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    AFAR Partnership Accounting P2

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    lemisahirine
    This document discusses partnership dissolution and liquidation. It covers the four forms of partnership dissolution: admission, retirement/withdrawal, death, and incorporation. For each form, it outlines how adjusted capital accounts and partnership interests are calculated. It also discusses the two methods for partnership liquidation: lump sum liquidation and installment liquidation. The priority of payments and capital absorption rules are explained for both liquidation methods.

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    AFAR Partnership Accounting P2

    Uploaded by

    lemisahirine
    65 views8 pages
    This document discusses partnership dissolution and liquidation. It covers the four forms of partnership dissolution: admission, retirement/withdrawal, death, and incorporation. For each form, it outlines how adjusted capital accounts and partnership interests are calculated. It also discusses the two methods for partnership liquidation: lump sum liquidation and installment liquidation. The priority of payments and capital absorption rules are explained for both liquidation methods.

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    This document discusses partnership dissolution and liquidation. It covers the four forms of partnership dissolution: admission, retirement/withdrawal, death, and incorporation. For each form, it outlines how adjusted capital accounts and partnership interests are calculated. It also discusses the two methods for partnership liquidation: lump sum liquidation and installment liquidation. The priority of payments and capital absorption rules are explained for both liquidation methods.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    65 views8 pages

    AFAR Partnership Accounting P2

    Uploaded by

    lemisahirine
    This document discusses partnership dissolution and liquidation. It covers the four forms of partnership dissolution: admission, retirement/withdrawal, death, and incorporation. For each form, it outlines how adjusted capital accounts and partnership interests are calculated. It also discusses the two methods for partnership liquidation: lump sum liquidation and installment liquidation. The priority of payments and capital absorption rules are explained for both liquidation methods.

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    © All Rights Reserved
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    AFAR: Partnership Accounting Part 2

    III. PARTNERSHIP DISSOLUTION


    Also known as reformation The old partnership will die and a new partnership will be born
    Partnership has a limited Increase/decrease in the number of partners – the partnership will be dissolved
    life But the operation will continue
    1.) Admission
    4 Forms of Partnership 2.) Retirement/withdrawal
    Dissolution 3.) Death
    4.) Incorporation
    General Rule: Ignored [Formation, Operation, Dissolution (Admission)]
    XPN:
    1.) Due to/Pay to/Advances from/Salaries Payable
    - Liabilities of the partnership to a certain partner
    - Not considered as additional investment
    Partners’ Loans
    - ADDED TO CAPITAL
    2.) Due from/Receivable from/Advances to
    - Receivables of the partnership from a partner
    - Not considered as withdrawal
    - DEDUCTED TO CAPITAL
    III. PARTNERSHIP DISSOLUTION
    • Retirement
    XPN:
    Partners’ Loans • Death
    1.) Dissolution
    (contd) • Incorporation
    2.) Liquidation

    DISSOLUTION BY ADMISSION
    Additional partner
    1.) Admission by - Purchase Price is NOT recorded in the partnership books
    purchase of interest - X TCC
    - 2 Methods:
    1.) Revaluation Method TAC = Purchase Price
    - stipulated in the problem Interest Acquired
    2 Scenarios - TCC ≠ TAC
    2.) Transfer of Capital
    - silent!
    - TCC = TAC
    - Invested cash is recorded in the partnership books
    2.) Investment
    - ✓ TCC
    DISSOLUTION BY ADMISSION
    2.) Investment TCC = TAC
    1.) Net Investment Method
    (3 Methods) NPCC = NPAC
    TCC = TAC
    2.) Bonus Method
    (contd) NPCC – New Partners’ NPCC ≠ NPAC
    Contributed Capital
    NPAC – New Partners’ 3.) Revaluation Method TCC ≠ TAC
    Agreed Capital
    Allocate: (only to EXISTING partners)
    Before Admission: 1.) Unallocated Net Income
    2.) Revaluation
    DISSOLUTION BY RETIREMENT/WITHDRAWAL
    Adjusted Interest (AI) Settlement Price (SP)
    Cash XX - Cash paid to the retiring partner (inclusive of
    Loans XX(XX) partner’s loans)
    Unallocated P/L XX(XX) – up to the date or retirement
    Allocate:
    Asset Rev. XX(XX) Before
    1.) Unallocated Net Income
    Adj. Interest XX Retirement:
    2.) Revaluation

