidation of Partnership

Furra College

Compiled By Tekalign Negash (Lecturer and M.Sc in Accounting and Finance)

4