Week2 Partnership Dissolution & Liquidation Flashcards
(29 cards)
Which of the following statements pertains to partnership dissolution?
A. It refers to the process of converting the non-cash assets of the partnership and distributing the total cash to the creditors and the remainder to the partners.
B. It refers to the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the partnership.
C. It refers to the extinguishment of the juridical personality of the partnership.
D. It refers to the end of the life of the partnership.
B. It refers to the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the partnership.
Which of the following statements is correct when a new partner is admitted to an existing partnership by purchasing a portion of the capital interest of an existing partner?
A. It will result in revaluation or impairment of the existing assets of the partnership.
B. The partnership will recognize a gain or loss in the transfer of capital from one partner to another partner.
C. The partnership is not dissolved by the admission of a new partner by purchase.
D. It will just result in a credit to the capital of the newly admitted partner with the corresponding debit to the capital of the selling partner.
D. It will just result in a credit to the capital of the newly admitted partner with the corresponding debit to the capital of the selling partner.
If a partner who retired from the partnership receives less than the capital balance before retirement, which also results in to decrease in the capital balance of the remaining partners, is correct?
A. The retiring partner receives a bonus from the remaining partner.
B. There is an overvalued asset to be adjusted before retirement.
C. There is an undervalued asset to be adjusted before retirement.
D. The retiring partner gives a bonus to the remaining partner.
B. There is an overvalued asset to be adjusted before retirement.
In case of admission of a new partner in an existing partnership through investment to the partnership, which of the following scenarios will result in a bonus to the new partner and asset revaluation?
A. The total contributed capital of all partners is equal to the total agreed capital of the new partnership, while the agreed capital of the new partner is higher than the amount he has contributed.
B. The total contributed capital of all partners is more than the total agreed capital of the new partnership, while the agreed capital of the new partner is lower than the amount he has contributed.
C. The total contributed capital of all partners is less than the total agreed capital of the new partnership, while the agreed capital of the new partner is higher than the amount he has contributed.
D. The total contributed capital of all partners is more than the total agreed capital of the new partnership, while the total agreed capital of old partners is equal to the amount they contributed.
C. The total contributed capital of all partners is less than the total agreed capital of the new partnership, while the agreed capital of the new partner is higher than the amount he has contributed.
It refers to the process of converting the non-cash assets of the partnership and distributing the total cash to the creditors and the remainder to the partners.
A. Dissolution
B. Termination
C. Liquidation
D. Operation
C. Liquidation
What is the nature of the liability of general partners as to partnership debts or obligations?
A. They are liable equally up to the extent of their separate assets after the partnership assets are exhausted.
B. They are liable pro-rata up to the extent of their separate assets after the partnership assets are exhausted.
C. They are liable pro-rata up to the extent of their capital contribution only.
D. They are liable solidarily up to the extent of their separate assets after the partnership assets are exhausted.
B. They are liable pro-rata up to the extent of their separate assets after the partnership assets are exhausted.
In the liquidation of a general partnership, which of the following credits shall be paid first?
A. Those owing to third persons.
B. Those owing to partners other than capital and profits.
C. Those owing to partners for their capital contribution.
D. Those owing to partners for their share in profits.
A. Those owing to third persons.
Maximum possible loss is composed of the book value of the unrealized non-cash assets and
A. cash withheld for future liquidation expenses
B. cash withheld for outside creditors
C. cash withheld for payment to partners
D. cash withheld for payment of loans
A. cash withheld for future liquidation expenses
Partners P and Q had capital balances of P1,434,000 and P1,200,000, respectively, before admitting R. P and Q share profit and loss in the ratio 6:4. R paid P900,000 in exchange for 30% interest in the partnership as well as the profit and loss.
- Compute the capital of partner P after the admission of R.
A. 1,003,800
B. 1,002,360
C. 1,117,920
D. 1,078,320 - If the equipment is undervalued, compute the capital balance of partner Q after the admission of R
A. 1,346,400
B. 942,480
C. 1,342,400
D. 822,480
- A. 1,003,800
- B. 942,480
X and Y have capital balances of P600,000 and P720,000, respectively. Z is to invest P240,000 for 15% in the partnership interest and also in the profit and loss. There is an undistributed net income in the amount of P320,000. Partners X and Y share profit and loss 65:35.
