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Partnerships: Liquidation

Baker / Lembke / King. 1 6. Partnerships: Liquidation. Major Causes of a Dissolution. A new partner is admitted or a partner withdraws. The specified term or task of the partnership has been completed. All partners agree to dissolve the partnership.

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Partnerships: Liquidation

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  1. Baker / Lembke / King 16 Partnerships: Liquidation

  2. Major Causes of a Dissolution • A new partner is admitted or a partner withdraws. • The specified term or task of the partnership has been completed. • All partners agree to dissolve the partnership. • The partnership or an an individual partner is bankrupt. • By court degree: • A partner is declared insane. • A partner seriously breaches the partnership agreement. • The court determines that a partnership may be operated only at a loss.

  3. Partnership Terminates Immediately if-- • A court so decrees. • The partnership is bankrupt. • The partnership’s business becomes illegal.

  4. Claims Against the Partnership Assets • Partnership creditors other than partners. • Partners’ claims other than capital and profits, such as loans payable and accrued interest payable. • Partners’ claims to capital or profits, to the extent of credit balances in capital accounts.

  5. Claims Against Personal Assets • Personal creditors of individual partners. • For general partners, partnership creditors for unpaid partnership liabilities, regardless of partner’s capital balance in the partnership.

  6. Basic Facts at Liquidation Partners Aldi Bayu Citra Profit and loss percentage 40% 40% 20% Partnership capital account Rp34,000,000 Rp10,000,000 Rp14,000,000 Aldi Bayu Citra Personal assets Rp150,000,000 Rp12,000,000 Rp42,000,000 Personal liabilities (86,000,000) (16,000,000)(14,000,000) Net worth (deficit) Rp 64,000,000 Rp (4,000,000) Rp28,000,000

  7. Trial Balance on Liquidation Date ABC Partnership Trial Balance May 1, 19X5 Cash Rp 10,000,000 Noncash Assets 90,000,000 Liabilities Rp 42,000,000 Aldi, Capital (40%) 34,000,000 Bayu, Capital (40%) 10,000,000 Citra, Capital (20%) 14,000,000 Total Rp100,000,000 Rp100,000,000

  8. Partnership Solvent--No Deficits Sale of assets and distri- bution of Rp10 loss 80 (90) 4 4 2 90 -0- (42) (30) (6) (12) Payment to o/s creditors (42) 42 48 -0- -0- (30) (6) (12) ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000’000) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%. Preliquidation balances 10 90 (42) (34) (10) (14) Lump-sum payments to partners: Partners’ capital (48) 30 6 12 Postliquidation balance -0- -0- -0- -0- -0- -0-

  9. Partnership Solvent--No Deficits May 15, 19X5 Cash 80,000,000 Aldi, Capital 4,000,000 Bayu, Capital 4,000,000 Citra, Capital 2,000,000 Noncash Assets 90,000,000 Distribution of Rp10,000,000 loss May 20, 19X5 Pay outside creditors Liabilities 40,000,000 Cash 40,000,000 May 30, 19X5 Aldi, Capital 30,000,000 Bayu, Capital 6,000,000 Citra, Capital 12,000,000 Cash 48,000,000 Lump-sum payments to partners

  10. Partnership Solvent--Deficit Created Sale of assets and distri- bution of Rp55 loss 35 (90) 22 22 11 45 -0- (42) (12) 12 (3) Payment to o/s creditors (42) 42 3 -0- -0- (12) 12 (3) ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%. Preliquidation balances 10 90 (42) (34) (10) (14) Distribution of deficit of insolvent partner: (12) 40/60 x Rp12 8 20/60 x Rp12 4 (to next slide) 3 -0- -0- (4) -0- 1

  11. Partnership Solvent--Deficit Created Contribution by Citra to remedy capital deficit 1 (1) 2 -0- -0- (4) -0- -0- ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%. (from previous slide) 3 -0- -0- (4) -0- 1 Lump-sum payments to partners: Partner’s capital (4) 4 Postliquidation balance -0- -0- -0- -0- -0- -0-

  12. Partnership Insolvent--Deficit Created Sale of assets and distri- bution of Rp70 loss 20 (90) 282814 30 -0- (42) (6) 18 -0- ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%. Preliquidation balances 10 90 (42) (34) (10) (14) Distribution of deficit of insolvent partner: (18) 40/60 x Rp18 12 20/60 x Rp18 6 30 -0- (42) 6 -0- 6 (to next slide)

  13. Partnership Insolvent--Deficit Created Contribution by Citra 12(6) (6) 42 -0- (42) -0- -0- -0- ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%. (from previous slide) 30 -0- (42) 6 -0- 6 Payment to outside creditors (42) -0-42-0--0--0- Postliquidation balances -0- -0- -0- -0- -0- -0-

