activities characterized by sale of non-cash assets, settlement of all liabilities and distribution of remaining cash to partners. Realization conversion of non-cash assets into cash Capital Deficiency the excess of a partners share in losses over the partners capital credit balance. Partners interest the sum of the partners capital and loan account. Assets of Partnership
Assets of the partnership, in relation to
liquidation process include the following: Partnership properties Additional contributions of the partners needed for the payment of all liabilities Order of Preference as to Distribution of Partnership Asset 1. Those owing to outside creditors 2. Those owing to inside creditors in the form of loans or advances for business expenses by the partners. 3. Those owing to the partners with respect to their capital contributions 4. Those owing to the partners with respect to their share of the profits. Right of offset
The legal right of a partner to apply part or
all of his loan account balance against his capital deficiency resulting from losses in the realization of the partnership assets. Distribution of Separate Properties of an insolvent partner The following distributions are to be made, in order of priority: 1.Those owing to separate creditors. 2.Those owing to partnership creditors. 3.Those owing to partners by way of additional contributions when the assets of the partnership were insufficient to settle all obligations. Methods of Partnership Liquidation 1. Lump-sum method All non-cash assets are realized and the related gains or losses distributed and all liabilities are paid before a single final cash distribution is made to partners. 2. Installment Method Realization of non-cash assets is accomplished over an extended period of time. When cash is available, creditors may be partially or fully paid. Any excess may be paid to the partners in accordance with the program of safe payments or cash priority program. Lump-sum Liquidation
1. Realization of non-cash assets with gain/loss
2. Payment of liabilities 3. Elimination of partners capital deficiencies in the following order: a. Exercise right of offset b. Investment of additional cash if the partner is solvent c. Absorption of deficiency by other partners if the deficient partner is insolvent, 4. Payment to partners in the following order: a. Loan accounts b. Capital accounts