ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#6 & 7
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
Lesson Title: Partnership Liquidation Materials:
Columnar notebook; calculator;
Learning Targets: textbook
At the end of the learning session: References:
1. I can state the order of priorities in cases of liquidation. Millan, Zeus Vernon B.; Accounting for
Special Transactions; 2018 Edition
2. I can account for the liquidation of a partnership.
Ballada, Winlu; Partnership and
3. I can prepare statement of partnership liquidation. Corporation Acctg
4. I can differentiate between safe payment schedule and cash Dayag, Antonio J.; Advanced Financial
priority program. Accounting, Vo. 1; 2017 Edition
1.
Productivity Tip:
Keep track of each topic covered and prepare specific questions if needed. You may want to ask your
teacher to clarify any unclear points during live sessions or in discussion forums.
A. LESSON PREVIEW/REVIEW
1) Introduction (2 mins)
Welcome to the class! For today’s lesson, you will learn on about the partnership’s liquidation. But before
that, let’s have a pre-test first.
Directions: On the space before the number, write letter T if the statement/s is/are True, otherwise write letter
F.
_____ 1. The creditors of the partnership shall have priority in payments over those of the partners’ separate
creditors as regards the partnership properties.
_____ 2. Gains and losses on the sale of assets in liquidation are divided equally among partners.
_____ 3. A partnership may be dissolve without being liquidated but liquidation is always preceded by
dissolution.
_____ 4. The cash settlement of all liabilities is referred to as realization.
_____ 5. In liquidation, partners are given back the assets that they originally invested.
This document is the property of PHINMA EDUCATION
ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#6 & 7
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
“Check your answers against the Key to Corrections found at the end of this SAS. Write your score on your
paper.”
2) Activity 1: What I Know Chart, part 1 (3 mins)
Please write in the first column what you know about the questions in the second column. The third
column is left blank at this time.
What I Know Questions: What I Learned (Activity 4)
1. What is right of off-set?
2. What is a statement of
liquidation?
3. What is the order of priority in
settlement of claims?
B.MAIN LESSON
Activity 2: Content Notes (13 mins)
Partnership Liquidation
• Liquidation is the termination of business operations or the winding up of affairs. It is a process by which
a. the assets of the business are converted into cash,
b. the liabilities of the business are settled, and
c. any remaining amount is distributed to the owners.
Methods of liquidation
1. Lump-sum liquidation – the partners’ claims are settled in a single, lump-sum payment after all non-
cash assets are realized and after all liabilities are settled.
2. Installment liquidation – the partners’ claims are settled on an installment basis as non-cash assets are
realized and as cash becomes available, but only after all liabilities are fully settled.
Settlement of claims
2
This document is the property of PHINMA EDUCATION
ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#6 & 7
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
• The available cash of the partnership is used to settle claims in the following descending order:
1. First, to outside creditors;
2. Second, to inside creditors (e.g., payables to partners);
3. Third, to owners’ interests
4. Lump-sum vs. Installment liquidation
The following procedures shall be observed when accounting for lump-sum liquidation or installment liquidation:
This document is the property of PHINMA EDUCATION
ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#6 & 7
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
Marshalling of assets
• A partner who is solvent, shall be required to make additional contributions to settle any deficiency in his
capital balance, subject to the following order of priority over his personal assets:
1. The partner’s separate creditors
2. The partnership creditors
3. To the other partners by way of contribution
4. The capital deficiency of an insolvent partner shall be offset to the capital credits of the other
partners.
Activity 3: Skill-building Activities
Instruction: Answer what is asked in the following problems.
Lump-Sum Liquidation
1. On January 1, 20x1, the partners of ABC Co. decided to liquidate their partnership. The following information
was made available:
Cash 80,000
This document is the property of PHINMA EDUCATION
ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#6 & 7
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
Accounts receivable 240,000
Inventory 480,000
Equipment 1,200,000
Total 2,000,000
Accounts payable 120,000
Payable to B 80,000
A, Capital (20%) 400,000
B, Capital (30%) 600,000
C, Capital (50%) 800,000
Total 2,000,000
Information on the conversion of non-cash assets is as follows:
• ₱40,000 was collected on accounts receivable; the balance is uncollectible.
• ₱20,000 was received for the entire inventory.
• The equipment was sold for ₱200,000.
• ₱8,000 liquidation expenses were paid.
• ₱108,000 was paid to outside creditors, after offset of a ₱12,000 credit memorandum received on January
2, 20x1.
• All of the partners are personally solvent.