  14. Installment Liquidation--May 19X5 Sale of assets and distri- bution of Rp10 loss 45 (55) 4 4 2 55 35 (42) (30) (6) (12) Payment to o/s creditors (42) 42 13 35 -0- (30) (6) (12) Safe payment to partners ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%. Preliquidation balances 10 90 (42) (34) (10) (14)

  15. Schedule of Safe Payments to Partners ABC Partnership Schedule of Safe Payments to Partners, May 31, 19X5 Partner Aldi. Bayu Citra 40% 40% 20% Capital balances, May 31,before cash distr. (30,000,000) (6,000,000) (12,000,000) Assume full loss of Rp35,000,000 on remaining noncash assets and Rp10,000,000 in possible future liquidation expenses 18,000,00018,000,000 9,000,000 (12,000,000) 12,000,000 (3,000,000) Assume Bayu’s potential deficit must be absorbed by Aldi and Citra: (12,000,000) 40/60 x Rp12,000,000 8,000,000 20/60 x Rp12,000,000 4,000,000 (4,000,000) -0- 1,000,000 Assume Citra’s potential deficit must be absorbed by Aldi 1,000,000 (1,000,000) Safe payment to partners, May 31 (3,000,000) -0- -0-

  16. Installment Liquidation--May 19X5 Sale of assets and distri- bution of Rp10 loss 45 (55) 4 4 2 55 35 (40) (30) (6) (12) Payment to o/s creditors (42) 42 13 35 -0- (30) (6) (12) Safe payment to partners (3) 3 (to next slide)10 35 -0- (27) (6) (12) ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%. Preliquidation balances 10 90 (42) (34) (10) (14)

  17. Installment Liquidation--June 19X5 Sale of assets and dis- tribution of Rp15 loss 15 (30) 6 6 3 25 5 -0- (21) -0- (9) Safe payment to partners ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%. (from previous slide)10 35 -0- (27) (6) (12)

  18. Schedule of Safe Payments to Partners ABC Partnership Schedule of Safe Payments to Partners, June 30, 19X5 Partner Aldi. Bayu Citra 40% 40% 20% Capital and loan balances, June 30(21,000,000) -0- (9,000,000) Assume full loss of Rp5,000,000 on remaining noncash assets and Rp10,000,000 in possible future liquidation expenses 6,000,000 6,000,000 3,000,000 (15,000,000) 6,000,000 (6,000,000) Assume Bayu’s potential deficit must be absorbed by Aldi and Citra: (6,000,000) 40/60 x Rp6,000,000 4,000,000 20/60 x Rp6,000,000 2,000,000 Safe payment to partners, June 30 (11,000,000) -0- (4,000,000)

  19. Installment Liquidation--June 19X5 ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%. (from Slide 17) 10 35 -0- (27) (6) (12) Sale of assets and dis- tribution of Rp15 loss 15 (30) 6 6 3 25 5 -0- (21) -0- (9) Safe payment to partners (15) 114 (to next slide) 10 5 -0- (10) -0- (5)

  20. Installment Liquidation--July 19X5 Payment of Rp7,5 in liquidation cost (7.5) 3 31.5 7.5 -0- -0- (7) 3 (3.5) ABC Partnership Statement of Partnership Realization and Liquidation Lump-Sum Liquidation (in 000,000) Noncash Aldi, Cap. Bayu, Cap Citra, Cap. Cash Assets Liab. 40% 40% 20%. (from previous slide) 10.0 5 -0- (10) -0- (5.0) Sale of assets at book value 5.0 (5) 15.0 -0- -0- (10) -0- (5.0) Distribution of deficit of insolvent partner: (3) 40/60 x Rp3 2 20/60 x Rp3 1 7.5 -0- -0- (5) -0- (2.5) Payment to partners (7.5) 5 2.5

  21. Cash Distribution Plan (in Rp000) Decrease highest LAP to next-highest: Decrease Aldi by Rp15,000,000 (cash distribution of Rp6,000,000) 15,000,000 (70,000,000) (25,000,000) (70,000,000) Aldi Bayu Citra Profit and loss sharing percentage 40% 40% 20% Capital and loan balances (34,000,000) (10,000,000) (14,000,000) Loss absorption power (LAP) [(Capital + loan balances)  Profit %] (85,000,000) (25,000,000) (70,000,000) Decrease LAP to next-highest level: Decrease Aldi by Rp45,000,000, 45,000,000 (cash distribution of Rp22,000,000) Decrease Citra by Rp45,000,000 45,000,000 (cash distribution of Rp11,000,000) (25,000,000) (25,000,000) (25,000,000) Further payments40% 40% 20%

  22. Citrapter Seventeen The End

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