Scribd Logo
Upload

Welcome to Scribd!

  • 48 views

    AFAR LumpSum Liquidation

    Uploaded by

    Cleofe Mae Piñero Aseñas
    The document discusses the procedures for winding up and liquidating a partnership. It explains that winding up begins after dissolution and involves collecting assets, converting them to cash, paying obligations, and distributing the net balance to partners. During liquidation, assets are converted to cash and claims are paid off. The key steps are to adjust capital accounts based on profit/loss ratios, absorb any capital deficits, offset partner loans, treat liquidation costs as reductions to asset proceeds, and distribute any remaining cash first to loan accounts and then capital accounts. The document contrasts lump-sum liquidation, where no distributions are made until realization is complete, with installment liquidation where distributions are made as cash becomes available.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    AFAR LumpSum Liquidation

    Uploaded by

    Cleofe Mae Piñero Aseñas
    48 views1 page
    The document discusses the procedures for winding up and liquidating a partnership. It explains that winding up begins after dissolution and involves collecting assets, converting them to cash, paying obligations, and distributing the net balance to partners. During liquidation, assets are converted to cash and claims are paid off. The key steps are to adjust capital accounts based on profit/loss ratios, absorb any capital deficits, offset partner loans, treat liquidation costs as reductions to asset proceeds, and distribute any remaining cash first to loan accounts and then capital accounts. The document contrasts lump-sum liquidation, where no distributions are made until realization is complete, with installment liquidation where distributions are made as cash becomes available.

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses the procedures for winding up and liquidating a partnership. It explains that winding up begins after dissolution and involves collecting assets, converting them to cash, paying obligations, and distributing the net balance to partners. During liquidation, assets are converted to cash and claims are paid off. The key steps are to adjust capital accounts based on profit/loss ratios, absorb any capital deficits, offset partner loans, treat liquidation costs as reductions to asset proceeds, and distribute any remaining cash first to loan accounts and then capital accounts. The document contrasts lump-sum liquidation, where no distributions are made until realization is complete, with installment liquidation where distributions are made as cash becomes available.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    48 views1 page

    AFAR LumpSum Liquidation

    Uploaded by

    Cleofe Mae Piñero Aseñas
    The document discusses the procedures for winding up and liquidating a partnership. It explains that winding up begins after dissolution and involves collecting assets, converting them to cash, paying obligations, and distributing the net balance to partners. During liquidation, assets are converted to cash and claims are paid off. The key steps are to adjust capital accounts based on profit/loss ratios, absorb any capital deficits, offset partner loans, treat liquidation costs as reductions to asset proceeds, and distribute any remaining cash first to loan accounts and then capital accounts. The document contrasts lump-sum liquidation, where no distributions are made until realization is complete, with installment liquidation where distributions are made as cash becomes available.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    Chapter 20: Lump-Sum Liquidation

     Winding up begins after dissolution and ends with the termination of partnership activities. It includes
    transactions such as the collection of receivables, conversion of noncash assets to cash, payment of
    partnership obligations, and the distribution of the remaining net balance to partners.
     Realization is the conversion of assets into cash.
     Liquidation is the payment of claims.

    Basic Procedures in Liquidation


    A. Procedures for Minimizing Inequities among Partners
    1. When a partnership is liquidated, the books should be adjusted and has closed the net profit or loss for the
    period in the manner they have agreed to in the partnership agreement. Following the P/L ratio is the most
    equitable because of the following reasons:
    a. The cumulative profit and loss of a partnership during its existence is the difference between total
    capital contribution and total capital withdrawals.
    b. Certain gains and losses during the liquidation process actually may have occurred during normal
    operating periods.
    2. The partners who do not have deficit capital balances must absorb the deficit balance of the partner who
    does. They are to absorb losses larger than their agreed upon P/L ratio.
    3. When a partnership has a loan outstanding (receivable) to a partner, the partnership receivable should be
    subtracted, or set off, from the partner’s capital account.
    4. The legal doctrine of set-off states that a deficit balance in a partner’s capital account may be set off
    against any balance existing in his loan account.
    o The order of priority as to payment of loans is as follows:
    a. Amount owed to creditors other than partners
    b. Amount owed to partners other than for capital and profits
    c. Amount owed to partners as capital
    d. Amount owed to partners as profit not currently closed to partner’s capital account
    5. Certain costs incurred during the liquidation process should be treated as a reduction of the proceeds from
    sale of noncash assets.
    6. The doctrine on marshaling of assets must be applied when the partnership and/or one or more partners
    are insolvent.
    7. When noncash assets are to be distributed to the partners, the carrying value of the assets must first be
    adjusted to their fair value with the adjustment allocated to all the partners in accordance with the
    partnership agreement. The fair value of the distributed asset is then charged against the proper capital
    account.

    Types of Liquidation
    A. Installment Liquidation- distributions are made to some or all the partners as cash becomes available
    B. Lump Sum Liquidation- no distributions are made to the partners until the realization process is completed
    when the full amount of the realization gain/loss is known; is rare or nonexistent in practice

    This procedure may be followed during liquidation:


    1. Realization and distribution of gain or loss to all partners based on their P/L ratio
    2. Payment of liquidation expenses
    3. Payment of liabilities to third parties
    4. Elimination of capital deficiencies
    a. If the deficient partner has a loan balance, exercise the right of offset
    b. If the deficient partner is solvent, then additional investment is necessary
    c. If the deficient partner is insolvent, the remaining partners will absorb the capital deficiency.
    5. Payment to partners
    a. Loan accounts
    b. Capital accounts

    You might also like

    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy