Liquidation of the Partnership Chapter 13 Liquidation of the Partnership

LIQUIDATION OF A PARTNERSHIP The liquidation of a partnership terminates the business. To liquidate a partnership, follow these steps: 1. Sell noncash assets for cash and recognize any gain or loss on realization. 2. Allocate any gain or loss on realization to the partners based on their income ratios. 3. Pay partnership liabilities in cash. 4. Distribute remaining cash to partners based on their capital balances. 32

LIQUIDATION OF PARTNERSHIP No capital deficiency Capital deficiency Partner with deficiency pays partnership Partners with credit capital balances absorb deficiency in income sharing proportion

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Capital Deficiency Example Cash: $5,000 A/R: $15,000 Inventory: $18,000 Equipment: $35,000 A/C Equipment: $8,000 Notes Payable: $15,000 A/P: $16,000 R. Aube, Capital: $15,000 P.Chordia, Capital : $17,800 W. Elliot, Capital: $1,200 The assets of Aube, Chordia and Elliot will be sold for $42,000

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