1. The Liquidation of the partnership

2. What is the meaning of Liquidation ?
The liquidation means winding up partnership’s activities- Why?? The partnership may be liquidated for one of the Following reasons: 1) Partners agree to terminate the business. 2) Liquidation by a court order: the co. is bankrupted (can’t pay the liabilities). 3) Finishing (achieving) the purpose of the Co. Regardless of the reason of liquidation, the process of the liquidation starts by appointing a Liquidator, who has the responsibility of: - selling assets , - paying the liabilities and - paying the rights of the partners ( their loans and capital balances).

3. What are the steps of liquidation process??
The steps of the liquidation are:
1) Selling non-cash assets :
The result of selling assets may be gain or loss, that should be allocated to the partners' capital according to the profit and loss ratio.
2)Paying the liabilities :
The liquidator pays the liabilities outside creditors in the following order:
A) Preferred Liabilities:
They include the following( according to Egyptian law) :
1- The Liquidation expenses and fees.
2-Taxes and duties due to the government.
3- Unpaid salaries with maximum 6 months :
If the unpaid salaries exceed 6 months (8 months for example), So, 6 months only should be paid as preferred liabilities and the excess over 6 months, should be considered as ordinary liability and to be paid later with the other ordinary liabilities.
4- Unpaid rent expense with maximum amount of 2 years:
Any unpaid rent over 2 years should be considered as ordinary liability.

4. 3) Paying the partners’ rights: a- The partners’ loans.
B)The ordinary liabilities:
Such as AP, NP, Creditors, accrued salaries exceeds 6 months and accrued rent exceeds 2 years etc….
3) Paying the partners’ rights:
They include:
a- The partners’ loans.
b- The partners’ capital.
To implement the liquidation process ,the liquidator should prepare ‘The Statement of liquidation’ How???

5. Example 1
A, B and Care 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:

6. If you know that:
1- the selling price for other non-cash assets and the collected amount from AR were 142,000.
2-The liquidation expenses and liquidator fees are
Required:
Prepare the liquidation statement.

7. To prepare the liquidation statement we have to calculate the following: 1) Cash : = ) Non-cash assets: = The assets except cash. =( AR Inventory Cars Buildings) = ) Liabilities: = (25000 AP NP = ) The partners’ loans: Ahmed’s loan = )The partners’ capital: A , B and C Then we prepare the statement as follows:

8. C's capital 2 B 's capital 3 A 's capital 5 A’s Loan Liabilities
Non-cash assets
Cash
Title
26,000
2,000
42,000
3,000
25,000
5,000
6000
41000
132,000 (132,000)
8, ,000
Balances before liquidation
1) Selling of assets
280000
(4000)
45000
(6000)
30000
(10000)
150000
(20000)
Balances
2) Paying the Liquid. fees
24000
39000
20000
(41000) -
130000
3) Paying liabilities
89000
4 ) Paying the loan of A
(24000)
(39000)
------
83000
(83000)
4 ) Paying the P’ capital

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

10. (1) Selling Non-cash assets:
by selling
price
- Non-cash assets
(closed)
by B.V
The difference is
gain
10000 ( we increase the capital balances by the ratio 5:3:2)
+ Capital A
(10000 x 5/10) =
5000
Capital B+
(10000 x 3/10) =
3000
+ Capital C
(10000 x2/10(
2000

11. (2) Paying the liquidation fees :
- Cash
- The capital balances
by ratio 5:3:2
- Capital A
20000 x (5/10) = 10000
Capital B -
20000 x (3/10) =
6000
- Capital C
20000 x (2/10)=
4000

12. (3) Paying Liabilities:
- Cash
by the paid amount
41000
- Liabilities
(closed)
by 41000

13. (4) Paying the loan of the partner:
- Cash
by the paid amount
6000
- Partner’s loan
(closed)
by 6000

14. (5) Paying the capital balances of partners:
- Cash
by the balance
83000
We decrease the capital balances by the balance of each partner
- Capital A
20000
- Capital B
39000
- Capital C
24000