1. The Liquidation of the partnership)2)

2. Example 2 A, B and C are partners in a general partnership. They share net income on a ratio of 5:3:2. They agree to liquidate the business. The balance sheet at the date of liquidation is as follows:

3. If you know that: 1- the selling price for other non-cash assets and the collected amount from AR were 350,000. 2-The liquidation expenses and liquidator fees are 10000. Required: Prepare the liquidation statement.

4. To prepare the liquidation statement we have to calculate the following: 1) Cash : = 100000 2) Non-cash assets: = The assets except cash. =( 40000 AR +110000 Inventory + 130000 Cars +120000 Buildings) = 400000 3) Liabilities: = (35000 AP + 165000 NP = 200000 4)The partners’ capital: A 150000, B 40000 and C 110000. Then we prepare the statement as follows:

5. C's capital C's capital 2 B 's capital B 's capital3 A 's capital A 's capital5 Liabiliti es Non-cash assets Cash Title Title 110000(10,000)40,000(15000) 150000 150000 ( 25000) ( 25000)200000 400,000 (400,000) 400,000 (400,000) 100,000 100,000350,000 Bal.abefore liquidation 1) Selling of assets 100000 (2000) (2000)25000 (3000) (3000)125000 (5000) (5000)200000----------450000(10000)Balances 2) Paying the Liquid. fees 98000 9800022000120000 200000 200000(200000)-440000(200000)Balances 3) Paying liabilities 98000(98000)22000(22000)120000(120000)--------240000(240000)Balances 4 ) Paying the P’ capital ------------------------------------ ---------- --------

6. How do you prepare the liquidation statement ?? How do you prepare the liquidation statement ?? We apply the following steps to prepare the statement:

7. (1) Selling Non-cash assets: + Cash by selling price 350000 - Non-cash assets (closed) by B.V. 400000 The difference is loss 50000 ( we decrease the capital balances by the ratio 5:3:2) - Capital A (50000 x 5/10) = 25000 - Capital B (50000 x 3/10) = 15000 - Capital C (50000 x2/10( = 10000

8. (2) Paying the liquidation fees : - Cash 10000 - The capital balances by ratio 5:3:2 - Capital A 10000 x (5/10) = 5000 Capital B - 10000 x (3/10) = 3000 - Capital C 10000 x (2/10)= 2000

9. (3) Paying Liabilities: - Cash by the paid amount 200000 - Liabilities by 200000

10. (4) Paying the capital balances of partners : - Cash by the balance 240000 We decrease the capital balances by the balance of each partner - Capital A 120000 - Capital B 22000 - Capital C 98000

11. Example 3 The same facts in ex. 2 but : 1) The selling price of non- cash assets is 160000. 2) The partner B is solvent. Required: Prepare the liquidation statement.

12. C's capital C's capital 2 B 's capital B 's capital3 A 's capital A 's capital5 Liabilitie s Non-cash assets Cash Title Title 110000(48,000)40,000(72000) 150000 150000 ( 120000) ( 120000)200000 400,000 (400,000) 400,000 (400,000) 100,000 100,000160,000 Bal. before liquidation 1) Selling of assets 62000 62000 (2000) (2000)(32000) (3000) (3000) 30000 30000 (5000) (5000)200000----------260000(10000)Balances 2) Paying the Liquid. fees 60000 60000(35000) 35000 35000 25000 25000 200000 200000-250000 35000 35000Balances 3) Collecting the P. B ‘s Capital 60000 60000---------- 25000 25000 200000 200000(200000)-285000(200000)Balances 4) Paying liabilities 60000(60000) -------- -------- 25000 25000(25000)-------- 85000 85000(85000)Balances 5) Paying the P’ capital ------------------------------------ ---------- --------

13. (1) Selling Non-cash assets: + Cash by selling price 160000 - Non-cash assets (closed) by B.V. 400000 The difference is loss 240000 ( we decrease the capital balances by the ratio 5:3:2) - Capital A (240000 x 5/10) = 120000 - Capital B (240000 x 3/10) = 72000 - Capital C (50000 x2/10( = 48000

14. (2) Paying the liquidation fees : - Cash 10000 - The capital balances by ratio 5:3:2 - Capital A 10000 x (5/10) = 5000 Capital B - 10000 x (3/10) = 3000 - Capital C 10000 x (2/10)= 2000

15. (3) The treatment of the negative balance (deficit) of P. (B): If the general partner has a negative capital,he has to pay his negative balance but we have 2 cases as follows : If the general partner has a negative capital,he has to pay his negative balance but we have 2 cases as follows : The partner is insolvent It means that he has not personal money ( his personal assets than his personal liabilities). It means that he has not personal money ( his personal assets less than his personal liabilities). So, he can't pay to cover his negative capital Here his negative capital balance should be allocated to the capital of the other partners (by their P&L ratio). So, we increase capital of and increase capital of insolvent partner and decrease the capital of other partners. decrease the capital of other partners. The partner is solvent The partner is solvent It means that he has personal money It means that he has personal money (his personal assets more than his personal liabilities) So, he has to pay cash to the co. from his personal money to cover his negative Capital. So, he has to pay cash to the co. from his personal money to cover his negative Capital. So, we increase cash and So, we increase cash and increase his capital increase his capital

