CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING GERMAN/LIM/VALIX/MARASIGAN

PARTNERSHIP LIQUIDATION

Part I: Theory of Accounts

1. Statement 1. In a partnership installment liquidation, using either a safe payment or cash

distribution plan, cash is distributed to partners based on their ability to absorb losses.

Statement 2. In the cash distribution plan the partner with the lowest amount of total interest is
the non-priority partner.
a. Only the first statement is true
b. Only the second statement is true
c. Both statements are true
d. Both statements are false

2. Statement 1. In the preparation of a schedule of safe payments to partners, cash withheld for
liquidation expenses that may be incurred and unrecorded liabilities that may be discovered are
treated as total loss on realization.

Statement 2. In a partnership liquidation, cash withheld for payment of liabilities to outside

creditors is not part of the maximum possible loss under the safe payment to partners.
a. Only the first statement is true
b. Only the second statement is true
c. Both statements are true
d. Both statements are false

3. Statement 1. In an installment liquidation, a partner whose share in the maximum possible loss is
greater than his total interest will not receive cash for that period but may receive distributions
from the partnership by the next period.

Statement 2. In a partnership liquidation, with more than one deficient partner, the deficient
partner who is also insolvent is the first to be eliminated in the distribution of cash.
a. Only the first statement is true
b. Only the second statement is true
c. Both statements are true
d. Both statements are false

4. Statement 1. In a total liquidation, a partner with a debit balance pre-liquidation capital shall not
receive any distribution from the partnership.
Statement 2. In a total liquidation, gain or loss on realization of non-cash assets is distributed to
all partners with a credit capital balance only.
a. Only the first statement is true
b. Only the second statement is true
c. Both statements are true
d. Both statements are false

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Part II: Problem Solving

Problem 1. On December 31, 2022, the Statement of Financial Position of DEF Partnership with
profit or loss ratio of 1:4:5 of partners D, E and F respectively revealed the following data:

Cash 2,500,000 Liabilities 5,000,000

Non Cash assets 6,250,000 D, Capital 1,750,000
E, Capital 1,250,000
F, Capital 750,000

On January 1, 2023, the partners decided to liquidate the partnership. All partners are legally declared
to be personally insolvent. The noncash assets were sold for P4,500,000. Liquidation expenses
amounting to P750,000 were incurred and paid.

Compute the amount of cash received by Partner D after liquidation

a. 1,750,000
b. 1,400,000
c. 1,500,000
d. 1,250,000

Problem 2. On September 30, 2023, The J, K and L Partnership had the following fiscal year-end
Statement of Financial Position.

Cash P240,000 Accounts Payable P 420,000

Accounts Receivable 360,000 Loan from L 300,000
Merchandise 840,000 J, Capital (20%) 840,000
Equipment, net 720,000 K, Capital (20%) 600,000
Loan to J 360,000 L, Capital (60%) 360,000
P2,520,000 P2,520,000

The partners dissolved the partnership on October 1, 2023 and began the liquidation process. During
October the following events occurred:

a. Accounts receivables of P180,000 were collected

b. All the merchandise were sold for P240,000.
c. Cash withheld for liquidation expenses that may be incurred amount to P120,000

Compute the amount of cash K would receive in the first distribution

a. 0
b. 24,000
c. 72,000
d. 120,000

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Problem 3. On December 31, 2023, the accounting records of T, V and C Partnership included the
following ledger account balances:

Receivable from T P264,000 T, Capital P1,107,000

Loan to C 81,000 V, Capital 905,000
Salary payable to V 270,000 C, Capital 972,000

Total assets include cash amounting to P469,000. The partnership was liquidated on December 31,
2023, and T received P703,000 cash pursuant to the liquidation. T, V and C share net income and
losses in a 5:3:2 ratio, respectively.
In the settlement to partners, compute the amount of cash paid to V
a. 1,175,000
b. 1,084,000
c. 1,091,000
d. 0

Problem 4. On December 31, 2022, the Statement of Financial Position of LMN Partnership shows
the following data with profit or loss sharing of 2:3:5:

Cash P 3,750,000 Liabilities to others P5,000,000

Other Non Cash asset 10,000,000 L, Capital 3,750,000
M, Capital 3,125,000
N, Capital 1,875,000

On January 1, 2023, the partners decided to wind up the partnership affairs. During the winding up,
liquidation expenses amounting to P500,000 were paid. Non-cash assets with book value of P7,500,000
were sold during January. Forty percent of the total liabilities were also paid during January.
P750,000 cash was withheld during January for future liquidation expenses. On January 31, 2023,
partner L received P2,500,000. All partners are insolvent.

1. Compute the amount received by partner M on January 31, 2023

a. 625,000
b. 1,250,000
c. 1,875,000
d. 750,000

2. Using the same information, Compute the proceeds from the sale of non-cash assets during
January 2023?
a. 5,500,000
b. 5,000,000
c. 6,250,000
d. 5,750,000

END

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