- Compute the capital credit of Z upon his admission.
A. 240,000
B. 246,000
C. 288,000
D. 282,000 - If the equipment is overvalued, compute the share of partner Y in the overvaluation of the equipment.
A. 98,000
B. 182,000
C. 42,000
D. 112,000
- D. 282,000
- A. 98,000
Partners E, F, and G had capital balances of P720,000, P930,000, and P690,000, respectively. Partners E and G had the following loan balances: Loan from E, P120,000, and Loan to G, P90,000. The partnership generated a net loss of P840,000 during the year. The partners share profit and loss 2:5:1, respectively.
Due to disagreement, partner F wanted out of the partnership. Before retirement, the value of inventory increased from P510,000 to P582,000. The partners decided to pay partner F P420,000 upon retirement.
- Compute the capital balance of partner G after the retirement of partner F.
A. 600,000
B. 597,000
C. 604,000
D. 591,000 - Assume that the equipment is overvalued. Compute the overvaluation of the equipment.
A. 30,000
B. 15,000
C. 48,000
D. 24,000 - In relation to No. 2, compute the capital balance of Partner E after the retirement of Partner F.
A. 548,000
B. 508,000
C. 534,000
D. 516,000
- C. 604,000
- C. 48,000
- D. 516,000
On December 31, 2024, the Statement of Financial Position of DEL Partnership shows the following data with profit or loss sharing of 1:3:6:
Cash P25,000,000
Noncash Asset 75,000,000
Total Liabilities P50,000,000
D, Capital 25,000,000
E, Capital 15,000,000
L, Capital 10,000,000
On January 1, 2025, A will be admitted to the new partnership named ADEL Partnership by investing P20,000,000 for a 30% capital interest in the new partnership, which has a total agreed capitalization of P100,000,000.
Compute the new capital balance of L upon the admission of A in the ADEL Partnership.
A. 22,000,000
B. 42,000,000
C. 28,000,000
D. 16,000,000
A. 22,000,000
C and D have capital balances of P 4,480,000 and P 3,600,000, respectively. Both decided to admit E into their partnership. He invested enough cash to have a 20% interest in the partnership. The profit and loss ratio of the old partners is 3:2, respectively. After the admission of E, the capital balance of D amounted to P 3,960,000.
Compute the amount of cash invested by E.
A. 2,665,000
B. 900,000
C. 2,245,000
D. 3,145,000
D. 3,145,000
Ways a partnership can be dissolved
- Admission
- Retirement
Ways/kinds of Admission
- Purchase of interest
- Investment
Bisag unsay way of dissolving, there are always 2 scenarios
- Asset revaluation <- dapat explicitly said
a. Before admitting/retiring a partner, the partnership must adjust first all assets needed to be revalued - No asset revaluation/Silent
a. Purchase of interest
i. Simple transfer of capital
ii. Total contributed capital = total agreed capital
b. Investment
i. Bonus method
ii. Total contributed capital = total agreed capital
c. Retirement
i. Bonus method
When maka ingon naay
1. Bonus to new partner
2. Bonus to old partner
in investment and retirement
Bonus method (Investment):
1. Bonus to new partner
a. Contribution < Capital Credit, thus the capital of new partner increases, capital of old partners decreases
2. Bonus to old partners
a. Contribution > Capital Credit, thus the capital of new partner decreases, capital of old partners increases
Bonus method (Retirement):
1. Bonus to retiring partner
a. The amount paid of the partnership > interest of the retiring partner, and the capital of remaining partner decreases.
2. Bonus to remaining partners
a. The amount paid of the partnership < interest of the retiring partner, and the capital of remaining partner increases.