16. (3) Colleting the negative bal. of solvent partner: + Cash by the collected amount 35000 + Capital ‘s B (closed) by 35000

17. (4) Paying Liabilities : - Cash by the paid amount 200000 - Liabilities by 200000

18. (5) Paying the capital balances of partners: - Cash by the balance 85000 We decrease the capital balances by the balance of each partner - Capital A 25000 - Capital C 60000

19. Example 4 The same facts in ex. 3 but : The partner B is insolvent. Required: Prepare the liquidation statement.

20. C's capital C's capital 2 B 's capital B 's capital3 A 's capital A 's capital5Liabilities Non-cash assets Cash Title Title 110000(48,000)40,000(72000) 150000 150000 ( 120000) ( 120000)200000 400,000 (400,000) 400,000 (400,000) 100,000 100,000160,000 Bal. before liquidation 1) Selling of assets 62000 62000 (2000) (2000)(32000) (3000) (3000) 30000 30000 (5000) (5000)200000----------260000(10000)Balances 2) Paying the Liquid. fees 60000 60000(10000)(35000) 35000 35000 25000 25000 (25000) (25000) 200000 200000-250000 Balances 3) Allocating the P. B ‘s Capital on P(A) and (C). 50000 50000---------- ---------- ---------- 200000 200000(200000)- 250000 250000(200000)Balances 4) Paying liabilities 50000(50000) -------- --------------------------- 50000 50000(50000)Balances 5) Paying the P ( C)’s capital ------------------------------------ ---------- --------

21. (3) Allocating the capital balance of partner (B) on partners(A) and (C): + Capital B by the balance 35000 We decrease the capital balances of partners(A) and (C) by the ratio of them - Capital A 35000x (5/7) = 25000 - Capital C 35000x (2/7) = 10000

22. (4) Paying Liabilities : - Cash by the paid amount 200000 - Liabilities by 200000

23. (5) Paying the capital balances of partners : - Cash by the balance 50000 We decrease the capital balance of (C) only - Capital C 50000

24. Example 5 The following are the balances after selling non-cash assets and paying liquidation fees and liabilities: Cash 50000 Capital (A) : 100000 Capital (B) : (26000) Capital (C) : (24000) If you know that: The partners are solvent. Required: Complete the liquidation statement.

25. C's capital C's capital 2 B 's capital B 's capital3 A 's capital A 's capital5Liabilities Non-cash assets Cash Title Title (24,000) 24000 24000(26000) 26000 26000 100000 100000 50,000 50,000 50000 50000Balances 1) Collecting the negative Capital of P(B) and (C). ---------- -------- --------100000(100000)-------- 100000 100000(100000)Balances 2) Paying the P ( A)’ s capital ------------------------------------ ---------- --------

26. Example 6 The following are the balances after selling non-cash assets and paying liquidation fees and liabilities: Cash 50000 Capital (A) : 100000 Capital (B) : (26000) Capital (C) : (24000) If you know that: The partners are insolvent. Required: Complete the liquidation statement.

27. C's capital C's capital 2 B 's capital B 's capital3 A 's capital A 's capital5Liabilities Non-cash assets Cash Title Title (24,000) 24000 24000(26000) 26000 26000 100000 100000 (50000) (50000) 50,000 50,000 Balances 1)Deducting the negative Capital of P(B) and (C) from P. (A). ---------- -------- -------- 50000 50000 (50000) (50000)-------- 50000 50000(50000)Balances 2) Paying the P ( A)’s capital ------------------------------------ ---------- --------

28. Example 7 The following are the balances after selling non-cash assets and paying liquidation fees and liabilities: Cash 50000 Capital (A) : 100000 Capital (B) : (26000) Capital (C) : (24000) If you know that: The partner (B) is solvent and the partner (C) is insolvent. Required: Complete the liquidation statement.

29. C's capital C's capital 2 B 's capital B 's capital3 A 's capital A 's capital5Liabilities Non-cash assets Cash Title Title (24,000) 24000 24000(26000) ( 9000) ( 9000) 100000 100000 (15000) (15000) 50,000 50,000 Balances 1)Allocating the negative Capital of insolvent(C) on P. (A) and (B). ---------- (35000) (35000) 35000 35000 85000 85000 -------- 50000 50000 35000 35000Balances 2) Collecting the P ( B)’s negative capital ---------- --------- --------- 85000 85000 (85000) (85000)-------- 85000 85000(85000)Balances 2) Paying the P ( A)’s capital ------------------------------------ ---------- --------

30. What is the treatment if we have 2 partners one of them solvent and the second is insolvent?? Firstly, we allocate the balance of insolvent partner on other partners and then collect the balance of solvent partner as follows: 1) Allocating the balance of insolvent partner (C) : (A) (B) Total 5 3 8 The share of P. (A) = 24000 X (5/8) =15000 The share of P. (B) = 24000 X (3/8) =9000 So, we increase capital of (C) decrease capital of (A) and (B). 2) Collecting the balance of solvent partner (B): increase cash increase capital of (B).