How much did B receive from the settlement of his interest in the partnership? ______________________
Statement of Liquidation – Installment
Problem: Assume W, X, Y and Z are partners sharing profits 40%, 20%, 20% and 20%, respectively. On
January 1, 2020 they agree to liquidate. A balance sheet prepared on this date is shown as follows:
Assets Liabilities and Capital
Noncash assets P 1,818,000 Liabilities P 840,000
A, Loan 60,000
D, Loan 30,000
A, Capital 264,000
B, Capital 258,000
This document is the property of PHINMA EDUCATION
ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#6 & 7
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
C, Capital 204,000
D, Capital 162,000
Total Assets P 1,818,000 Total Liab. And Capital P 1,818,000
The results of the liquidation are summarized below:
Cash
proceeds on Book value Cost of
2020 sale of of Noncash Liquidation Payment to Cash Payment to
Noncash assets sold expenses Creditors withheld Partners
assets paid
January P 720,000 P900,000 P 12,000 P 660,000 P 48,000 P 52,800
February 216,000 300,000 13,200 180,000 18,000 183,600
March 192,000 240,000 14,400 12,000 18,000
April 60,000 198,000 48,000 6,000
May 24,000 180,000 9,600
Distribution of cash to partners are normally done at month-end.
Required:
1. Prepare statement of liquidation for the month of January to May 2020.
2. Prepare schedule of safe payments to support the distribution of cash payment for the month of
January to May 2020.
3. Prepare cash payment (pre-distribution) priority program indicating the cash payment to each partner
for the month of January to May 2020.
4. Using the cash payment priority program indicate the vulnerability rankings for each in the event of loss
suffered by the partnership.
“Check your answers against the Key to Corrections found at the end of this SAS. Write your score on your
paper.”
This document is the property of PHINMA EDUCATION
ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#6 & 7
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
Activity 4: What I Know Chart, part 2 (2 mins)
For this part, review the questions in the What I Know Chart from Activity 1 and write your answers to the
questions based on what you now know in the third column of the chart.
Activity 5: Check for Understanding (Graded Quiz)
Problem 1.
Assuming the same information in Activity 8-3 and the partners have decided to liquidate their partnership by
installments instead of accepting the offer of P100,000. Cash is distributed to the partners at the end of each
month; a summary of the liquidation transactions follows:
July
1 P16,500 collected on accounts receivable; balance is uncollectible,
2 P10,000 received for the entire inventory.
3 P1,000 liquidation expense paid.
4 P17,000 paid to creditors.
5 P8,000 cash retained in the business at the end of the month.
August
6 P1,500 in liquidation expenses paid.
7 As part payment of his capital, F accepted an item of equipment that he develop, which had a book
value of P4,000. The partners agreed that a value of P10,000 should be place on this item for
liquidation purposes.
8 P2,500 cash retained in the business at the end of the month.
September
9 P75,000 received on sale of remaining plant and equipment.
10 P1,000 liquidation expenses paid. No cash retained in the business.
Required: Prepare a statement of partnership realization and liquidation with supporting schedules of safe
payments to partners.
Problem2.
The balance sheet of A, B and C Partnership on September 26, 2020, showed cash, P20,000; noncash
assets, P262,000; liabilities, P50,000; total partners’ capital, P232,000. On that date, the three partners
decided to dissolve and liquidate the partnership. The income-sharing ratio, which was to be used for gains
and losses from realization of noncash assets, and the partners’ capital account balances on September 26,
2020, were as follows (there were no loans receivable from or payable to the partners):
Income-sharing ratio Partners’ Capital
7
This document is the property of PHINMA EDUCATION
ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#6 & 7
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
A 40% P 60,000
B 20% 80,000
C 40% 92,000
Totals 100% P232,000
Required: Prepare a cash distribution program for A, B and C Partnership on September 26, 2020.
C. LESSON WRAP-UP
1) Activity 6: Thinking about Learning (5 mins)
Congratulations! You are done with this lesson. Mark your place in the work tracker which will help you
track how much work you have accomplished and how much work there is left to do.
How do you feel today?
I feel (unsatisfactory/satisfactory/excellent) because ______________________________________________
What are your challenges in learning the concepts in this module? If you do not have challenges, what is your
best learning for today?
________________________________________________________________________________________
________________________________________________________________________________________
What are the questions/thoughts you want to share to your teacher today?
________________________________________________________________________________________
________________________________________________________________________________________
FAQs
1. Is liquidation voluntary or involuntary?
Liquidation may be either voluntary (e.g., per agreement of partners of a solvent partnership) or
involuntary (e.g., bankruptcy)
2. What is the realizable values?
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This document is the property of PHINMA EDUCATION
ACC110: ACCOUNTING FOR SPECIAL TRANSACTIONS Part 1
Student Activity Sheet Module#6 & 7
Name: _________________________________________________________________ Class number: _______
Section: ____________ Schedule: ________________________________________ Date: ________________
The estimated selling price less estimated cost to sell.
3. What is cash priority program and when will you prepare this schedule?
This schedule determines which partner shall be paid first and which partner shall be paid last, after all
the liabilities are settled and this can be prepared even prior to sale of any asset.
4. What is safe payment schedule?
It shows how much cash can be safely paid to the partners during instalment liquidation, which avoids
any overpayment.
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