    IF AI = SP
    AI < SP
    No bonus
    Bonus to RETIRING Partner
    AI > SP Bonus to REMAINING Partner
    DISSOLUTION BY DEATH OF A PARTNER
    Adjusted Interest (AI) Reclassified into a liability account
    Cash XX - NO share in subsequent P/L
    Loans XX(XX) - Right on interest – expense
    Unallocated P/L XX(XX) – up to the date or retirement - Interest = PRT
    Asset Rev. XX(XX) - up to the date of payment or BS Date whichever
    Adj. Interest XX is EARLIER

    Allocate:
    1.) Unallocated Net Income
    2.) Revaluation
    Before Death:
    Deceased partner is an existing
    partner

    DISSOLUTION BY INCORPORATION
    Partnership Corporation
    - Partners’ Capital - Share Capital + Share Premium
    DISSOLUTION BY INCORPORATION
    Partnership Corporation
    Adjusted Interest (AI) Priority:
    Cash XX 1.) Share Capital - @ par value
    Loans XX(XX) 2.) Share Premium - excess
    Unallocated P/L XX(XX) – up to the date or retirement
    Asset Rev. XX(XX)
    Adj. Interest XX
    IV. PARTNERSHIP LIQUIDATION
    - Internal Affairs (Partners)
    - Winding up of the affairs
    - External Affairs (Creditors)
    2 Step Process:
    - Settle 1.) Realization
    - Break up - conversion of Non Cash Assets to Cash
    - Stop Operation - Lump Sum or Installment
    2.) Liquidate
    1.) Lump Sum Liquidation
    2 Methods
    2.) Installment Liquidation
    1.) Creditors (External)
    Priority 2.) Loans (Internal)
    3.) Capital (Internal)
    IV. PARTNERSHIP LIQUIDATION
    Unlimited Liability Partners are liable up to the extent of their personal assets (General Partners)
    Hierarchy of Personal Assets of 1.) Personal Liabilities
    General Partner 2.) Partnership Creditors
    2 Scenario:
    General Partner 1.) Solvent (Personal Assets > Personal Liability)
    2.) Insolvent (Personal Assets < Personal Liability)
    Limited Partner Are liable up to their contribution to the partnership

    Partnership Lumpsum Liquidation (SoriaNotes)


    Step 1: Sell all Non Cash Assets
    Step 2: Allocate any gain or loss on realization
    Eliminate any capital deficiency – negative capital balance
    How? (Priority)
    (Right of offset – negative capital balance offset against notes)
    1.) Additional Investment
    Step 3:
    Requisites: General and Solvent Partner
    2.) Capital Absorption
    1.) Positive Capital Balance
    2.) Zero Capital Balance (General and Solvent Partner)
    Step 5: Pay the partners
    Step 4: Pay all creditors
    Partnership Installment Liquidation (SoriaNotes)
    Step 1: Sell Non Cash Assets
    Step 2: Allocate any gain or loss on realization and liquidation expenses
    Eliminate any capital deficiency – negative capital balance
    How? (Priority)
    (Right of offset – negative capital balance offset against notes)
    1.) Additional Investment
    Step 3:
    Requisites: General and Solvent Partner
    2.) Capital Absorption
    1.) Positive Capital Balance
    2.) Zero Capital Balance (General and Solvent Partner)
    Step 4: Pay all creditors Cash balance, beg XX
    Distribute remaining cash to partners Proceeds from Sale of NCA XX
    2 Possible Schedule or Programs:
    Step 5: Liquidation Expenses (XX)
    1.) Schedule of Safe Payments
    2.) Cash Priority Program All liabilities (XX)
    Step 6: Repeat Step 1-5 until all NCA are sold Cash Withheld (XX)
    Cash Available For Distribution (CAFD) XX
    Schedule of Safe Payments (SoriaNotes)
    Step 1: Determine the capital interest of the partners
    Compute the maximum possible loss
    Step 2: 1.) Carrying Amount of NCA unsold
    2.) Cash Withheld for future liquidation expenses
    Step 3: Any capital deficiency shall be eliminated using capital absorption ONLY

    Cash Priority Program (SoriaNotes)


    Step 1: Determine the capital interest of the partners
    Divide by their P/L Ratio
    Step 2:
    - To determine the Maximum Loss Absorption Capacity
    Step 3: Determine the Priority Partner
    Deduct the balance per priority partner to arrive at an equal capital balance with the least priority
    Step 4:
    partner
    Priority Shall be determined by multiplying the P/L Ratio to the amount deducted to the capital balance

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