1. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Partnerships: Liquidation Baker / Lembke / King 1616

2. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 2  A new partner is admitted or a partner withdraws.  The specified term or task of the partnership has been completed.  All partners agree to dissolve the partnership.  The partnership or an an individual partner is bankrupt.  By court degree:  A partner is declared insane.  A partner seriously breaches the partnership agreement.  The court determines that a partnership may be operated only at a loss.  A new partner is admitted or a partner withdraws.  The specified term or task of the partnership has been completed.  All partners agree to dissolve the partnership.  The partnership or an an individual partner is bankrupt.  By court degree:  A partner is declared insane.  A partner seriously breaches the partnership agreement.  The court determines that a partnership may be operated only at a loss. Major Causes of a Dissolution

3. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 3 A court so decrees. The partnership is bankrupt. The partnership’s business becomes illegal. Partnership Terminates Immediately if--

4. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 4  Partnership creditors other than partners.  Partners’ claims other than capital and profits, such as loans payable and accrued interest payable.  Partners’ claims to capital or profits, to the extent of credit balances in capital accounts. Claims Against the Partnership Assets

5. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 5  Personal creditors of individual partners.  For general partners, partnership creditors for unpaid partnership liabilities, regardless of partner’s capital balance in the partnership. Claims Against Personal Assets

6. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 6 Basic Facts at Liquidation Partners Aldi Bayu Citra Profit and loss percentage40%40%20% Partnership capital accountRp34,000,000Rp10,000,000Rp14,000,000 Aldi Bayu Citra Personal assetsRp150,000,000 Rp12,000,000 Rp42,000,000 Personal liabilities(86,000,000)(16,000,000)(14,000,000) Net worth (deficit)Rp 64,000,000 Rp (4,000,000)Rp28,000,000

7. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 7 Trial Balance on Liquidation Date ABC Partnership Trial Balance May 1, 19X5 CashRp 10,000,000 Noncash Assets90,000,000 LiabilitiesRp 42,000,000 Aldi, Capital (40%)34,000,000 Bayu, Capital (40%)10,000,000 Citra, Capital (20%) 14,000,000 TotalRp100,000,000Rp100,000,000

8. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 8 Partnership Solvent--No Deficits ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000’000) Preliquidation balances10 90 (42)(34)(10)(14) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%. Sale of assets and distri- bution of Rp10 loss80 (90) 4 4 2 90 -0-(42)(30)(6)(12) Lump-sum payments to partners: Partners’ capital(48)30 6 12 Postliquidation balance-0--0--0--0--0--0- Payment to o/s creditors(42) 42 48 -0--0-(30)(6)(12)

9. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 9 Partnership Solvent--No Deficits May 15, 19X5 Cash80,000,000 Aldi, Capital4,000,000 Bayu, Capital4,000,000 Citra, Capital2,000,000 Noncash Assets90,000,000 May 20, 19X5 Liabilities40,000,000 Cash40,000,000 May 30, 19X5 Aldi, Capital30,000,000 Bayu, Capital6,000,000 Citra, Capital12,000,000 Cash48,000,000 Distribution of Rp10,000,000 loss Pay outside creditors Lump-sum payments to partners

10. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 10 Partnership Solvent--Deficit Created ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Preliquidation balances10 90 (42)(34)(10)(14) Sale of assets and distri- bution of Rp55 loss35 (90) 22 22 11 45 -0-(42) (12)12 (3) Payment to o/s creditors(42)42 3 -0--0-(12)12 (3) Distribution of deficit of insolvent partner:(12) 40/60 x Rp128 20/60 x Rp12 4 (to next slide)3 -0--0-(4)-0- 1 Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%.

11. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 11 Partnership Solvent--Deficit Created ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) (from previous slide)3 -0- -0- (4)-0- 1 Contribution by Citra to remedy capital deficit1 (1) 2 -0--0- (4) -0- -0- Lump-sum payments to partners: Partner’s capital(4)4 Postliquidation balance-0--0- -0--0--0- -0- Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%.

12. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 12 Partnership Insolvent--Deficit Created ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Preliquidation balances10 90 (42)(34)(10)(14) Sale of assets and distri- bution of Rp70 loss20 (90) 28 28 14 30 -0- (42)(6)18 -0- (to next slide) Distribution of deficit of insolvent partner:(18) 40/60 x Rp1812 20/60 x Rp18 6 30 -0- (42)6 -0-6 Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%.

13. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 13 Partnership Insolvent--Deficit Created ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) (from previous slide)30 -0-(42)6 -0- 6 Contribution by Citra12 (6)(6) 42 -0-(42)-0--0- -0- Payment to outside creditors(42)-0-42 -0--0- -0- Postliquidation balances-0- -0--0- -0- -0- -0- Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%.

14. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 14 Installment Liquidation--May 19X5 ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Preliquidation balances10 90 (42) (34)(10)(14) Sale of assets and distri- bution of Rp10 loss45 (55) 4 4 2 55 35 (42) (30)(6)(12) Payment to o/s creditors(42)42 13 35 -0- (30)(6)(12) Safe payment to partners Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%.

15. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 15 Schedule of Safe Payments to Partners ABC Partnership Schedule of Safe Payments to Partners, May 31, 19X5 Capital balances, May 31,before cash distr.(30,000,000)(6,000,000)(12,000,000) Assume full loss of Rp35,000,000 on remaining noncash assets and Rp10,000,000 in possible future liquidation expenses18,000,000 18,000,000 9,000,000 (12,000,000)12,000,000 (3,000,000) Assume Bayu’s potential deficit must be absorbed by Aldi and Citra:(12,000,000) 40/60 x Rp12,000,0008,000,000 20/60 x Rp12,000,0004,000,000 (4,000,000)-0- 1,000,000 Assume Citra’s potential deficit must be absorbed by Aldi1,000,000(1,000,000) Safe payment to partners, May 31(3,000,000)-0--0- Partner Aldi. Bayu Citra 40% 40% 20%

16. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 16 Installment Liquidation--May 19X5 ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Preliquidation balances10 90 (42) (34)(10)(14) Sale of assets and distri- bution of Rp10 loss45 (55) 4 4 2 55 35 (40) (30)(6)(12) Payment to o/s creditors(42)42 13 35 -0- (30)(6)(12) Safe payment to partners(3) 3 (to next slide)10 35 -0-(27)(6)(12) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%.

17. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 17 Installment Liquidation--June 19X5 ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) (from previous slide)10 35 -0-(27)(6)(12) Sale of assets and dis- tribution of Rp15 loss15 (30)6 6 3 25 5 -0- (21)-0-(9) Safe payment to partners Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%.

18. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 18 Schedule of Safe Payments to Partners ABC Partnership Schedule of Safe Payments to Partners, June 30, 19X5 Capital and loan balances, June 30(21,000,000)-0-(9,000,000) Assume full loss of Rp5,000,000 on remaining noncash assets and Rp10,000,000 in possible future liquidation expenses 6,000,000 6,000,000 3,000,000 (15,000,000)6,000,000 (6,000,000) Assume Bayu’s potential deficit must be absorbed by Aldi and Citra:(6,000,000) 40/60 x Rp6,000,0004,000,000 20/60 x Rp6,000,0002,000,000 Safe payment to partners, June 30(11,000,000)-0- (4,000,000) Partner Aldi. Bayu Citra 40% 40% 20%

19. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 19 Installment Liquidation--June 19X5 ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) (from Slide 17)10 35 -0- (27)(6)(12) Sale of assets and dis- tribution of Rp15 loss15 (30)6 6 3 25 5 -0- (21)-0-(9) Safe payment to partners(15)11 4 (to next slide)10 5 -0-(10)-0-(5) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%.

20. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 20 Installment Liquidation--July 19X5 ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) (from previous slide)10.0 5 -0-(10)-0-(5.0) Payment of Rp7,5 in liquidation cost(7.5) 3 3 1.5 7.5 -0--0-(7)3 (3.5) Distribution of deficit of insolvent partner:(3) 40/60 x Rp32 20/60 x Rp3 1 7.5 -0--0-(5)-0-(2.5) Payment to partners(7.5)5 2.5 Sale of assets at book value 5.0 (5) 15.0 -0--0-(10)-0-(5.0) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%.

21. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 21 Cash Distribution Plan (in Rp000) Aldi Bayu Citra Profit and loss sharing percentage40% 40% 20% Capital and loan balances(34,000,000)(10,000,000)(14,000,000) Loss absorption power (LAP) [(Capital + loan balances)  Profit %](85,000,000)(25,000,000)(70,000,000) Decrease highest LAP to next-highest: Decrease Aldi by Rp15,000,000 (cash distribution of Rp6,000,000) 15,000,000 (70,000,000)(25,000,000)(70,000,000) Decrease LAP to next-highest level: Decrease Aldi by Rp45,000,000,45,000,000 (cash distribution of Rp22,000,000) Decrease Citra by Rp45,000,000 45,000,000 (cash distribution of Rp11,000,000) (25,000,000)(25,000,000)(25,000,000) Further payments40% 40% 20%

22. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 22The End EndThe Citrapter Seventeen