Unsay general rule in admission/retirement
- Distribute any undistributed NI/(NL)
- Adjust any assets/liabilities needed to be revalued
What to do sa loan balance in
1. admission
2. retirement
- Admission - ignore
- Retirement - only include to the retiring partner
The following condensed Statement of Financial Position is for the WP, FG, and KL partnership. The partners share profits and losses in the ratio of 5:3:2, respectively.
Cash P 750,000
Inventory 600,000
Other Assets 1,800,000
Total Assets P 3,150,000
Liabilities P 1,620,000
WP, Capital 600,000
FG, Capital 510,000
KL, Capital 420,000
Total L & Eq P 3,150,000
The partners have decided to liquidate the business. Liquidation expenses are estimated to be P48,000. The other assets were sold for P1,080,000, and the inventories were considered a loss.
What distribution can be made to the partners?
WP FG KL A. 84,000 39,600 38,400 B. 0 49,200 112,800 C. 24,000 38,400 99,600 D. 0 50,400 111,600
B. 0 49,200 112,800
The Statement of Financial Position of LMN Partnership on December 31, 2024, is as follows:
ASSETS
Cash 800,000
Other Assets 2,000,000
Total Assets 2,800,000
LIAB & OE
Liabilities 1,000,000
L, Loan 280,000
L, Capital 800,000
M, Capital 120,000
N, Capital 600,000
Total Liab & OE 2,800,000
They share profits and losses 40:40:20, respectively. Cash is realized for Other Assets as follows, and amounts realized are distributed at the end of each month to the appropriate parties.
2025 BV Cash Proceeds
Jan 1,200,000 1,040,000
Feb 800,000 920,000
Compute the total cash distribution to L in January.
A. 520,000
B. 696,000
C. 320,000
D. 0
A. 520,000
On December 31, 2024, the Statement of Financial Position of ABC Partnership shows the following data with profit or loss sharing of 2:3:5:
Cash P 90,000,000
Other Non Cash asset 240,000,000
Liabilities to others P120,000,000
A, Capital 90,000,000
B, Capital 75,000,000
C, Capital 45,000,000
On January 1, 2025, the partners decided to wind up the partnership affairs. During the winding up, liquidation expenses amounting to P12,000,000 were paid. Non-cash assets with a book value of P180,000,000 were sold during January. Sixty percent of the total liabilities were still unpaid at the end of January. P18,000,000 cash was withheld during January for future liquidation expenses. On January 31, 2025, partner A received P60,000,000. All partners are insolvent.
- Compute the amount received by partner B on January 31, 2025
A. 15,000,000
B. 30,000,000
C. 45,000,000
D. 18,000,000 - Using the same information, compute the proceeds from the sale of non-cash assets during
January 2025.
A. 132,000,000
B. 120,000,000
C. 150,000,000
D. 138,000,00
- B. 30,000,000
- C. 150,000,000
The statement of financial position for the partnership of B, C, and D, who share profits in the ratio of 2:1:1, shows the following balances just before the liquidation:
Cash P 96,000
Other assets 476,000
Liabilities 392,000
B, capital 176,000
C, capital 124,000
D, capital (120,000)
On the first installment of the liquidation, a gain of P68,200 was realized from the sale of certain assets. Liquidation expenses of P8,000 were paid, and additional liquidation expenses are anticipated. Liabilities paid amounted to P275,200. The remaining book value of other assets is P12,400. On the first payment to partners, B receives P50,000.
Compute the amount of cash withheld for anticipated liquidation expenses and unpaid liabilities.
A. 91,800
B. 116,800
C. 208,600
D. 233,600
D. 233,600
The partnership liquidates gradually, distributing cash to partners in stages as assets are sold and liabilities are settled.
- Sale of certain non cash assets and distribution of any gains or losses among the partners using their profit and loss ratio
- Pay liquidation expenses during the period, if any, and divide these among the partners using their profit and loss ratio
- Pay the liabilities to outsiders. Liabilities should be paid in full, or cash sufficient to ensure payment of all liabilities, including anticipated liquidation expenses, should be withheld.
- Distribute cash to the partner after possible future losses have been divided among partners using either a cash priority program or safe payments.
Installment Liquidation
